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 third quarter of 2023. My name is Gilson, Esportsman 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 fourth 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 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. Actual results may differ materially from our expectations, and the company undertakes no obligation to update these forward-looking statements going forward. Now, let me hand over the call to Mr. Steve Chen, the General Manager of WinSemi. Thank you, Joe, and welcome, everyone.

For the third quarter of 2023, our consolidated revenue reached $4.2 billion, an increase of 6% quarter-on-quarter and an increase of 7% year-on-year, slightly exceeding our previous expectation. Given by the increase in capacity integration to 50% from 40% in the previous quarter, coupled with a slightly better than expected product our growth margin increased to 22.1% from 20.1% in the second quarter and operating margin also recovered to 1.7% from maxing 4.3% in the second quarter the net profit attribute to the parent company was 34 million NT dollars turning from a lose to a profit with an EPS of 0.08 NT dollars. Looking at the revenue change of each product segment in the third quarter, optical performed better than expected while the red segment were generally in line with expectation. The third quarter is typically the season of The launch of high-end smartphones For Wi-Fi PA Preparation of inventories has peaked in the second quarter Wi-Fi PA revenue declined quarter on quarter in the third quarter However, for cellular PA The pull-in from customers has kicked off as expected Meanwhile A sedimentary rate of Chinese smartphones has gradually returned to healthy levels, and the launch of the multiple new smartphones in the second half of the year has driven the demand. We have witnessed increasing momentum from Chinese customers compared to the second quarter. As a result, Our third-year revenue delivered significant growth compared to the previous quarter. According to the forecast by the market research firm IDC, its expected global smartphone shipment in 2023 will decline by 4.7% year-on-year, following an 11% decline in 2022. However, it projects a growth of 4.5% in 2024. This forecast seems to be consistent with the recovery that we have seen in our cellular PEA in second half of this year. While we are feeling some distance away from the previous peak in the quarterly revenue, we can already feel the gradual recovery in customer demand. We deface, intensify the competition from the peer and the weak demand in the past. However, as we remain committed to offering customers the best technology and the resources of R&D and production capacity, customers are choosing to stay with us as the song declares. Additionally, leveraging our accumulated R&D and volume production capacity capability in 3D sensing over the past years. Our optical communication technology has expanded its research into a more diverse range of applications. These include addressing the demand from data centers driven by the AI high-speed computing and the automotive LiDAR market, ensuring that we are well prepared for the sustainable long-term growth in the future. Looking ahead for the fourth quarter of 2023, our revenue is expected to grow by more than the previous quarter, and the growth margin will be around the level of mid-20s. I will turn the call back to Joe. Thank you.

It's our pleasure to present our financial results for the third quarter of 2023. And you can refer the presentation slides. We're starting from page four. Before that, please remember to read over the safe harbor notice in page two. In page four, We're gonna discuss about the revenue and the margin. The Q3's revenue was 4.2 billion NT dollar. QOQ was up 6% and YOY also up 7%. Q3 driven by the increase of the capacity utilization to the 50% in Q2 from the 40% Q2, coupled with slightly better than expected product mix. We can discuss the product mix later in page six. So therefore, the growth margin increased about two percentage points QOQ become 22.1%. And the operating margin also increased by a percentage point, becoming the 1.7% QOQ. And we understand that most of the investor would like to know What kind of impact to our growth margin for our China customers' share price volatility? Well, I think the big one is our 100% owned subsidiary holding our China customers' share. and which is we acquire when they IPO in the middle of 2022. And so due to Q3 customers listed share price volatility, so there is 2.7 percentage point growth margin erosion in Q3. Therefore, the consolidated into our growth, our financial statement, so our consolidated growth margin become 22.1%. Of course, if we exclude that Earnings Q3 due to the order and the demand recovery from the customer and also the better utilization. Our net profit attributable to the parent company was 34 million NT dollars. So therefore the EPS was 0.08 NT dollars. compared to last quarter Q2, the EPS was negative 0.23. And next page, we're gonna discuss about our product mix. Please flip to page six. As you can see that in Q3, the cellular PA, the percentage going up from 30 to 35% to 40 to 45, 45 to 50%, which is around over 30% of the growth. And the other majority are optical applications remain 18%, pretty much the same. Wifi and infrastructure is still weaker than Q2. Wifi, because of the The peak for ramping up for high-end smartphones this generation has already happened in Q2, and so Q3 is gradually going down. Therefore, the percentage is going down to 10% to 15% from 15% to 20% last quarter. And infrastructure also weaker than last quarter. It's become between 20% and 25% from 25% to 30% last quarter. So pretty much exact. I think the only exception is optical business. Otherwise, it's kind of in line with our view we provided in last time. And please flip to page seven. It's Q4 guidance. I think Steve has mentioned it earlier, so I'm gonna repeat again. We expect Q4 2023 revenue to increase about a lot in QOQ. And we also expect Q4 2023, the growth margin will be around the level of mid-20s. Okay, then we can quickly go through the financial report, financial statement starting from income statement from page nine. and before I begin I want to remind everybody that all of the figures are based on an audited basis and by the company so the actual results are based on the financial report which is audited by the CCA. The Q3 The revenue was 4,165 million NT and QOQ was up 6% and YY is up 7%. And the growth profit was 919 million and the growth margin becomes 22.1%. compared to last quarter, last quarter was 20.1%. And operating expense better than last quarter, it's becoming 849 million NT. And therefore the operating expense ratio was equivalent to 20%. Operating income was $70 million NT and operating margin was 1.7%. The non-op item was lost about $114 million NT. We can discuss that later in page 11. The loss before the income tax was 44 million NT, and the income tax expense was 37 million NT. Therefore, the next loss was 81 million NT. The net margin becomes negative 1.9%. However, The net profit attributable to the parent company was 34 million NT dollars, therefore the EPS become 0.08 NT dollars, become profitable. The ROE, the return on equity was 0.4, And utilization rate for Q3 was 50%, which is up from 40% last quarter. The depreciation expense was $1,182 million. It's slightly higher than last quarter. The car parts for Q3 was $1,880 million NT. So this is Q3 income statement. And next page, we talk about accumulator Q1 to Q3 income statement, page 10. The page 10, 2023, the first three quarters revenue was 10,968,000,000 and the YOY was down around 26%. Growth profit was 2,036,000,000 NT and the growth margin become 18.6%. Operating expense was 2,731,000,000 NT and all-pass ratio for the accumulated three-quarter was 25%. And the operating income was 695 million NT and the operating margin become negative 6.3%. In non-op, non-op items was lost about $257 million. Again, the detail in page 11. And the log before the income tax was $961 million. And there was an income tax benefit of $126 million. So therefore, the next log for accumulators Q1 to Q3 was 836 million. And the next loss attributable to the parent company was 465 million. So therefore the EPS become negative 1.1 NT dollars. So the The total, the accumulated three quarters, the ROE return on R4D was negative 2%. And the accumulated utilization for the first three quarter was 40%. And the depreciation expense of the first three quarter was 3,431 million. And the car park was totaled around $2,957 million. And remember, we have provided some kind of guidance for depreciation of car parks for 2023 in the very early of this year. And just like the depreciation expense, right now, the first three quarter, the YOY was up around 9%, which is kind of in line with what we provide around 10% for the whole year. And the top half, we also provide the guidance of the whole year of around 4 billion plus four billion NT plus and minus. And right now the first three quarters is already very close to three billion. So we believe that it's also not too far away from the guidance we provide. Okay, then the non-op item. In page 11, Okay, first of all, for Q3's number of items, I'm gonna discuss and highlight the three items which is most significant. First of all, we take a look on the gain on repurchase of bonds payable, which is The ECB buyback we did on Q3, which is making, again, around 157 million NT. But remember, the ECB we have is an NT dollar link convertible bond. So it's a fixed dollar NT, it's a fixed foreign FX at that time. So every time when we adjust under this, the current foreign exchange dollar NT, then when we implemented the ECB buyback, we'll create some kind of foreign exchange loss. But however, the net-net still profitable. So you see that the foreign exchange lost around 121 million NT, actually very close to 100 million was because of ECB buyback. And another item is again financial assets or liabilities at a fair body. through the profit and loss. It's also majority due to the ECB, the outstanding ECB evaluation. As everybody knows that the ECB content, the bond, and also the start option. And during the Q3 stock price volatility, so there is evaluation loss on the stock option. So therefore, for 122 million of loss on the evaluation option, lost around 50% due to the ECB evaluation. Okay, that's pretty much for none of items. Okay, then please flip to the page 12. The final page, we discussed about the balances. As to the September 30th, our cash and cash equivalent around 6,352 million NT. And the total assets become 66,081,000,000 NT. And I think except the account receivable It's going up a little bit due to the growing for the revenue and the order. And the total liability becomes 31,224,000,000 NT. And you can see that the current liability going down from around almost 1 billion NT dollars and pretty much the same size reduced on our ECB holding going down from 6.2 billion to 5.2 billion. That's because of the ECB buyback. Okay, the common stock remains the same. And the total equity was $34,857,000,000. So therefore the full value per share going up from $76.6 last quarter to $78.6 this quarter. And the major Financial index, for example, like current ratio is improved to 97% from 92%. And the same ratio is going down around 1% to 47% in this quarter.

Okay, that's my portion.

Okay, thank you, Dan. Now we can begin the Q&A. Submit your question in the input box on the website's window. And now, thank you.

Okay, there's a question. I think it relates to the better growth margin than embedded. I think it's many coming from the two factors one is the quality you can see this quarter I think the optical device and at the same time although the input structure has some slightly decline but and also Wi-Fi has some decline but at At the same time, we have a very strong demand for the cellular PAs. So the iteration rate is increasing around 10%. It definitely will bring a better the cost of the material because of the better iteration rate. So I think compared with the Corp Corp Corp Okay, the next question is about the outlook of 2024. But honestly speaking, I think until right now, the visibility is still around four to six weeks. So I think we will keep our train We will keep the guidance about the next quarter, quarter by quarter. Because as you know, it's a foundry and we almost have 80% of the revenue is related to the smartphone. And smartphones are such a very big opportunity, volatility industry. and that's so many model and brand company in there and so every year it's hard to say how the share of the customer will take in every smartphone segment and in every smartphone makers portion. So in order to make a better accurate I think we will provide the outlook quarter by quarter. Thank you. Okay, I think the other question is about the composition. Yeah, definitely, I think for the cellular CF, we take more than 50% of our revenue. This application is a very competitive market, no matter in China or even in other areas. And every year, the smartphone maker will have a new spec, and every IDN company or design house needs to design a new PA module to compete with the new spec year by year. So it's definitely a very competitive market and we have very severe competition here but I think until right now we still can provide better technology and better capacity support to all the customers especially for the tier 1 customers want to uh... we need to know what they think that uh... so uh... uh... you know it's also a very competitive uh... competition but i think that we feel uh... people are producing

A question asking about Q3 utilization. We have a better utilization rate in Q3. If you recognize that this time, no matter verbally talking or our comment by reason, We haven't said anything about rush order. That means we treat the recent demand is more healthier than before. And also our customers kind of are coming back gradually. I mean, remember we have also mentioned that from our management comment, we mentioned that we still have some distance away from the previous case, but at least we see that with the and smartphone new model has been published recently. I mean, the second half, no matter in China, in US. I think the demand, it looks like everything on schedule, on time, and the customer has provided more positive view and also starting to discuss the future demand with us, which is also give us more competence. The demand, no matter PA demand or smartphone demand, is more healthier than before. So that's the reason why we We haven't mentioned anything this kind of demand order by the rush order, this kind of trend. So, yeah, I think especially we see the sequential growth from Q3 to Q4, and that make us more comfortable. in the now in the future. Thank you. Okay, there is a question asking about the our technology and the business anything to do with the AI or the data center. I think the answer is yes. And I think due to the The AI, the high speed computing, that creates a very high volume and a high speed of data transmission and because we We're working on the data center business, which is nothing to do with server, of course, but it's for data transmission, no matter the laser dial, photo detector, those kind of components. We have developed a lot of this kind of for many years. And so now we are hooking with several different customer. They are also focusing on no matter like between server to server, rack to rack, crafter to crafter. For those, a different kind of transmission because of the due to the AI demands and we also see this kind of technology engagement has significant more significant than before so of course currently not too much about that but The big data is the future trend. We can predict that it will be a very important momentum for the future. Thank you. Okay, there is another question asking about Our ECB, which is convertible bonds, on hand right now, things are making the financial index or the liability level is a little bit higher. And what do we treat as our ECB for the future? I think... If you notice that Q4 of last year and every single quarter we have implemented the ECB Biobat and Omega Q1, Q2. Q3 this year. And then continue, we also did a little bit in Q4 for ECB buyback. The reason why is we tried to decrease the ECB, which is the debt on hand. And so I think the From now on, I think we still will working on that if the ECB buyback doesn't create any kind of loss on financials and if we can have... maintain a better financial status then we will continue to do that using our cash position and I think in the past maybe one year due to the ECD on hand we have a higher We have the higher debt ratio and now it's going to the healthier level. Okay, thank you. There are no further questions on the line, so thank you very much. For your participation in WinSemi's conference, there will be a webcast replay within hours. Please visit www.winfoundry.com under the Investor Relations section. You may now disconnect. Thank you and goodbye.