Hello, and welcome to the Mellexis Q1 2020 results call hosted by Francoise Schomba, CEO, and Karen Van Greensforn, CFO. I will now hand you over to Francoise Schomba to begin. Thank you.
Thank you, Rosie. So the audience, both Karen Magrinssen, our CFO and myself, we sincerely hope that you and your close ones are safe and you keep healthy in these unprecedented corona times. This being said, the show must go on. And so here we are with our usual earnings conference call for the first quarter 2020, and we are all doing that from home. As usual, we'll give a brief introduction on where the business and our financials stand.
And as usual, we will be glad to reply to your questions the best we can. Melexis had a solid start of the year. Our sales grew 19% year over year and 9% sequentially. This is at the high end of the sales guidance we provided. The lockdowns in several countries at the end of the quarter led to OEM plants and dealership closures, and also to many of our customers shutting down their operations, out of health and safety considerations, mobility restrictions or plane lack of parts.
If we would not have had this end of March corona impact, our sales were heading for more than 1,000,000 in Q1. Sales per geography was back to more historic levels for Asia Pacific. Clearly with, 51% the region bounced back strongly versus the same quarter of last year. And that despite the China lockdown situation in the first quarter. We saw indeed a pretty fast recovery to close to normal operations in China, both with our direct customers and through our distribution channel.
Based on the latest data points, worldwide car sales dropped around 28% in the first quarter. With all regions being hit, China, the heaviest, with over 40% and Europe, the least with around 7% in the minus. On the back of these figures, the significant and nonhomogeneous impact of COVID-nineteen across the world and different supply and demand disruptions it is impossible for now to fabricate either a quarter 2 or a full year 2020 guidance. We reckon this uncertainty will continue for many weeks to come. Some positive notes though I wish to make for the short term are two holes.
On the one hand, our inventories downstream and in our distribution channel, are on the low side. And 2, if you remember, our previous 10% growth guidance factored in another year of lukewarm end market demand already with worldwide sales below 2019 levels. Now long term, and as you can see from the Q1 results, being a proof of that, the secular automotive, semiconductor content growth trends remain intact. It's also noteworthy that our adjacent business outperformed. So the return back to growth current slowdown does not change our view on the market and its growth potential.
Going forward, the Lexus values are our best vaccine. We care. Our priority is in the first place with the health and safety of our people. Most of our people worldwide have been working from their home office. And we did that pretty quickly and without any issues.
And some of our test sites are now split up in 2 alternating teams to mitigate infection risk. We, of course, remain on the customer side. Our goal is to deliver on our commitments as best we can within the boundaries of what is or will be feasible. The supply chain upstream on the assembly side mostly is affected for now, and we always have a plan. Our focus continues to change our view on the market and its growth potential.
Adam, I'm handing it over to you now for the financials.
Thank you, Frank. Good morning, ladies and gentlemen. So for the For the first quarter, we had sales of 1,000,000. An increase of 19% compared to the same quarter as the previous year and 9% compared to the previous quarters. The growth results was 56,000,000 or 40.6 percent of sales, an increase of 20% compared to the same quarter of last year and an increase of 11% compared to the previous quarter.
R and D expenses were 14.9 percent of sales. G and A was at 5.7 percent of sales. And selling was at 2.7 percent of the. Operating results was 24,000,000 or 17.4% of sales, an increase of 52% compared to the same quarter of last year, and an increase of 31% compared to the previous quarter. The net loss result was 1,000,000 or €0.51 per share, an increase of 48% compared to 13 900,000 or €0.35 per share in the first quarter of 2019.
And an increase of 30 So these are the financials for the 1st quarter. We would now actually like to open the question and answer session.
You will be advised when to go
ahead. First question comes from the line of Francoise from UBS. Please go ahead.
Good morning. Thank you very much. I have a couple of questions if it's possible. The first one is on your visibility that remains low and I understand it's a very challenging times. Could you maybe give us some trend that you see at least for what you know, for example, March April, what is the trend that you see on your performance?
Okay. Well, indeed, the visibility is it 3 Milo at this moment, the, the lockdowns in several countries are in different, modes. Let's say some are, some are done. Like in China, they are operating again. South Korea was very fast up, but then, we have no we have little visibility on the demand side.
But also on the supply side. On the demand side as well, it came at a very, yeah, in the beginning, really, at the end of the quarter and the beginning of the next quarter, many of the customers, that are direct customers are now slowly resuming operations. And we believe that as they come back, from from their lockdown. Though some of the systems have continued rolling and they have adapted. So we have seen, many changes over the last, 3 weeks, let's say, and the changes are, are continuing.
So some are automatic changes from systems. But we also see that some of the, of the plants, when they reopen, they, check which lines can go up because, as you know, our supply chain, the whole automotive supply chain is pretty complex with many, many, tiers in, in the, in the line over subcontractors that make, printed circuit boards and then populate them, etcetera. So all these parts need to come together. Some moment in time. And if, one part is missing, they just simply cannot start up the line.
And then Sometimes they, they push out surgery until they know that they will have sufficient parts to, start. A line or several lines. That's why the visibility is extremely low at this moment in time. And, you know, we are always We always try to be as realistic as possible, and I know it's unprecedented that we don't have visibility, but then also this situation is quite unprecedented. And I'm sure there will be lessons learned in the future when we when we, yeah, look back in hindsight, and we'll all be wiser, after that.
But today, I think it's even if I know that some peers are giving some visibility, I think it is too soon to be able to understand what the impact will Though we do see some shifts, but not many in the development projects, in the R and D projects that are going on. There might be some delay, but not a lot of delay. So, that's why we are confident that long term trends, the secular trends that we have been seeing in the past, electrification, personalization, and, assisted drive. They continue to be, important And definitely, let's face it. Climate change is has not receded even if, we've given the earth a little bit of a breath, let's say, due to, no flying, etcetera.
The the climate change is still there. That means that, what we believe and what we also observe from, information that comes from OEMs is that, they even if they might have some, short term, liking to, shifting some of the measures, from government, some legislation, In the end, it will be there, and it might come back, much heavier than before. So maybe there is a slight delay but then, there could be breakthrough. And you will see, if you look at our, presentation, that we published on the website. We've put in some assumptions there, on car sales, but you will also see that from a powertrain or a body shop safety perspective in cars we see no big change or no big negative change on the country.
I think we see a continuation of those secular trends in the coming years.
Yeah. Yeah. It does. I was just wondering, do you have the March and April at least visibility now with that we are almost done or you don't have that either?
Well, of of of course, we have a view on April, but it's not something that we, publish. Of course, at this moment in time. And and it and let's face it. It's also not necessarily a representative, what we see in March in, in April. Sorry.
So we did see end of March, and that's that's what we we mentioned. We did see the first sign that's push out, the last 2 weeks as much. Otherwise, we wouldn't come over our guidance, and we would have been above, 140,000,000. But nevertheless, April, you cannot see this as being representative for the rest of the quarter because it is extremely fluid at this moment. So we've referred to be realistic and say the truth, namely, there is no visibility at this moment.
Okay. That's very clear. The second question I had is on your inventory comments when you said that makes its product is low. And of course, it makes sense. I mean, if you look at the performance of last year, versus the industry, you could think that you had some destocking.
Now if I look at Q1, I mean, you have revenues above 19% year over year. And in your remarks, you said that the sales are down like 28% year over year. The production probably is better than that 28%, but still nevertheless, probably negative. So we see a very significant outperformance of Melexis and even Melexis product to some extent because even versus your peers, you are out there from a longer from a big range. So my question is, even if we ended the year maybe 'nineteen with low inventories, don't you think that Q1, Q2, you will have a significant build up or an accelerated build up, I should say.
Given the current environment of your products.
Could you repeat that last question, please? Whether it would be
Whether you're seeing yeah.
Yeah. Go ahead.
I was just wondering because q 1, q 1 is very strong from your sales. Right? Yeah. Yeah. And the sales are down significantly in q 1.
Production probably down. So Given this peak outperformance, do you expect Q1 and Q2 basically to have a significant buildup of your products in the supply chain?
A buildup of Lexus products in the supply chain and you mean that now upstream or downstream?
I mean, the downstream, basically.
Downstream, meaning towards our customers. Yes. Okay. Hard to say at this moment, It could be it could be both ways. It could be that some, customers build up safety stocks That is possible.
Not that we have a lot of indications, that they're doing that, but I guess they wouldn't tell us if they would build up stock, not at this time, because that's the usual human reaction to it. It could be that they're building up stock. We rather, but because also the inventory levels that they have or that they have, let's say before, the corona coma, started were pretty low. They were not really high, which was very different at the end of 18. Where we have this this heavy bullwhip effect.
We will have a bullwhip effect again, probably but it's on it will be much more chaotic, than before because this, of course, is different across, across the world. The countries are in different states of of lockdown. Now, if you look at what the expectations are on are sales, they are going to be significantly down, in our, presentation. We said, okay. We were at, at around Give me a second here.
Let me take that to make sure I use this the the right data. So we were at close to 90,000,000 in 19, and that is car, production. Not sales, global vehicle production. We look rather or we assume, and that's an assumption again because it's about the future. We assume that 2020 will be rather closer to 17.
So from 90 to 70 in production. Production rates in Q1 were not down that much. They were, more or less, I think 7% down.
Yeah. So
in the 1st quarter, but we don't have a lot of data here yet on car production. Then, of course, if all the OEMs are closed for a couple of weeks in April, then, yeah, you lose already a month. It's not something that you compensate easy,
Okay, that's very clear. Thank you for the color. Maybe just a one quick question current on the cash flow, given the significant impact that you mentioned in the release in Q2, How should we think about the cash flow and how do you plan to manage that?
Cash flow for as we don't give any guidance, also the cash flow is difficult to guide on. Accounts receivable are quite well on control so far. So, so so, yeah, we we don't expect major fallouts in payments or whatever stage. The inventory is a lot more difficult to to, I mean, in both cases, we we are not sure how much sales we hold you. So it's difficult for the security power.
Our, our cash flow, inventories, will most likely go up rather than down, as the end of month in the market is, is definitely going I mean, the car sales are are highly under pressure for the new ones. So that, I mean, for the moment, what we saw so far is that, finished goods are reducing but, new material coming in is rather increasing the stock. So that's why in Q1, we had still a relative limited impact. However, in q 2, we will probably see more impact with increased inventories. How much again, and it's very difficult to predict.
All in all, obviously, Alexis has a very, very good I mean, our cash position is is quite high. We make cash in Q1. We also have, more than sufficient, unused debt capacity. So, obviously, cash flow wise, we we are not worried. No matter what the cash flow would do in Q2 and even Q3 the rest of the year.
That's very good.
Thank you very much.
Does that answer your question? Yeah.
Yes, perfect. And last one, then I'll leave the floor tonight to my peers, of course, is we talked a lot about short term, because of my question, but more like Francois maybe a question medium term, I mean, do you think that it will impact you said that it's still the same? There is no change to fundamentals. But, obviously, we are going through a significant crisis and, and, uncertain time, does it change at all? I mean, you think the perception of the auto car industry in the medium term?
I mean, I'm not singing, like, in fact, just on the line, but at least, you know, 1 to 2 years horizon, do you think, this, this could impact you know, see if we can see significantly your industry.
Well,
Definitely. I think the industry will, will change significantly. Let's remind you as, as climate change is not going away or has not gone away, also the the trade war is, is is still very much there. So I believe that the trend that had been started, with the trade tensions, already for, for quite some time, has led already to, changes of, so our customers down the line are are rearranging their supply lines, and, building up as much as possible, regional, regional supply chain. So there is a trend, towards the globalization as such.
Definitely for the semiconductor industry, let's say that Midexis is still very lucky to be a European based, semiconductor company. And therefore, we can deliver, ammunition to both parties, let's say, that puts us in a bit more comfortable position. Nevertheless, it does, impact all the bureaucracy, etcetera, that, that we get. The change of the industry will probably also has to do with how consumers will react to, to this, pandemic. And to the consequences of the pandemic in Europe where there's a good social security net.
Income will maybe not so heavily be impacted. In the US, it's very different. In China, we see that that, yeah, things are, pretty much under control. And in the rest of Asia, definitely South Korea, for example, and even Japan. But if you look at it, people, will look at the car maybe in a different way.
It's, maybe one of the more safer ways to get from a to b. And people will choose their health ahead of, taking care of the climate. So I think this might, even lead to, an overcompensation there. At the same time, in areas like the U. S.
Where, people have no social or almost no social security, safety net, it could be that, car sales do get more down because people just don't have the, the, financial clout to to buy new cars. And then you have this oil situation, which, yeah, fuel is is cheap at at this moment. And you have all digitization many people working from home, reducing traffic, meaning, yeah, it might it might also increase the likelihood of, people going, taking the car to, drive to work. People, also taking holidays more in the neighborhood, which makes them use cars more as well. In that sense, I think it really largely depends on how consumers will react to this.
Which, there are some positive signs for the auto industry that are also, some more negative signs. All in all, again, midterm, this might all play out. Longer term, we still see the secular trends, being much more being continued, let's say, from the past.
The next question
comes from
the line of Varun Raju from JP Morgan. Please go ahead.
Yeah. Hi. Thanks for letting me on. I have a couple of questions. Maybe I'll just go through the questions 1 by 1.
Now first question, obviously, I appreciate that, you know, you have limited visibility at this time. But given what you're seeing in some of your Asian markets, as most of your Asian customers are coming back online and they're resuming operations, you made a comment stating that you've seen a very fast recovery in Asia. So if we just sort of extrapolate that to, you know, Europe and the US, is it fair to assume that, 2Q will be a tough quarter, followed by, you know, rapid recovery in 3Q and 4Q? Is that how you are looking, at the quarterly sales evolution? And, you know, on on the sales itself, you had previously guided for up to 10% sales growth, and that was based on an assumption of production decline, you know, slight production decline.
Now given that production decline now looks to be, you know, somewhere around 25% year on year. And based on your expectation of milder inventory correction, is it fair to assume that Alexis sales will sales performance will be, you know, roughly 5 to 10% better than unit production, decline for 2020?
Okay. If if I understood you well, you're trying to find out if Q2 will be the bottom. And it will see recovery in Q3, Q4. Right? Yep.
Yeah. You make a lot of assumptions, here, and it really depends on how these assumptions would play out. But I think the option that you mentioned is a possibility, whether it's a highly likely possibility I honestly don't want to, to make that statement at, at this time.
It's possible. Yeah.
Okay. And then for the full year, do you see Mellexis sales performance 5 to 10% better than the overall unit production decline? Based on the content growth and assuming milder inventory correction?
There is always there is not only this volume side of things. There is also the time delay side of it. And that's why it's very hard to make any even an educated guess about how, the full year will play out. So I prefer not to answer this at this time. Maybe in the quarter, I can answer that one, but not now.
I hope you understand.
That's fair. And I have a question on, your margin. So, obviously, you know, there is some negative impact to your gross margin from under utilization of test capacity. And previously, you had indicated that this would have a negative impact of roughly 3 percentage points. Now given the kind of decline in sales that you're expecting, how should we think about gross margin evolution from here?
And I asked this because there is a lot of this portion, even within sell side estimates So any color on gross margin would be very helpful.
Yeah. So this margin without the guidance, it's, it's it's very difficult, I would say. So I I don't know what you want me to offer this. What are you expecting exactly in guidance?
I mean, if you can just give us, you know, some sensitivity as to, you know, how much decline should we expect in gross margin for a given decline in this level. Not looking for your guidance, but just in terms of, you know, a framework to understand how we should think about those margin evolutions.
Mhmm. Well, today, the fixed costs in, are around 19 and might drop a bit because of temporary unemployment for other periods. I mean, but that gives you a bit of a guidance on how your gross margin, how the gross margin could evolve over the next quarters? Is that sufficient time?
Sorry. Can you repeat that? I didn't really catch the first
cost is around 19,000,000 in Q1 anyway, in in the the part of fixed cost in the in the growth costs. And this will reduce somewhat with maybe a few 1,000,000 maximum. Because of temporary unemployment, and so on. But but we will speak to that I mean, that fixed cost will only mean to a big extent. So from that, if you know that, then you can also depending on sales evolution, more or less make an assumption on gross margin.
Understood. Understood. Well, that's very helpful. And, finally, on OpEx, your quarterly run rate is currently around 32,000,000. Is that the kind of run rate that we should assume through the year, or is there any flex around your topics as well?
Excuse me. Sorry. I'm not sure
I just wanted to understand is, you know, your current quarterly, operating expense run rate of 32,000,000. Is that should we assume that for the rest of the year, or, is there any flexibility in your operating expenses?
It's there will be some flexibility, depending on unemployment, and also here, there's some other cost That's all a bit related to sales. It's all I mean, the overall creating cost of goods it's difficult to to put an exact number on it. It's minimum 3, 4,000,000. I think we can reduce it in the next quarter. Because we don't what is still not clear is how much an appointment, we will have in the 4th session.
Understood. That's very clear. Thank you.
The next question comes from the line of Tobias Lynn Hertz from Kepler Cheuvreux. Please go ahead.
Yeah. Hi. Good morning. This question is actually on a CapEx. I kindly call that originally our CapEx up versus, last year, of course, a lot of disruption.
So, how how should we think about CapEx so that we cut the bare minimum, or will you continue to invest for for long term production capacity to be flexible when when the turn is there? That's my first.
Yeah. The the CapEx in Q1 is indeed quite low versus the the guidance we gave of around 40,000,000. However, half of the the investment is in facilities, among mainly in the the Bulgaria investments in a new facility. This is continuing. So, yeah, we we intend to to, yeah, finalize most of that investment in, that is according to plan in 2020, on the CapEx for the for the equipment, for the test equipment, and so on.
Also there. Yeah. The the what we have planned is, mostly CapEx for new projects or new new lines and also there, we intend to continue with these assessments. Here and there, there might be a big but not substantial. Moreover, yeah, we also have some opportunities like health care opportunities.
So that might lead here and there's still an additional capacity the extension. So all in all, we still it might be a bit lower than the initial guidance, but but we we speak to investment case of y'all close to 1435, 40,000,000 still.
Right. Can you take the tablet please?
No. That's clear. Could could you maybe give the split between the the the cup for the buildings and the testing equipment?
So for the 40 around 20, around half, it's, it's for, extension in mostly in in that it's a few 1,000,000 that is in other side, but almost the full, 20,000,000 is going into the investment in book area.
Okay. And then then a second question is actually on on launch delays. And I kinda understand it, but But if you think about launching new products, is that something that you are postponing for the rest of the year or is that just a process that will continue to go and what can we expect in terms of new launches versus versus last year? Is it going to be significantly higher? Is the innovation rate, I would say it's lower now?
Some more color on that, please?
No. The launches are growing as, as planned. And there is no slowdown.
Okay. And then maybe last question is on on the order concentration. Can you maybe give us a little bit of an idea of what are the largest customers or how big is customer concentration? And how is that managed? Is there credit insurance in place or do you take just the risk on balance sheet?
Karen, could you take that one? I think,
or you can comment afterwards? No. That is indeed, no credit insurance. It's the way it works for the last 30 years. But then I'm not supposed to say I mean, the the concentration for one customer is not so high.
We have, for instance, for for one delivery, company company we're delivering. Because in many cases, we have, for instance, customers like TransAlta, That is, yeah, 16, 16% of our sales, but we we, shipped to, yeah, I think 6 or 7. I am not sure how many, but they have many contractors. Yeah. Yeah.
So many, many subcontractors. So the rates for, suppliers, for for, delivery or just for, customer we shipped to is usually not more than 5,000,000. That is already a lot in our in our collection. So the spread is quite it's it's it's quite spread over many, many different customers.
Alright. Yes. And as I
mentioned before, Yeah. The collection process is going quite quite well, so we don't have major delays in our collection process.
I wanted to add that indeed that, there is a very good credit control in Alexis. They're excellent doing what they do. And customer concentration as a whole. So, of course, Gavin mentioned different supply location or delivery locations. The customer concentration and customer concentration for Alexis has not changed the loss versus the past.
So the top 10 is still around the half of our business.
Okay, very clear. Thank you very much.
The next question comes from the line of Mark Heffling from ING. Please go ahead.
A customer's that you mentioned, obviously, that's controlling it. I'm wondering how how they share feasibility and how deep into the supply chain is that in that feasibility. I think you mentioned earlier, Joe, you still expect a little bit of a direct effect. Do you have any feel on on how big the entries are further settled down the line? Next to your direct direct direct to your clients.
Yeah. Yes. So we we do follow, now since, a couple of years, we do follow the inventory levels of our customers overall. But, of course, there's a time delay because you, you only see that officially as a home, when the quarter quarterly results come, we do have some customers that we follow ourselves, to understand exactly what inventory they have, on Lexus products. So we've chosen some customers that we have learned are a bit of, of a parameter for, for the health of the inventories across the board.
So meanwhile know which customers, we can trust their, their information, as such. Overall, we that so both the overall inventory levels that have a quarter So the delay that the Portuguese itself and the ones that we do in direct. And by the way, also our distribution channel, which, of course, they need to, to report on that, very frequently. On all levels, we see more or less that they are on the one hand, on the lower side, and on the other hand, they are stable. And, on the OEM side, we see that it's rather going, down so that there is a decline, for example, in q 4, there is a there was a slight decline, and they came back to levels that are, more, let's say, natural more the 2018 level GSE.
So it's it's a bit everywhere, downstream in the supply chain that we see that inventories are, healthy at a relatively stable level. Was it that that you were seeking for?
Yeah. Yeah. Exactly. Just a little bit extra color on it. That's clear.
Thanks. The second one is on, which also mentioned in the press release and also giving you a call, maybe some opportunities with with temperature sensors and and health care in general. Could you elaborate a bit more on that, like, what you're seeing and also maybe, yeah, how how big can that can that be for you?
Yeah.
Well, let let me first, say that temperature sensors are only a fraction of our business. But temperature sensing the the technology we have been investing into for probably 20 years now. So we know it extremely well. And I've talked about that in previous earnings calls that the, one of the the the the nice products that we that we have, even 2 innovation awards for, is a very, accurate medical grade, small factor, for small size, temperature sensor that can fit in a in a lot of, let's say, consumer health, but also professional health, applications. And we have seen since the beginning of the year already an highly increased interest in, not only that product, but also the other products that we have been carrying already for a long time.
And we've seen new applications coming on board. For example, diagnostics, in diagnostics, you need to keep the temperature stable in order to have a a good measurement. We have that, for example, already in diagnostics, equipment that measure the level of cholera, in bacteria in in in 2nd and third world countries, or after a a disaster happens, these were smaller quantities. But what we now see is that diagnostics, for example, for COVID-nineteen, us, yeah, multiplying, and we need a lot of them. So we do see a surge of, of such applications, in the past couple of months, which in our view are sustainable.
So we are very careful not to, let's say, let us carry carry the way, let us be carried away, by the hype of the moment. We really dig deep into, yeah, what is it exactly? And, is that sustainable? And of course, there will be a slight peak, but we also see that it is sustainable because more and more people, want to monitor their health or, companies want to install access control for the employees or governments want to install, quite some, headpoints for, all the citizens, in their country or the ones that entering, the, the country. So we do look into every new customer that comes on board.
Many of the customers that have increased recently, our customers that are were already working with us. So we really look at the sustainability of this business as well. And, today, it's not materially impacting our numbers, our sales numbers because, okay, we have to also, ramp up ramp up, we have to have time to ramp up the, the supply chain and the numbers. But mid to long term, yeah, it can become an important growth driver. And that's good because, for example, on that, very tiny device, we have, no drop in replacement anywhere because it's the smallest one and it's with the best accuracy, fit for medical grade.
Okay. Okay. Thank you. Is that the is that okay?
Yeah. Yeah. It's good. Thank you. Thanks.
Okay. The
next question comes from the line of Christophe Van Dekelen from Valley Square. Please go ahead.
Hi, good morning, and thanks for taking my questions. I hope everybody's healthy as well at Alexis. 3, 2 quick ones and one maybe longer one.
I
was wondering if you're monitoring the financial situation upstream and downstream boat at you or while you already talked about downstream, but also upstream, are there any risks there of your suppliers that would come into financial trouble, or, would you see a need to diversify your supply chains more than they are today?
Okay. Yeah. Thank you. Everybody at Alexis is healthy. We have, a very, very few cases.
And none, as far as we could see none that have contracted, the virus at work. Help, measures are in place have been in place, even a bit earlier than than maybe many others because, of course, of our Chinese colleagues who gave us, good inputs. For example, me personally, I'm not shaking hands anymore already since the beginning of February, which in some cases, was seen as ridiculous. I think nobody thinks that anymore. Now on the health of stream, our suppliers, that we work with are all in financial, good health.
I don't have any, any indication that they wouldn't be. The problems that we have, are the consequence of, movement restriction orders, like in Malaysia, for example, or in the Philippines or lockdown situations, or we don't see necessarily because we have a good business continuity planning And in fact, that DCP, checks already started, in January where we made sure that, also our suppliers had, some visibility from us and some allowance from us to make sure that, materials that they need in order to supply to us would be, available. And the the whole business continuity planning that we've done, I mean, we've that is in place already for quite some time. It sometimes needs to be boosted, like, for example, after a earthquake or like this here now, but the process is in place. So we can quickly, run.
Are we looking at second sourcing more? I think not necessarily more than in the past, because our products, and the for example, the packaging, the assembly that we need to do with our products, is very specific. So it takes quite some time It's not always, standard packages that we're using. That means, we need to make good choices at the start. So we do look at financial health, and we even are, yeah, sometimes paying a bit more.
I'm not choosing the the cheapest supplier just because we want to be sure of, getting business continuity. By the way, this is also an requirement as an automotive supplier, you have to. And once you have that, you can apply it to all of your products, including the adjacent ones, of course. So no, I don't see significant change there in our way of working because we already have that in place.
Okay. Thank you. And the second one would be, since you are not facing a double, let me just time and your, your financial situation is a lot better than in 2009, 2008 to 2009. Is there Would you be looking at M And a or doing any deals or, something else on organic growth?
We don't exclude it, but as you know, this has never been, a big, a big focus, but of course, if there are a crisis like this indeed, brings opportunities and, we're always on the lookout for that.
Okay. That was good.
Thank you. And then the last one, whether on health care. You mentioned the the devices that you're that you can use. I was wondering also XUP, which is one of your main buyers is working on a couple of health care, has this in the pipeline? Do you see chances for increasing collaboration with EXHOP in in these fields, or are they in very different applications on Linux?
They are in many different applications, and, of course, some of them we don't carry. But for example, with the temperature sensors, this is, something that we developed in cooperation with itself. Yes.
The next question comes from the line of Michael Roark from Degroof Petercam. Please go ahead.
Yes. Good morning. I have a question about Slide 13 from the presentation. There it shows that car production is expected to have recovered by 2022 with about 90,000,000 units which would be the same as in 2019. However, the mix is much more in favor of electric vehicles and hybrids.
So I was wondering if you could translate that 2022 number into semiconductor automotive market growth versus 2019?
Yeah. Well, if you look at for the electrification, if you look at slide 15 of the presentation, you will, see that translation in 2024, not in 2022. I wouldn't say it is linear. I don't have the, the exact data in my head now. And there's always, there could always be some time, shifts, but I think that the 2024 figure gives you a pretty good, view of how it's already could play out in 2022.
Okay. Good. Then, I'll study the slide 15. Thanks.
Okay. Thank you.
The next question comes from the line of Jonathan Reynolds from Liberum. Please go ahead.
Hi, good morning. Thanks for taking my question. I'm sorry I joined the call a bit late, so I might have missed any comment on this previously. But I'm just looking at how you see a recovery in orders, in the U. S.
And European markets going forward. I think suppliers like ourselves have seen quite a reasonably strong recovery in China once China came out of lockdown, you know, towards the end of February through March and into April. And I understand that many factories, car factories in the U. S. And Europe have started opening up and started limited production.
This week, last week, etcetera. Two questions really. One is, I know it's too early to extrapolate, but has has visibility on these markets improved a little bit, in the last 10 days or so. As you've seen some of these opening ups coming through. And secondly, what is your view on how the recovery will be in the U.
S. And Europe over the next few months as these as and when these markets come out of lockdown or maybe not few months, maybe it's going to take 6 months. So as they do come out of lockdown, would you think they will recover in a similar manner to China? Or do you think the nature of that recovery will be quite different?
Okay. Yeah, I confirmed what you're saying on China. We did see a fast recovery there. Did the visibility improve in the last 7 days? Not really.
No. Otherwise, we could have said something, about it, in our press release. The view on, the recovery in, Europe, and the US I think is probably, and this is a personal, assessment of mine, is probably not going to be, as fast as, as in China. But as I said before, and maybe you were indeed not in, there as, or not have been present yet, it will largely depend on how customers will react And there's many different ways, in which, consumers could react as far as buying a car. Yeah, it's this it's one of the safest mobility solutions at this time.
Next to maybe bytes and motorcycles, which, by the way, is also a focus of Lexus. And one of the reasons why the adjacent markets are, have recovered with Q4 and Q1. Or at least the adjacent market portion of the Menexus business has improved. But consumers probably see a car as a very safe way of getting from a to b, whether it's for work or for holidays. As they cannot fly now, they might want to, go more on a holiday, close by, and that may mean the car because public transport, trains, etcetera, they are not seen as, as as so very safe for for your health.
It could also there is also the aspects of, of, the U. S, for example, where there is not such a good social safety net as there is in Europe, which would probably also impact the willingness or even the ability of families to, go and buy cars. So it can go in many, many different directions. That's why recovery, will be a bit different, I guess, in the in Europe and the US versus what we've seen in Asia.
Understood. Thank you very much.
You're welcome. We have no further questions in queue I will now hand the call back to Franco for any concluding remarks.
Okay. Thank you, Rosie. The audience, our next earnings conference is planned on July 29th. And before that, on May 12th, we will hold our annual shareholders meeting this time in a virtual format. And for now, please do keep safe and stay healthy.
Thank you, and goodbye.
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