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 the fourth quarter of 2022. My name is Zhou Shen, Spokesman and Associate Vice President of Finance in WinSemi. Joining me today on today's call are Our CEO Kyle Chen and our General Manager of Corporate Administration Steve Chen Today's call is organized into three sections First of all our CEO Kyle will comment on the company's results for fourth quarter of 2022 and provide the brief guidance for the first quarter of 2023 Secondly I will go through the financials in details, and Kyle will have the industry outlook to share with you. 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 Department 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. 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. Kyle Chen, our CEO in Winsand.

Joe, thank you. And welcome everyone to join the Wins investors call today. In the first quarter of 2022, Given the continuous inventory adjustment in the global entry smartphone market WinSemi's consolidated revenue was $3.53 billion which was down 10% quarter-on-quarter and 51% year-on-year as previously expected Due to the decline in the demand, our capacity utilization rate further declined to 30%. However, as our product needs improved slightly from the previous quarter and expenses were under well control, our growth margin was 22.1%. and operation margin was 0.5%. On the other hand, our net profit was impacted by the non-operating losses including the coin exchange and the disposal of the plans by our subsidiary to adjust its operating scale. And therefore, the EPS for the fourth quarter was minus 4.22 NT dollars For the full year of 2022 our revenue was 18.33 billion NT dollars which was 30% down year on year and EPS the whole year was 4.21 NT dollars Looking at the programming in the fourth quarter which we see received a few large orders from the cellular PA also and the Wi-Fi PA as well at the end of the 2022. But volume is not continued. We also see that the cellular PA revenues still have the largest sequential decline among all product categories. 3D sensing revenue also declined from the previous half-season quarter, which was traditionally strong first season with new product launch. Although the infrastructure revenue was also slightly below the previous quarter, it has surpassed the failure period and become the largest revenue contributor in the quarter. Wi-Fi revenue also increased slightly but not too big Driven by some customers' inventory restocking In respect to the year 2022 the war between Russia and Ukraine was still ongoing China experienced a surge in COVID infections across the country after strictly epidemic control was lifted and the trade tension between the U.S. and China was intensified. These have disrupted the global supply chain. And meanwhile, inflation also impacts the end customer demand. Comparing with 2022 to previous year, 2021, in terms of product mischange, consumer-related applications, including the cellular PA, Wi-Fi PA, and 3D sensing, all experienced varying degrees of decline, given some of the macro environment. Comparatively, the non-consumer applications related infrastructure segment increased slightly from the previous year. And here I would like to say some good news is that Getty Nitride, our product, sorry, our founding service revenue, which was highly related to the 5G infrastructure, has performed particularly well. So, looking ahead to the new year, which will still facing the pressure of economic weakness and the inventory adjustment in the short term. The supply and demand are expected to gradually return to normal as the global pandemic was released. Cold restrictions are lifted and the global economy reopened and the inflation gradually gets under control. So in the coming years, we are still very optimistic about the long-term development of the compound semiconductors. 5G smartphone penetration is expected to further increase and drive the demand for 5G infrastructure. Wi-Fi spec upgrade will be gradually adopted by the routers and the smartphones Wi-Fi 6E expected to become popular and the developing of the Wi-Fi 7 is expected to officially started Leveraging all our experience on 3D sensing in the past few years we have actually worked with clients on automotive applications including both in-vehicle sensing and out-of-vehicle ADAS system as well as V2X and OTA which use our existing wireless communication technology All of these related applications no matter in conventional vehicles or electrical vehicles are getting closer and closer to us In order to meet this trend, we have been actively working on the development of the related new technology, including the theaters. Here I would like to emphasize the theaters. These theaters help our PA customers to strengthen their product competitiveness, which we will really start to provide Customer Theater Foundry Service together with our existing product, that's PA, to further increase customers' sickness. So, amid of the headwind last year and also the first half, we have never relaxed the commitment to ESG. In 2022, we were ranked in the top five among the Taipei Exchange-based companies in the corporate governance evaluation survey by the TWSE for the eight consecutive years and we were selected to join the Daozhong SI World Index for the third year. It is encouraging for us to be including this index again. Along with our global leading companies, and it's also have the driving force for us to keep improving. Looking ahead for the first quarter of the 2023 due to the continuous soft demand and the impact of the traditional off-season of the smartphone our revenue this quarter revenue is expected to decline around the high 20s quarter on quarter and the growth margin will be about low change level. So right now, I turn the call back to Joe.

Okay. Thank you for our CEOs and management comments. It's my pleasure to present our financial results for the fourth quarter of 2022. And you also can refer our presentation slide. And please read it over for the safe harbor notice in page two. And now we have started to talk about revenue and the margin trend, starting from page four. In Q4-22, the revenue was 3.5 billion NT. QOQ was down 10% and YOY down around 51%. And due to the three Qs, one up factor no longer exists. And also in Q4, we have a better product mix and also expense well controlled. So our growth margin increased by around 6.1 percentage points, become 22.1%. And operating margins also increased by 5.6 percentage points to 0.5%. And now please flip to the next page, page 5. Let's talk about earnings. Our Q422 was a net loss of 177 million NT. QOQ was down 172% and YOY was down 110%. And so, therefore, the EPA is coming at the negative 0.22 NT dollars. If it was impacted by the non-operating laws, the majority was the foreign exchange laws. And secondly, the disposal of the plant and property by our subsidiary to adjust its operating scale. And please click to the next page in page six. we discussed about what a change in our product mix in the Q4. In the Q4, because of experiencing the continual inventory adjustment in the Android smartphone market. So, the value of the EA is still weak, and the percentage went down to between 25 and 30% from 30 to 35% last quarter. On the contrary, although the infrastructure also decreased about single digits, but the percentage went up to between 35 and 40% from 30 to 35% in Q3. And as our CEO mentioned it, some of the Wi-Fi customers are restocking into all. So although the Wi-Fi has a single digit growth, but still within the same range of the percentage, which is between five and 10%. And the In the article, including three things and others, it decreased a similar level of the total revenue. It remained the same percentage of around 26% in Q4. And so, please click to the next page in page seven. Page 7 talks about Q123 guidance. I think our CEO already mentioned that, so I'm going to repeat again. We expect Q123 revenue to decline around high 20s QOQ. We also expect the Q123 gross margin to be around the level of losses. Okay, then We can quickly go over the financial statement, starting from income statement in page 9. For Q4, the income statement, before we begin, I want to remind everybody this is under the unordered basis. The actual results are based on the CCA's report. 204.22, the net revenue was $3,527,000,000 NT. QOQ was down around 10% and YOY down around 51%. The gross profit was $781,000,000. QOQ was up 25% and YOY down 73%. Gross margin was 2.1%, which has improved about 6.1 percentage points from last quarter. Operating expense was 762 million NT. The operating expense ratio was similar level, around 22%. Operating income was 19,000 NT. 19 million NT dollars CO2 was up 109% and YOY was down around 99% so therefore the operating margin become 0.5% and the CO2 was improving around 5.6 percentage points and the number of items was lost around 168 million NT the details will be in page 11 and the income tax was negative 145 million NT and income tax expense was 28 million NT therefore the net loss was 177 million NT. So the net margin become negative 5.0%. And the EPS for the Q4 was negative 0.22 NT dollars. Therefore the ROE which is return on equity was the negative 1%. CQ4's approximate utilization rate was 30%, which went down from 40% last quarter. The depreciation expense a little bit less than last quarter, which is 1017 million NT. And the top part for CQ4 was 916 million NT. And this is, those are the Q4 financial income statements. And please click to the next page in page 10. The accumulated whole year 2022, the net revenue was 18,330,000,000 NT. The YOY was down around 30%. The gross profit was 4,720,000 NT and the gross margin was 25.8%. And the operating expense was 3,238,000 NT. So the operating expense ratio for the whole year becomes 18%. Operating income was 4,000,000 NT. 1482 million NT and operating margin become 8.1 percentage point The number of items was again 327 NT The income before income tax was 1809 million NT so The income tax expense for the 2022 all year was $411 million. So therefore, the net income for the whole year was $1,398 million. The net margin becomes 7.6%. So therefore, the ETF for the 2022 all year was $4.21. So therefore, the ROE, which is return on equity for the whole year, was 95%. And the utilization rate accumulated for year 2022 was 50%, which is going down from 90% of 2021. The depreciation expense is 4164 million NT, which is a single digit increase from last year. And the car parts for the whole year was lower than our original expectation. which is $7,124,000,000. And since this is already 2023, I would like to share with the investor that for the 2023, depreciation expense and the car tax expectation, for depreciation expense for the whole year 2023, we expect to be increased about single digits, which is less than 10%. And the top part for the 2023 whole year should be around 4 billion NT plus and minus, which is mainly the existing fast equipment and machine and equipment maintenance and the replacement. And then secondly, we'll continue to complete the first building for our new fab construction in Taoshong, Taiwan, Taoshong Science Park in Taoshong. And this is for the whole year 2022, the income statement. The non-off item in page 11 and the major item other than we already mentioned it earlier, foreign exchange loss and the loss on disposal of property and trends. Another one will be the gain on our ETP buyback in Q4. Okay, that's the non-off item. And finally, the balances in page 12. As to the 2022 December 31st, I just pick up a couple major items. Cash and the cash equivalent was 10,380,000,000. So the total assets was $68,982,000,000. And the total liabilities was $33,936,000,000. And the common stock remained the same as last quarter. So the total equities become $35,047,000,000. So therefore the full value per share was $78.28 NT The major index like a current ratio was 276% and the death ratio with the total liability over total after was 49% pretty close to last quarter Okay, this is my report. Thank you. I'm going to turn the call back over to our CEO for industry outlook. I think that's the most important thing. for this quarter's earnings call and conference. Okay, thank you.

Okay, thank you, Joe. Next, I will present and share how we see this multi-trend status. I will divide it into several categories. Smartphone, Infrastructure, Resale, Wi-Fi, etc. And also introduce our new technology to all. So please go to the page 14. So this page shows, of course, it definitely is a smartphone related PA. So based on the chart, you see the Morgan Stanley forecast Also we observe as well the 5G penetration rate will surpass the 4G in this year, 2023. That's good sign for the semiconductor, for compound semiconductor. Because the 5G, the PA content will definitely more than the traditional 4G smartphone. Especially the 5G but there is a new frequency band we call the alpha high band from the 3 maybe around 3 giga to 5 gigahertz and this band also needs a MIMO we call market input, market output that means the pH count will be increased so we foresee this smartphone 5G smartphone will surpass 4G and content of the 5G smartphone will be much more than the traditional 4G smartphone. Okay, go to the next page, page 15. Also, it's about the infrastructure, about the 5G. So, we We have a very good technology on Jedi Knight Trials 3 which we have been cooking for a few years and the traditional get-outs like technology keep improving for the performance. So among the base station of the typical 5G mainstream 9-mode base station a lot of the technology using with the 5G service. For example, Gain Night Time as PA, PN as LNA, No Noise Amplified and HPD is typical for the driver IC and Integrated Passive Device These four components are the key elements for the base station Then we can provide the total solution for the 5G infrastructure operators Go to the next page, page 16. It's the Wi-Fi. Wi-Fi, last year already many router and smartphone adopt the Wi-Fi 6. But it's still like dual-band only. But this year we foresee this more and more router will migrate from 6E to 6. Any smartphone also will adopt the 6E we believe in this year so based on the wireless connectivity market analysis in this chart you can see the Wi-Fi 6E will started and the the volume will increase as well okay let's go to the next page, page 17 so Wi-Fi 6E is a triple band. It's 2, 5, and 6 giga. So, based on the modulation improvement, so Wi-Fi 3, we're gonna have a 3.6 data rate faster than the Wi-Fi 6. So, under this roadmap, we have a co-work with our IDN and PA Design House to have Wi-Fi 7 designed right now is ongoing and the program is good so to take over this Wi-Fi 6E Wi-Fi 7 we believe for next few years will be the next change because it covers more wider band and high data rate to have all the IoT Okay, next page. Next page is about the sky, the satellite. So you can see the Starlink already launched more than 3,000 satellites in the sky. And more and more applications is launched. so they already start to give the sky service so in addition to the starting for the VL and their Gen2 system already approved by the FCC December last year so this Gen2 which we know is about more than 20 or even 30 thousand satellite will be launched Also, another system, other systems like Runway, Qubit, and TerraSat, and others, which are not on the list, also have at least 200 to several thousand. So we believe this satellite will be a very, very hot topic and need more garage light, jetty night light solutions for the next few years. go to the next page it's about application for the automotive so since the 2017 with VESA on the 3D sensing on the smartphone we have take leadership in this industry we have a very good VESA technology so based on this more application opened so we see the VESA will start to adopt in vehicle such as DMS, Tri-Way Monitoring System and occupant monitoring system we call OMS. And all of the car, you can see a different color by different distance range. We also adopted VSO related technology for the ADOT. In addition, the same thing in vehicle and other vehicles also the wireless connectivity for the automotive so the eyes will be installed in every car for the auto drive and next mount on the top of the car which can connect together with the satellite this is drive all the connectivity worldwide, including the user terminal. On the road, like a, you know, vehicle, and in the sea, like a boat, or in the sky, an airplane. Okay, so this is why we see the different trajectory for the future. for this year, it will be gradually opened. Next is about the new technologies. Please go to the page 21. Based on the results, we'll be well-applied, adaptive for the different kinds of applications. So, more applications such as VR, virtual reality, augmented reality, AR, and more sensors on the handheld system, like on the digital freebook band SWIR and also have some opportunity sensor on the biometric on either the watch or the clothing so we can foresee the VSTO market will keep growing The other is about optical on the data communication The orange color shows the emitter side DFB and the blue color is for the receiving We have a good technology on the no matter on the emitter side and the detection side Also we have a capability to provide this photonic they call PIC integrate all the devices in one chip. This will help this data center to have a quick data rate to support these very, you know, tons of the data rate requirement gradient. So, this is a use of market as I mentioned in previous two page. So you see the Lens Circle One is about the mobile, we call it like a handheld system, consumable mobile phone or the iPad and the P Notebook. So it's still from the 2022 to 2027, still has about like a compound area of play, about 16%. The other new application we expect is the telecom and infrastructure. from the, this is the blue one, from $782 million growth to $2.1 billion. The combined annual growth rate is about 22%. This is the two major markets which we expect from the visual technology. Okay, last page is to show, we are really excited to introduce the wind provider, filter service, fungi service. We provide, we're cooking this technology for a few years. Now, some of our customers already adopt our filter into their new PA module, which can provide us better performance, better footprint, and the size to compete with the worldwide IBM company. So, the field not only contribute revenue but also provide these changes to co-work with our customers to increase their performance on the smartphone. So, and the technology we developed covers the sole and the bone. Okay, I hope that this will be a bundle of our customers for the place of technology. Okay, that's all my view and sharing to work about this new software. Now I tend to go back to the job.

Okay. Okay, thank you. Our CEOs are coming, and now I will begin the Q&A session. Please submit your questions in the input box on the webcast window now.

Thank you.

Okay, there is a question want to know about the acceleration rate for 2022 Ford Porter and how's the outlook for Q1 in 2023? As we mentioned at the beginning the Q4 acceleration rate is around 30% and because of the revenues will be decline high 20% in Q1. So definitely I think that the generation rate will be going down again. But because half the product list is still not so fixed right now. So I think right now we only can say The trend will be going down, but it still cannot have the exact number of the rate about 2.8. Thank you.

Okay, there is a question from the investor asking about the progress in the schedule or any trend for our New Fab in Southern Taiwan Science Park I think I have mentioned a little bit earlier when I was talking about our top-up guidance for 2023 I think we still will continue to complete Construction for the first building for our new flat in Kaohsiung and after that we probably will stop there and then I'm waiting for any signal of the demand and we're not before that we're not gonna we're just not gonna do any further on the Kremlin construction or even the the Equipment Moring. That's exactly what we will do for the top acting in Southern Taiwan Science Park. And maybe I repeat again, another park and also the major part of the car park in 23 will be mainly the existing fab equipment maintenance and the replacement. That's a major two portion for this year's The total amount roughly around 4 billion NT profit minus.

Okay, thank you.

Okay, there's a question I want to discuss about the patternized status of Q1. Right now as we foresee, I think all the parallel lines will decline in Q1. I think the main reason is, I think Q1 usually is our traditional low season. Yeah, so what we see right now is all the parallel lines will decline fairly equal. Yeah, so that means The stock percentage may be not changed but all the product will decline like high 20% in this kind of range.

Thank you.

Next I will answer a few questions about filters. Just like I mentioned, we have a slow and bold technology. And the business model is still functioning. We provide weapon manufacturing to serve our PA customers. This is, as I mentioned, to provide this competitiveness to our customers to help strengthen their performance in smartphones. And the other question is about the comment about inventory level in our customers. In the guidance of the Q4 and the Q1 and the outcome, we have said that we got some small rush orders by different customers. So still, But this is a good sign that inventory, some of the products, you know, in some healthy condition. But some is not still, inventory is still high. So it's not totally, so it's hard to tell you that inventory. Some may be right now unhealthy, but some maybe take few months. So this is what we observe from our customer about inventory. There is a question about Wi-Fi 6E. It asks about the opportunity and the competition for the silicon. Yes, Wi-Fi is always continued with the silicon and also the silicon germinating. And we see this Wi-Fi 6E because more wide range frequency band. We see this GaleaOscillite for the native, you know, transcend. It has a better performance on the silicon germanic. So we see that there is some high premium smartphone will adopt the GaleaOscillite solution for the Wi-Fi 6E. But For middle-end smartphones, it still depends on the pricing. It's hard to tell, but we hope that it could be mainstream for the Wi-Fi 16 and Wi-Fi 7 as well. Okay, the last question is about the competition from China. As I mentioned in the Wi-Fi thing, we are facing different kinds of substrates, Silicon, Germanic, but also the newcomers or latecomers of the competitors in China. Yes, they have some capacity and some capability, but as we observe and from the market right now their main focus is low-end applications There is some gap no matter on the technology which means the performance on different categories like Gain, like Largeness, like Linearity and Efficiency and we are really proud of our new HPT technology which has enlarged the gap to our competitors but we certainly will not be you know just relax but we will keep moving forward to enlarge the gap to compare with our competitors Since we have no further questions are we going to

wait for another three minutes, then we will close the meeting. Thank you.

Okay, I think there's still some questions we want to discuss about how's the market situation in the future. As we discussed in this conference and the last conference, what we think is Q1 should be the bottom of the year. The situation, I think, until right now is still not clear what we see. And after Q1, it should have some recovery, quarter on quarter. But how the run-up situation, I think we need to watch carefully, quarter by quarter, to see how's the run-up, big or not. Yeah, thank you.

Okay, I'm gonna answer one question asking about One of our factors impacts our Q3's growth margin. Does that still impact or what happened about that? I think the Q's in the Q3's Growth margin was impacted by one of our holdings, which is our China's largest customer who are listed in the property market, equity market. And because of that, they have to, their market price, stock price have to evaluate it Corp Corp Corp Corp Corp Corp Corp Corp The impact has no longer existed. That's why I'm talking about that. Therefore, there's no impact for Q4. For Q1, because it's only the beginning of February, it has to wait until the end of Q1. But so far, it looks like the stock price, it went up. It's still going up a little bit, so it's still hard to say.

Thank you.

One more question about the optical 3D sensing on smartphones. For the last maybe four or five years, we only see 3D sensing adopted on the American phones, on the high premium phones. But others, Android phones, some very small volume, but not well applied on other Android phones. It's really a great question and hard to predict but actually we have co-worked with our customers who have designed low-cost VSOPs to try to lower down the entry barrier for the other middle, low-end forms. But we hope they can penetrate this market Then the visa will be more widely adopted for all firms This is what we know right now Ok I think the time is already

So I guess the next question we will answer If an investor wants to know whether our Q1 guidance has some including the factor of the the sheer sheer change of the investment in China customers I think the answer is no because I think the stock price is hard to foresee so usually when we have some forecasts we will exclude this kind of factor. Thank you.

Okay, it's about time. There are no further questions and thank you for your participation in WinSemi's conference. There will be a webcast replay within hours. Please just visit www.winfoundry.com under the Investor Relations section. You may now disconnect. Thank you and goodbye.