Win Semiconductors Corp

Good morning and good evening, ladies and gentlemen, no matter where you are. Welcome to WinSemi's Result Webcast Conference for the third quarter of 2024. My name is Joe Sun, Spokesman and Associate Vice President of Finance in WinSemi. Joining me today on 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 company's results and provide brief guidance for the fourth quarter of 2024. 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 Harbor Notice on page one of the presentation slide. Please note that this presentation contains four looking statements, and 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 its forward-looking statements going forward. Now, let me hand over the call to Mr. Steve Chen, General Manager of Winstain.

Thank you, Joe, and welcome everyone. In the third quarter of 2024, Our consolidated revenue was $4.3 billion, up 4% year-on-year, and down 12% quarter-on-quarter, which was slightly softer than our previous expectation. As the capacity utilization rate declined from 65% in the previous quarter to 50% this quarter, Our growth margin dropped from 27.2% in the previous quarter to 21.6%, and operating margin fell from 10.1% to 2.9%. Net profit attribute to the parent companies from the third quarter was $0.27 billion, which with an EPS of 0.54 in NT dollars. For the first three quarter of 2024, cumulative revenue increased by 25% year on year with an EPS of only 2.64 in NT dollars. While the third quarter is typically the traditional peak season for US-based IOS smartphones, we had previously anticipated that due to the soft demand in Chinese-enjoyed smartphone market, the third quarter this year would be below seasonality in the peak season. It now appears that The decline in the demand was greater than we previously expected, and thus cellular PA revenue had the most significant quarter-on-quarter decline in the third quarter. Wi-Fi PA revenue also declined from the previous quarter as the peak season of the inventory deposition of the new model launched in the second half of the year had passed. However, driven by the introduction of Wi-Fi 7, Wi-Fi revenue in the third quarter and the first three quarters increased by 50% and 70% year on year. Respectively, in addition, revenue of the infrastructure was better than expected in the second quarter due to customer inventory restarting and the revenue in the third quarter was also better than expected, even though it was slightly lower than the second quarter. Finally, optical revenue entailed the peak season as expected with the launch of the new iOS model, making it the best performing segment in the third quarter. The current inventory level of the smartphone customers are much healthier than the first half of last year. By the end, the market demand was fluctuating since the beginning of this year due to the factors such as political tensions and the economic downturn in China. This fluctuation continues to has the accessibility of both upstream and downstream suppliers in the supply chain. In response to the market change, in addition to maintaining our integration business, we have invested heavily in R&D, focusing on the best high-value-added product business opportunity in the coming years. Taking note of offers satellites as an example. We not only continue to developing high-power semiconductor devices for signal transmission and the reception between satellites, but also provide customers with data transmission solutions between satellites to get away. Meanwhile, to meet the further demand for AI data centers, We not only participate in industry alliance to keep open cooperation with upstream and downstream suppliers, but also collaborate with several customers to develop related optical data transmission reception and also modulation components, as well as optical driver IDs. We aim for This development to become another mid- to long-term screwdriver on top of mobile wireless communication. Looking ahead to the fourth quarter of 2024, as the demand in China's smartphone market remains weak and the peak season of Wi-Fi 7 PA inventory fields for the new model launch in the second half of this year has passed, Okay. Okay.

Okay, it's our pleasure to present our financial results for the third quarter of 2024. Please refer to the presentation slides. We, starting from page two, please read all the steps after notice, and then, starting from page four, we discussed about revenue and the margin. And the Q3 24 revenue was 4.35 billion and the QOQ down 12% and the YOY was up 4%. has been mentioned by Steve on his management comments for the Q3 revenue down the most of the sector will be the cellular and the Wi-Fi which is on the high volume the high volume business. And because of that, the high volume business went down most, so the utilization rate also went down significantly to 50% from 55% last quarter. and then making the unit cost went up dramatically and then impact the growth margin. So therefore the growth margin declined by 5.6 percentage points to become the 21.6%. And operating margin therefore also declined 7.2 percentage points to become 2.9%. And because of the cellular and the Wi-Fi, the weaker of the cellular and Wi-Fi demand in Q3, and given the lower inventory pull-in by customer and also decline the utilization rate, therefore the earnings, please take a look on the page five. The net profit attributable to the parent company was 228 million NT and therefore the Q3 EPS was $0.54 NTD. The accumulated Q1 to Q3, the EPS was $2.64. That's for the income statement from top line to the bottom line. And now, please refer to the page six we can discuss about the problem in Q3. In Q3, as we mentioned, the measure, the slowdown mainly coming from cellular and the Wi-Fi. So you see that the cellular PA The percentage was between 35 and 40%. It went down from 40 to 50% in last quarter. And the Wi-Fi, it looks like, remained on the same range, between 15 and 20. But actually, we still have the double digit of slowdown. and the infrastructure. See that the infrastructure maintained about between 25 and 30%. And actually, the QOQ only went down about low single digits, which is better than our expectation in the very beginning. The overall, we see that infrastructure has a better performance this year from last year. And finally, the optical business is 16% of the total revenue. is coming from 12% last quarter. In this quarter, optical is the only factor which is growth of the business. That's all because of the The second half, new fraction model launched the new model on time and then exactly benefits our customer, which is pretty same thing. And so that's what happened. And next page, please click to page seven. talk about our guidance for Q4. I think Steve's management comment has already mentioned it. We expect Q4 revenue to be kind about mixing QOQ. I think the reason and pretty much the same as Q3. which means that we see that the China smartphone market still remain weak and Wi-Fi, I think the Wi-Fi pool, the inventory pooling for the second half new model almost over. and so the high season, the peak season for the inventory pool for the second half new model of Wi-Fi components, I mean the Wi-Fi TA, the peak is already happened between Q2 and the Q3 and the Q4, we see that the Cygnetis are going down. This is the two major products will be weaker in Q4. On the contrary, we see the rest of the infrastructure and optical business will remain fresh in Q4, which is good. And then, however, because of revenue going down mid-teen, we expect the utilization also will impact it again. And then, so the growth margin also impacts the growth margin to be around the level of high teens. That's our view for Q4. Okay. After a couple pages of summary, then we can quickly go to the financial results, financial statement. First of all, the income statement for Q3. Before I begin, any number of figures I mentioned will be on audited basis, and the actual results should be based on The Q3 net revenue was 4348 million NT and QOQ was down 12% while YY was up 4%. And the growth profit was 938 million and the growth margin become 21.6%. and under the 50% of the utilization rate you see that the most similar utilization rate is a year ago Q3 also 50% and the growth margin is pretty close to this quarter. And operating expense is $813 million. Although this figure is lower than last quarter, however, because of QC's top line, QOQ is down 12%. So the operating ratio was a little bit higher, become 19%, and therefore the operating income was 125 million NT. So operating margin become 2.9%. And the non-op item was the non-operation income was 121 So the income before income tax was 247, and then the net income becomes 210 NT dollars. 210 million, sorry, 210 million NT dollars, and the net margin was 4.8%. The net profit attributable to the parent company becomes 228 million NT dollars. So the EPS for this quarter was 0.54 NT. And the ROE for this quarter is 2% and depreciation expense $1133 million. It was a little bit lower than last quarter. But the CapEx is $424 million, a little bit higher than last quarter. So that's the Q3 number. And now, we go to the page 10. accumulated Q1 to Q3. The net revenue was $13,754,000,000 NT and the YOY was up 25%. The gross profit $3,284,000,000 and then therefore the gross margin for the Q1 to Q3 is 23.9%. Operating ratio for the three quarters total was 18% and operating income was 810,000,000 and therefore operating margin become 5.9%. The income before income tax was 1011,000,000 for the net income for the accumulated three-quarter was 870 million. The net profit attributable to the parent company becomes 1120 million, and therefore the ETS for the first three-quarter was $2.64. And the return on equity, for the first three quarters was 4%. And the operating utilization rate was 55% average, and the depreciation expense was pretty close to the same term last year, was $3,462 million. The top half, is lower than, our expectation is also lower than the same term of last year. It becomes $1,070,000,000. Okay, this is the income statement for the first three quarters. In the next page, on page 11, It's a non-op item. I think we can leave it for your own reference. And the last page on my presentation slide will be the page chart. It's a balance sheet. At the September 30th, 2024, The cash in the cash equivalent was $5,673,000,000. The total assets was $64,209,000,000. And the total liability was $26,009,000,000. And therefore, the tax ratio, it went down 1% to become only 1%. The total equity went up to $38,200,000,000. And also the full value for share also went up to $87,029 from 86.52 last quarter. So then finally, the same ratio of 41 and the current ratio It went up from 110 to 141%. That's my part. Okay, now we can begin the Q&A. Please submit your question in the input box on the webcast window now. Thank you.

Okay, first, I think I will update some more pictures about the Q4 guidance, about the application statements. For Q4, right now, what we see, the optical and the impact structure should be flat-ish. and due to the smartphone is weaker than Q3 so we see no matter cellular PA and Wi-Fi PA that will be also the kind in Q4 yeah so for the fourth segment look like optical and infrastructure will maintain effect but There is a question asking about related to Wi-Fi. The question is when all of the new model of the U.S.

Q1 smartphone launched this year, adopting Wi-Fi 7. Do we see this kind of adoption will also happening in the Android market? And something like that. And then some other also, I will talk about some other view about Wi-Fi. First of all, Yeah, thanks to the Wi-Fi 7 this year and actually we already have a customer who stepped into the 301 smartphone market last year which is still Wi-Fi 16 but this year their share remains strong and also when see all of the new model this year, a Q1 smartphone adopting Wi-Fi 7 and then bring the significant growth for the business. And then we also see a part of the Wi-Fi router customer also adopting Wi-Fi 7. At the same time, they still We are still shipping the Wi-Fi 5 and Wi-Fi 6 but already see the adoption happen in the Wi-Fi router for Wi-Fi 7 and that's a good thing. And then regarding the Android market, actually Wi-Fi 7 The first adoption should be in the Samsung fraction model, which is earlier, very early of this year. And we expecting this kind of adoption from the tier one smartphone market, including Samsung, including iOS, the more adoption for Wi-Fi 7 is supposed to have more adoption happen in the rest of the Android market and year over year from the high end to the mid end from the mid end to the low end that's based on the experience in the past And because of that, I will also update some of the numbers for our Wi-Fi business growth in Winstanding. For example, actually, Steve Merriman-Thomann has mentioned that our Q3 Wi-Fi business YOY has growth about 50% and accumulated Q1 to Q3 the Wi-Fi business growth more than 70% which is making the Wi-Fi business the strongest product in WinSemi for the year of 2024. Although we expecting for QO2 basis Wi-Fi business were going down because the peak season has been ended. But the Wi-Fi business and Wi-Fi product should be the strongest product for the whole year of 2024 in WinSemi, no doubt. Thank you.

Okay, there's a lot of question was written. Is Samsung increase the new vendor list for some China supplier will benefit from this? Actually, I think Yeah, I think both of the new vendors in the vendor list, I think they are all famous customers, especially in those China design houses. And definitely that we can definitely benefit from those new opportunities in Samsung with our customers in the future. Yeah. Yeah, but because of, as everybody knows, eSIM is always taking the technology leading position in the foundry market, and we always will provide the most advanced technology to our customers to design a better value-added product. to compete in the market. So it's really, again, showing that wind-saming technology can provide our customers a very, very added process of making their product become more high-performance to join the Tier 1 Samsung vendor list. Yeah, so I think maybe that will not really directly give us some rush order in the very short term, but I think for long term, it definitely will increasing. We then need coverage for all those tier one high-end smartphone customers with this picture.

Okay, there's a couple of questions asking about the infrastructure business. It's about asking about the infrastructure for this year and then for the future and also the growth driver, something like that. I put it all together. And first of all, We have to admit that infrastructure demand has been weaker for a while since the 23 and the beginning of 24. And starting from Q2 this year, we see some kind of inventory replenishment happen in Q2. In the very beginning, we don't expect Q3 will happen the same, but the Q3 actually come out only down about low single digit pushes, better than our expectations. So that's making the The Q2, Q3s all become Y0Y growth and then the accumulator Q1 to Q3 the accumulator Q1 to Q3 we see infrastructure growth is growing about double digits and I think the most difference between this year and the last year were coming from some momentum from satellite industry and satellite business. Of course, low earth orbit is a major one and then except that, we also see some other than LEO and GEO and NEO customer also have a very good growth in this year. And I'm making the overview, you know, in the very beginning we feel In the very beginning, we expect the whole year of the infrastructure may not be growth or even only fresh, but now it looks like infrastructure become better. As I mentioned, for YYY basis, the first three quarter infrastructure have double digit growth. and the Q4 is the guidance for infrastructure and traffic that's also good. So, I think that taking the satellite business as an example, we already in the suppression of low earth orbit industry, and then we providing the components for the high power semiconductor devices for the signal transmission between satellite. And also, we do have a customer also working on the Data Transmission between Satellite and Gateway. So, even more, this kind of is coming. So, I think that making the infrastructure become a better performance in this year. So, yeah, this is about Impact Software is the question. Thank you. Okay, there is a couple of questions asking about the AI application WinSandy involves, and also the suppression regarding the silicon photonics, something like that, which is a touch of our optical business. Okay, in general, because of AI, the huge data array is going up, and so that's pushing the are part of our optical customer doing more aggressive involved with WinSemi developing the technology between not only the server-to-server, server-to-lead, lead-to-spine, and also the data center interconnect those kind of applications and because the inside the optical transceiver no matter the data transmission the laser dial or photodetector, modulator, modulator driver, optical driver those kind of components the compound semiconductor is the major application and also in the silicon photonics. The LIFOs have to leverage the compound family, especially 3-5 compound semiconductor. So, give us some opportunity. A couple of customers have some technology development with WinSemi. Again, the components involving like a laser, laser dial, photodetector, and the modulator and the modulator driver, those kind of applications. So, that's from now on, we put a We already put a lot of resources and we will continue to input a lot of especially R&D with our customers. That's regarding the AI and AI data center and silicon programming. Thank you.

Okay, I think there is some question about the euthanasia rate and I think I think for Q4 definitely because of everything is going down and so I think right now what we suppose the euthanasia rate maybe still will going down with the revenue especially we just mentioned most of the decline for Q4 will come from cell and Wi-Fi low segment and so the impact of the bottom maybe will hurt the revenue so I think we suppose the refrigeration rate will go down um and on the other question that is about our new Kaohsiung Fab I think we already have mentioned that before that right now we just finished the shell that means the building themselves but For the cleaning and equipment, I think it's well pending until we see much bigger improvements from the acceleration rate. Thank you.

Okay, I think there is a point on last, our main section has a investor, the question about the, in the past couple of order, we have explained some impact from our, Our subsidiary holding from our China customers listed here and because of their stock price volatility impact the growth margin in the past few quarters and then how come this quarter we haven't mentioned anything about that. I think I would like to add up about this question in this hour. That's because the normally that will, based on their closing stock price quarter by quarter to evaluate any kind of impact and for the end of Q2 almost are very close to end of Q3 stock price. So that's why the impact is very, very limited, very, very minor. So we can skip that from the impact of any growth margin or the revenue for the Q3. that's the reason why thank you Okay, there are no further questions on the question box, so thank you for your participation in the WINSANES conference. There will be a webcast replay within hours, and so please visit www.winsboundary.com under the investor relations Thank you very much and you may now disconnect. Thank you and goodbye.