Win Semiconductors Corp

Good morning and good evening, ladies and gentlemen, no matter where you are. Welcome to WinSemi's Resolve White Hat Conference for the first quarter of 2023. My name is Joe Chen, the President and the Associate Vice President of Finance in WinSemi. Joining me today on today's call is Steve Chen, 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 second quarter of 2023. 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 State Public Notice on page 1 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 obligations to update the forward-looking statements going forward. Now, let me hand over the call to Mr. Steve Chen, General Manager of WinSemi.

Thank you, Joe, and welcome, everyone. In the first quarter of 2023, given the traditional of season effect and the continual inventory adjustment of the smartphone industry, WinSemi's concern at the revenue was 2.9 billion NT dollars and down 19% quarter-on-quarter and down 49% year-on-year. Although the first quarter revenue was better than our previous expectations, our growth margin and operating margin declined to 11% and negative 21%. Capacity utilization rates further declined to 20%. Net growth for the first quarter was 479 million NT dollars and EPS was negative 0.95 NT dollars. Look at the products in the first quarter. Revenue for all product segments is declined by 20-30% quarter-on-quarter, mainly due to the oxygen effect and weakened consumer demand. While the progress of the smartphone inventory's destructing remains unclear, we have received rush orders from multiple Android customers since the game was launched, and we have also seen gradually orders recover from customers retiring as a result, we believe that customers' inventories are moving towards a healthier level. Here to this day, the war between Russia and Ukraine is still ongoing, and the pressure of the global recession is still impacting the world. Amid many near-term uncertainties, we maintain our strategy of partially extending capacity but Activity Investing in R&D As our view on the long-term growth momentum of the industry remains unchanged, several international customers have not only adopted our latest generation HPC technology for 5G mobile communication, but also actively work with us on the qualification of the next generation HPC projects Meanwhile, in order to meet customers' needs of the integrated component, we provide filters for low, mid, and high frequency applications. And we have developed gain-on-silicon carbide technology and gain-out-by-linon key-hand process to fulfill the demand of any needed way for the 5G infrastructure. In addition, many customers are collaborating to developing optical applications with short-wave infrared and long-wave lasers. And those technologies could also be applied to the automotive LIDAR. These are our current R&D focuses. Looking ahead to the second quarter of 2023, Our revenue is expected to grow by low 30 quarter-on-quarter, and the growth margin will be around the level of meetings. I will turn the call back to Joe. Thank you.

Okay. I would like to present our financial results for the first quarter of 2023. Please refer the presentation slide. Remember to take a look for the page 2, the State Harbor Notice. And then starting from page 4, the revenue and the margin claim. Our Q123 revenue was 2.9 billion NT dollars QOQ was down 19% and YOY was down 49% The growth margin for Q1 was become 11.4% which is declined by 10.8 percentage points and operating margin was become negative 20.8% which has declined about 21.4 percentage points. The decline was mainly caused by a decline in capacity utilization rate and in this quarter it's further down to in Q1 it's down to 20% of the utilization rate from 30% of last quarter. In earnings, please The Q123 net loss was 479 million NT dollars, which is the loss was increased about 198% in 2002. The EPS become negative 0.95 NT dollars compared to last quarter, I mean Q4 of 22 was negative 0.95 NT dollars. 0.18 NT dollars. And please click to the next page in page six. Page six we calculate for the programming. In this quarter Q1 of 2023, The most of the product in product mix has a different level of slow down. And for example, the infrastructure due to the macro economy and making the weaker in demand. So the infrastructure was going, also going down used to be more stable. The rest of the product in the product mix Most of them are related to the smart home market, which is suffering by the traditional low season in Q1. And next page, in page 7, we're going to talk about the Q2 guidance. I think Chief has mentioned it and I'm going to repeat it again. We expect Q2 of 2023 the revenue to increase about low 30 QOQ. And we also expect Q2 of 2023 the growth margin will be around the level of 15. And now We can quickly talk about the income statement for the comprehensive income statement for this quarter Q1 of 23. Before we begin, I still have to remind everybody that this is under the unordered basis and the actual results should be based on the TPA report. In Q1-23, the net revenue was $2,860,000,000. The QOQ was down 19% and the YY was down 49%. The gross profit was $326,000,000. Therefore, the gross margin was 11.4%. and the operating expense was 921 million NT and due to we have more capacity and more resources to support the R&D activity and then so a lot of customers use it and also internally have more targets on the of R&D activity. Operating expense goes up to 921. The operating expense ratio becomes 32% and because the utilization rate going down since last year, quarter by quarter, and we used to be provides the OP ratio guidance about maybe 13 to 15%, that kind of label, if the utilization rate is over like 50 or 70%, but is no longer applicable because of this kind of low utilization rate. So we expect that based on the past experience, of course, the operating expense keeps going up with the company scale and the price. And so the operating expense pretty much in the range between 8 billion and 9 billion NT in this kind of range to be reasonable. The operating loss was 595 million NT. The operating margin was negative 20.8%. And there is a number of items with the gain on 39 million NT the detail in the page 10 for your own reference. The income, a loss before the income tax was a loss around $556 million. And there is an income tax benefit of $77 million. Therefore, the net loss becomes $479 million. and the net market become negative 16.7% the ETS in this quarter was negative 0.95 NT dollars and the return on equity in Q1 was a negative 5% due to the land loss. The proximity utilization rate in this quarter was 20%, which is down from 30% of last quarter. The depreciation expense in this quarter was 1077 million yuan. The contract in Q1 was $536,000,000. That's for Q1, the income payment. And the page 10, the amount of items are listed for your own reference. And the page 11, the consolidated balance sheet, Okay, I'm gonna highlight a couple major items. First of all, the total asset was 59,115,000 NT. And the total liability was 35,026,000,000 NT. And the total equity was 3,489,000,000 NT. And in between, compared last quarter, I mean, compared day after December 31st and March 31st, something like the bond payable, which is our ECB, the outstanding ECB, because the ECB investor in Q1 of 2024, they have a put option. So in Q1 of 2023, our CPA has reclassified this item into the current liability. to reflect the put option for the investor in the Q1 of 2024. Therefore, the current ratio was significant and go down to 96%. That's what happened. And the The debt ratio remained around 50% up and down, which is in Q1, it's around 51%. And last quarter was 49%. It's pretty much close. And finally, the common stock remained the same, $4,239 million. And the book value per share was $76 Q&A section. Please submit your questions in the info box on the webcast window now. Okay, well, there is a question which is in our Mandarin section has several investors asking and we have explained about the revenue contribution there is a 7% coming from our 100% owned investment, which is holding the offshore listed company. And due to the evaluation gain, so it contributes the revenue around 7%. That's why the QOQ went down to 19%, but originally when we announced a monthly revenue, it went down around 24%, something like that, or 25%, something like that. And there is a difference around 7%. I remember the investment company holding the majority was the share of one of our China customers here which is IPO last year and so the Evaluation Gain Evaluation Gain Evaluation Gain Evaluation Gain 5% from the existing 11.4%. That's something in the last section of a mentoring section of earnings call of several investors have seen and I would like to highlight it in the very beginning.

Okay, there is a question about the AST difference between this quarter and one year ago. How's the very big difference there? I think if maybe we can see our presentation for the product mix, we can see compared this quarter and a year ago, actually, the cellular PA portion is dropped from 50 to 55%, dropped to 25 to 30%. It's almost dropped 50%, and at the same time, the infrastructure percentage is increasing 10%. I think that's the reason why If you compare ASP between two quarters, just very simply, even divided by our iteration rate and our capacity, you have got a very higher ASP compared to quarter. I think, so we can say basically the increase about the ASP is because of the programming. Thank you.

Okay, there is an investor's question asking about the increase in operating expense. I think in Q1, the operating expense No matter the promotion, no matter the administration or R&D, all increased into one compared to last quarter. But we see that the majority coming from R&D and the R&D expenses is more than 50% of the total operating expense. and we also see more activity in R&D in the recent quarter due to the lower utilization in our staff and we can provide more resources to the customer and also the R&D business units. So, yeah, this is what happened.

Thank you.

Okay, I think the investors will see some questions about each application situation in Q2. I think, as I just mentioned earlier, the total revenue from Q2 will increase more than 30% in this quarter. I think it's mainly coming from the cellular and Wi-Fi. Yeah, because like we say, we already see some demand come back from the smartphone-related product. Yeah, so for the second quarter, I think cellular PA and Wi-Fi PA will have better performance than others. And optical and infrared may be a little weaker in these two segments. Thank you. Okay, I think there's a question unless one wants to know a little better picture about the second half year. But I think, yeah, although we see some recovery from the second quarter, right now but as we always mention actually the lead time for our product in most of the case is only around like four to six weeks so it's really hard to say how the second half situation right now because Most of the situation, our customer is just based on the lead time to place the order. So I think at this moment, it's really hard for us to gather enough exact order from the customer for second half year. So I think for the second half year, we will, as usually, we will quarter by quarter to report to all investment and conference call. Thank you. Okay, there's a question. It's asking about how the difference between our guidance for Q1 and the real margin is good of our investment adjustment. I think, yeah, I think that basically, first, I think the is a little different quarter by quarter. In Q1, actually, the infrastructure percentage is dropped around 5%. It definitely will impact our margin a lot because, as everybody knows, I think infrastructure is the highest margin of our product. And also, at the same time, at the same time, we got a very low declaration, 20%. Actually, every... different in high margin business will enlarge the impact of the margin. Thank you. Okay, next question has some question about how we certainly will control our cores at this low insulation rate cheaper because I think from the OPEX point of view maybe it's not that easy to explain that because at the foundry a lot of our cores is coming from the FAP operations not for OPEX Mainly, if we can control better about our manufacturing cost, I think that will have a better benefit with our margin in a very big sector. So I think we will more focus on how to control our manufacturing cost at this low iteration period. And also, at the same time, we also have tried to control our OPEX. But as you know, in OPEX, maybe 50% or more than that is coming from our R&D. And as we just have made a comment at previous time, that we don't want to lower down our R&D activity even though in this low demand period because for the future demand growth, if we don't invest in R&D right now, we definitely will lose the opportunity in the future. But besides R&D, I think no matter our sales expense or other admission expense, I think we will put our eye on that and make control of our life. Thank you.

Okay, there's a question asking about do we have any update for our TAPAC this year? And I think in last earnings call, we have released the TAPAC guidance for the whole year 2023, which is we expect that the TAPAC will be will be around 4 billion NT plus and minus for the whole year, which is significant, went down from the past two, three years. And I think the major task will be our Our existing staff, no matter the machine and equipment maintenance and also the facilities maintenance. And the second one will be our new staff in Thousand Taiwan Science Park in Kaohsiung, Luzhou area. because we're still working on the first main building construction and we need to finish the construction for the main building, first main building. Otherwise, it's going to, well, if we have stopped it, to start the construction at this moment and when any kind of recovery, the restart of the construction will be will be not easy and wasting a lot of resources and money. So we would like to finish the main building construction first and then stop there and then wait and see until the recovery of Depreciation expense for the whole year of 2023 will be less than 10% of the increase. Most of it is coming from the new equipment installed in the past one year. So, single digits increased for this year at this depreciation expense. Okay, that's the contract and the depreciation. Thank you.

Investors want to discuss about competition especially from China I think right now because of the trade war definitely China government right now is try to build their own semiconductor supply chain domestically. So I think, definitely, our compound semiconductor also will have some impact about that in the future. Yeah, but as we discussed with another investor before, how We sell it also more focusing on the advanced technology with future to our customers. I think most of our revenue and our profit coming from our advanced technology not the legacy technology to our profit. Yeah, I think in the future, China's foundry maker natively will have some product in the market, but as we just mentioned in the major comment, the 5G spec communication space also upgraded year by year. So, recently we're more focusing collaboration with all the PA1 customers to making the new advanced PA launch in the future to gain the better profits in there because for the PA market I think most of the profit or profitable portion is coming from the higher frequency and high-end PA. Yeah, so for the low-end and low-end PA and even some medium PA, certainly, I think in the future that will face a lot of competition in China, but fortunately, I think WinSemi has well diversified our PA market, and I think the share of the high-end PA, WinSemi is still keeping a very good share in there. Thank you.

There is no more new questions and we're going to wait for one minute and finish the call. Thank you. Okay, there are no further questions and thank you very much for your participation in WeSameEats conference. There will be a webcast replayed within hours. Please visit www.brainfoundry.com under the Investor Relations section. You may now disconnect. Goodbye.