Dear investors and friends from the media, good afternoon. Welcome to Lite-On Technology 2022 Q1 earnings conference. Due to the pandemic, this conference is held online. The agenda has three parts. First of all, our CFO, Patricia Chou, will present to you 2022 Q1's financial report and Q2's prospects. President Anson Chiu will speak on our operation planning and growth strategies. We will have a Q&A session. The Q&A procedure this time is slightly adjusted. We will prioritize those who have provided their organization and name upon login. Before asking questions, please click on the Raise Hand button, and our staff will help you turn on your microphone and invite you to speak. Please make sure that your microphone is indeed on, and please mention your organization and name. Please limit the number of your questions to two to ensure others' right to ask questions. Thank you.
Dear investors, good afternoon. I'm going to present to you 2022 Q1's business performance and financial report, as well as Q2's prospects. Q1 net sales TWD 41.23 billion. It benefited from simultaneous growth in all three business segments with overall annual growth of 9%, a record high YoY in the past 4 years. Gross profit TWD 7.067 billion with a 5% annual growth due to product mix optimization. However, due to rising raw material prices and supply chain shortages, GP decreased by 0.7 percentage points YoY. Operating expenses TWD 4.086 billion. The amounts were well controlled and in line with the previous quarter.
The rate is 9.9%, in which R&D has increased to nearly 4% of the total sales with an annual increase of 30%. Operating profit NTD 2.981 billion. It increased by 42% YoY due to GP growth and the good control of operating expenses. Operating profit rate 7.2% with a YoY increase of 1.6 percentage points. Operating profit and its rate were both record highs for the same period. Non-operating income and expense includes the evaluation loss on VIZIO of NTD 1 billion in Q1 2022. Compared to the evaluation gain on VIZIO of NTD 2.6 billion in Q1 2021, this factor results in a bigger YoY difference for this quarter's EPS. Profit attributable to parent NTD 2.104 billion, and the after-tax EPS is 0.92.
Despite the global supply chain and logistics being affected by the pandemic in Q1, we used flexible production scheduling, diversified capacity, and rapid collaboration with partners upstream and downstream to respond to external factors to a manageable extent. Q1 is traditionally a slow season, but in YoY terms, the three major segments still increased their sales and profitability. Their revenue grew by 5%-18%, profitability improved by 5%-76%, and their operating profit growth was greater than revenue growth, reflecting the strategy of being rapid, flexible, resilient, and profitable growth. Among the three segments, optoelectronics and cloud and AIoT have accounted for more than 50% of revenue this year, reaching 52% in Q1.
This fully demonstrates that Lite-On is gradually transforming from a computer-based model to one that focuses on system products such as optoelectronics and cloud, moving towards our goal of 433 product mix, 40% for IT&CE, 30% for optoelectronics, and 30% for cloud and AIoT. In Q1 this year, cloud and AIoT accounted for 31% of the total revenue and has reached 30% of the company's revenue for three consecutive months. Optoelectronics accounted for 21%. IT&CE accounted for 48%. In particular, the IT&CE segment maintains healthy revenue growth. As you can see from the bar chart on the left, since Q1 2020, the revenue of cloud and AIoT and optoelectronics have been growing upward quarter by quarter. The CAGR of the two segments combined is 23%.
Optoelectronics growth came mainly from optosemiconductor IR LED, which grew 13% annually, and automotive electronics, which grew 16% annually. In the cloud and AIoT segment, cloud computing grew strongly at 29% annually, while the AIoT business grew 14%. On the balance sheet, we maintain a highly liquid, stable and lean operating structure, which is increasingly important in the current highly uncertain environment. Compared with the previous quarter, accounts receivable decreased by TWD 3.1 billion and inventory decreased by TWD 1 billion. The working capital demand dropped by TWD 2 billion and the cash turnover days were optimized by five days, maintaining a stable current ratio. The equities are net of the cash dividend of TWD 2.5 per share declared in February this year for Q4 2021, resulting in dividends payable of TWD 5.8 billion.
Net cash TWD 41.2 billion, a decrease of about TWD 11.7 billion YoY. In between, there were two cash dividend payments and the execution of treasury stocks. To conclude for Q1, despite the supply chain impact and pandemic, Lite-On sales and profit were boosted by the efforts of the management team and colleagues, demonstrating operational flexibility, resilience and growth. The Q1 sales were the highest in 4 years YoY. Operating profit and its rate both set new records for the same period. The combined sales of the two new business segments, optoelectronics, including automotive and cloud and AIoT, reached a single quarter high and accounted for 52% of the sales with a CAGR of 23% over the past 2 years. The key to profit improvement comes from core competencies of product mix optimization, supply chain management, and global capacity flexibility.
Without a growing impact of the pandemic on the global supply chain and logistics, it is expected that sales and profit will continue to improve in Q2, with the main axes of growth being cloud, optoelectronics, and automotive electronics. High-end power management products with high wattage, high efficiency, and high density for cloud computing continue to grow in value and market share for data centers and enterprise users. Demand for optoelectronic semiconductors for green energy, industrial control, wearable and AR/VR applications is increasing. The demand for automotive electronics, EV charging stations, automotive lighting, and ADAS is growing rapidly. Several important resolutions of the BOD have recently been made, including cash dividend of NTD 2.5 per share for Q4 2021, which will be distributed on April 22nd.
Accumulated cash dividends for 2021 are NTD 4.5, an annual increase of 32%, a record high, and the dividend distribution rate is 77.5%. Second, we will propose the issuance of employee restricted stock awards at the shareholders' meeting to attract, retain, and motivate key talent to expand R&D and optimize our product mix in order to pursue Lite-On's profitable growth and long-term shareholder profitability, with a view to creating a win-win-win situation for employees, the company, and shareholders.
In addition, the company transferred its outdoor lighting business to a newly established subsidiary, Leotek Corporation, to optimize competitiveness and performance through independent operation and focus resources, which will help promote roadway intelligence together with partners to enhance road safety and implement sustainable development. Finally, the BOD approved the shareholders' meeting to be held on May twentieth. This concludes my presentation. Now, the President will explain operation planning and long-term growth strategy to you. Thank you.
Thank you, Ms. CFO. Now, I'd like to invite the president to talk about our operational planning and growth strategies.
Dear investors, welcome to our earnings conference today. Recently, the pandemic has become more serious, so the conference today is still conducted virtually. Please stay vigilant, safe and healthy. When it comes to the pandemic, I'm sure that you must be most concerned about China's Zero-COVID policy and the fact that lockdowns have been expanding to several cities, starting from Shenzhen, Dongguan to the recent Shanghai, Kunshan and Suzhou. The impact on the entire supply chain has been large, and Lite-On is an important part of the supply chain, so it's not possible for us to stay away from the impact. In Q1 and in Q2, for different sites and for different product lines, there have been different levels of impact. Generally speaking, we have bases in Changzhou, Guangzhou and in Thailand, Vietnam, Kaohsiung, and Mexico.
We have multiple production bases around the world, and due to the pandemic, we enhanced our material inventory, and we have been supported and helped by local partners. The overall impact has been relatively limited as opposed to our overall operation. We mentioned that in Q1, we were able to achieve about 10% YoY growth. In addition to the pandemic, another serious challenge is the shortage of semiconductor supply and the price increase. At the beginning of this year, we projected that in Q3 this year, there would be a chance for the situation to improve. Speaking from now, we may have to wait for six more months until 2023 until the capacity expansion of suppliers. In the first half of this year, some semiconductor prices are still going up, and there may still be some material shortage risks.
In cloud, power supply, automotive and networking products, our business growth in the future is very much visible. In these areas, the risks are also relatively higher. Rest assured, these issues that I just mentioned in terms of semiconductor supply and the diversification of production bases, we are fully prepared to mitigate relevant risks. I'm sure that the overall impact is still very much under control. In the future, there might still be many uncontrollable factors or problems, such as the pandemic and also the supply of semiconductors, inflation and geopolitics. Even though we cannot accurately predict such developments, I'd like to emphasize once again that if we are fully prepared and take necessary actions, we can mitigate the impact. Flexibility and speed are the two core capabilities in Lite-On.
We also cooperate with some strategic partners focusing on high growth sectors such as cloud computing centers, optoelectronic semiconductors, automotive electronics, 5G and AIoT in order to gather our forces. We are optimistic about the company's future operation performance. We can maintain the growth momentum and through investing in R&D resources in EV charging solutions, high-end power products for cloud computing and system products such as 5G small base stations. With the 433 product portfolio strategy, our shipment will be able to grow quarter by quarter, and we can continue to enhance the company's long term GP and profitability. While pursuing profitable growth, Lite-On also actively internalizes ESG strategies into our corporate DNA.
Recently, we jointly advocated the climate alliance with seven leading technology companies in Taiwan and joined hands with more than 15 supply chain companies to promote low carbon transformation, actively invest in green innovation and energy saving, strengthen the resilience of the supply chain, and build a sustainable circular economy for the industry. We use the technologies that we are good at to make energy-saving products, which can be more beneficial and more friendly for the environment, and we will continue to work on ESG and make efforts in this direction in the long run. This concludes my presentation. Thank you very much.
Thank you, our two managers, and thank you all. Now is the QA session. We open the floor for questions. The QA procedure is slightly adjusted this time. Before you raise your questions, please click on the raise hand button. Our staff will help you turn on the mic and invite you to speak. Please make sure that your mic is indeed turned on, and please mention your name and entity. Please limit the number of your questions to 2 in order to ensure others' right to raise questions. Thank you. We have Michelle from Fubon online. Michelle, please unmute yourself and please ask your questions. Michelle, please.
Can you hear me?
Yes, we can.
Thank you. I'm Michelle from Fubon. Mr. President, Miss CFO, and Julia, good afternoon. I want to ask you, the President just mentioned that the issue of semiconductor material shortage may not be resolved in Q3. Instead, it will carry on until 2023. What is the main reason for that? And can material preparation tackle it? And in such a situation, is it possible for the margin rate to improve? Thank you.
Thank you, Michelle, for your questions. Michelle mentioned three questions. First of all, the market is seeing the semiconductor material shortage, if this problem can only be resolved next year, what is the reason? Second, in terms of material preparation, what is the current policy, and can the policy tackle such a shortage? Third, this situation in the sector, is it helpful in improving our margin rate? Mr. President, please.
Okay. You mentioned this issue. I think the main reason is because the demand is still there. I'm sure that you know that our server, our cloud, power supply market growth is still double digit. And also, in terms of automotive electronics, the demand is very strong as well. It's a question of supply and demand. The supply still cannot satisfy the market demand, especially in terms of power IC inverters. There is still shortage there.
Of course, there are things that are not in shortage, for example, PCs and mobile phones, such markets. In terms of automotive and cloud, there is still shortage. We know that the lead time for semiconductors last year already surpassed 56 weeks, and the annual demand this year was already projected last year, and we placed enough orders to our suppliers. The only trouble then is that there might be some time discrepancies, which may lead to some risks of material shortage. The demand for now can still be satisfied, so the supply, our supply shouldn't be a problem. In terms of cost, the CFO just mentioned that in Q1, part of our profit came from the semiconductor price increase. On the market, our understanding is that the increase is between 10%-15%.
We didn't foresee that in Q1 there would be such a strong growth due to material shortage. In order to satisfy clients' needs, we had to use higher prices to ensure clients' COGS. Generally speaking, the clients have understood such a situation in Q1, and starting from Q1, we started to reflect such costs with clients, and the clients have accepted such cost reflection. In Q2, you will continue to see such gradual cost reflection. This concludes my answer. Thank you.
The next is Wu Xiaowen from Commercial Times. Please unmute yourself, and please start to speak. Thank you.
Yes, we can hear you. Please.
My question is this. Well, the president just mentioned that Q2's sales and profit would grow. Could you explain it? Is it QoQ or YoY, et cetera?
Yeah. I'll answer this question first. In Q2, the biggest growth is just like in Q1. The CFO just mentioned that in terms of cloud, we grew by almost 30%, and in Q2, we have a chance to maintain such a growth trend. In Q2's sales, we expect to see a double-digit growth.
Is it QoQ?
Yes, QoQ.
Okay. This has already taken into consideration the Eastern China supply chain problems?
Well, in terms of material supply, the mainland China's pandemic situation is still quite uncertain. Without major supply chain problems, we will have a chance to achieve this goal.
Okay, this is more like an optimistic projection?
Right.
Okay. My second question is this. You also mentioned that it's not possible for Lite-On to stay away from such supply chain problems, but in Changzhou, the situation seems fine for now. I want to ask you, in terms of Eastern China operation, are you encountering shipment or material supply difficulties? Does it lower production efficiency?
Well, there are two aspects. First of all, shipment. Of course, we have clients that are based in Shanghai and Kunshan, as you all know. Now under this lockdown policy, it's hard for us to ship things in. Second, in terms of material supply, we have suppliers in Kunshan, and it's hard for them to ship their materials out as well. In terms of shipment, our clients now have multiple production bases in mainland China. For example, in terms of notebooks, in addition to Kunshan, there's still Chongqing. For our suppliers, they are in southern China. And also when semiconductors come from overseas, we can use other channels and ports instead of Shanghai. As you said, Changzhou has been normal so far.
Okay. In terms of production and shipment efficiency, so far we haven't seen any impact at all.
Okay. If the problems last longer, it will be hard to say. So far it's been only 1-2 weeks. Our inventory and our preparations have been enough. If the time lasts longer, then other problems may gradually surface.
You think that the fact that the Q2 double digit growth is based on the assumption that the lockdown situation can be resolved within 15 days, right?
Well, I believe that from our perspective, the risks for now are still under control. As I said, our overall operation has a very low percentage in this area, in this region. This doesn't create a big gap or discrepancy for the company's overall operation.
Thank you.
The next one is Anne from Nomura. Nomura, please unmute yourself and raise your questions. Thank you. Anne, please turn on your microphone.
Thank you. Can you hear me now?
Yes, we can.
Mr. President, Ms. CFO, Julia, and Grace, good afternoon. My first question is to add to what Commercial Times just asked. The Q2 growth, is it going to be double-digit QoQ? Is the assumption that notebook power supply business also enjoys a double-digit QoQ growth? So far, in terms of notebook clients, we have seen some downward revision, right? If this is the case, can you help us differentiate guidance versus clients' future development? What may be the gaps there?
Okay. Anne, your first question is about Q2 notebook clients and the shipment projections. Well, actually, we are not in a position to comment on clients' situation. We can only tell you our projection of notebook shipment. I'll pass the floor to the president.
Well, in terms of notebooks, there are several different products. For example, consumer notebooks, business notebooks, and gaming notebooks. What we are seeing now is that in terms of consumer notebooks, not just QoQ, but also YoY, there is downward revision on the market indeed. From our perspective, there is indeed some downward revision as well. As for business and gaming notebooks, we are not seeing much impact now. If we look at the overall volume, the total volume in terms of YoY may have some downward revision, but in terms of sales, we don't see much difference compared to last year because as I said, it has to do with the product portfolio.
In terms of business and gaming notebooks, they use higher wattage than consumer notebooks, so the ASP is higher than consumer notebooks. In terms of sales, this is more or less the same level.
Thank you for your clear answer, Mr. President. May I ask you, in the second half of this year, do we still expect to see, in Q3 a high season for notebooks? Okay. Anne's second question is about notebooks. In the second half of the year, especially in Q3, will there be a high season for notebooks?
Well, seasonality has always existed, and Q3 has always been a high season for consumer products. Our current projection shows that in Q3, there will still be seasonal factors. The demand will still go up. From a YoY perspective, we are not that optimistic in saying that there's a YoY growth. When we did our projections last year, we already projected that there might be some slight decline this year.
Thank you. I have finished my two questions. Thank you so much.
If you want to raise questions, please click on the Raise Hand button. Our staff will help you turn on the microphone. Thank you. We have Chen Pi-ju from Mirror Media online. Please unmute yourself and start speaking. Thank you. Bijou, please turn on your microphone. Thank you. Okay. We move on to the next one. The next one is Floria from SinoPac. Floria, please unmute yourself and start speaking. Thank you. Floria, please. Please turn on your microphone. Please turn on your microphone, please. Floria, can you hear us? Please turn on your microphone. Thank you. Floria, please start. Can you hear us? We can see that you have already turned on your microphone. Okay. We move on to the next one. The next one will be Hank from China Life Insurance. Hank, please turn on the microphone and start speaking. Thank you.
This is Hank from China Life. First of all, a question for you. When we look at the post-pandemic era and situation, we are seeing that some consumer products are in decline, and you want to use some business products, EVs and cloud to compensate for that decline. From this point of view, how do you look at 2023's sales in terms of endogenous growth? Will there be a major decline? My second question is this. In the past, in photocouplers and in EV charger components, there was clear capacity expansion, and CapEx and R&D expenditure continued to increase. In your next phase, how are you going to plan for Vietnam, Taiwan, and China's capacity? Do you also have similar plans for the US and Europe? Thank you.
Thank you, Hank, for the questions. You had two questions. First of all, the market expects that this year the demand for consumer products may decline, and Lite-On can use some high growth sectors such as EVs and cloud to replace the decline and to maintain the growth. What are our strategies for 2023? Will there be some high growth momentum to replace consumer products or weaker demand products? The first question, Mr. President.
Yes. You mentioned consumer products due to pandemic related factors, there might be some downward revision. I think it depends on different products because different products have different situations. For example, we talked about PCs. Actually, during the pandemic, the demand grew to the current scale. So far, the downward revision has been minor, mainly because notebooks have very much become something like mobile phones.
They have become indispensable tools for life and for work. Indeed, there is downward revision, but will there be a major or significant decline? I don't think so. Well, in terms of the company's growth, it's always been system products as the focus of our R&D and investment. It's not that due to the decline of consumer products, we have started to do that. We have always focused on such mega trends, so it has little to do with whether or not there is going to be a decline of consumer products. If we look at 2023, we mentioned 433 in optoelectronics and in cloud, we will continue to grow, which will in turn motivate our operation upward.
Okay. The second question from Hank is this. In terms of automotive electronics and photocouplers and infrared optosemiconductors, there have been clear plans for capacity expansion. In addition to Southeast Asia, do we also have such plans in the US and in Europe?
Well, indeed. In Kaohsiung, we have a phase two construction starting this year. In the future, it will be for automotive products to be produced in Kaohsiung. In Thailand, our optoelectronics capacity is reaching 19%. In the future, we will also build a new plant on the same site so that our optoelectronics capacity continues to grow in Thailand. In Vietnam, our phase two construction has also started this year in Vietnam. In 2-3 years, some networking products and consumer products, including PCs, will gradually move towards Vietnam. Actually, this is something that we talked about, China plus one strategy.
This is to strike a balance and to diversify our regional risks so that we don't rely too much on China. For example, the pandemic situation today exposes us to very high risks. Such moves, in addition to production needs, also serve to diversify our risks. As for the US market, automotive, especially chargers and cloud products, our clients have requested that some capacity will be in the US We will establish some assembly plants or downstream processes so that we will be able to service American clients locally. This will be mainly cloud and automotive.
Okay. Thank you. Anne from Nomura. Anne, please unmute yourself and ask your questions. Thank you.
Can you hear me?
Yes.
Mr. President, I want to follow up on something you just said. You mentioned the shortage of ICs, and the shortage is still quite serious. Could you draw a comparison between Q1 and Q2 and also the second half of this year? Do you think that the shortage will be in Q2? Will it be more serious, or will the situation improve in Q2? And you mentioned that on the market you needed to purchase high-price ICs. Will such a situation continue to Q2, or was it limited to Q1 only?
Okay. Your first question, Anne, is about semiconductor material shortage and the differences between Q1 and Q2. Are things improving or deteriorating? And what are the projections for the second half of this year in terms of this issue?
Okay. If we look at Q1 and Q2 for a comparison, our internal observation shows that there isn't much improvement in Q2. In the second half of this year, as opposed to in the first half, I think in Q3 or Q4, there's a chance to improve somehow because some sectors' demand is slowing down, and such a slowdown can release some capacity, and this will be helpful in terms of automotive and servers and cloud ICs. The capacity can increase as a result, so the situation will improve.
Anne had a second question. Due to material shortage, we needed to use high prices for purchase. Will the situation deteriorate or improve?
If we look at Q1, indeed, in order to satisfy clients' needs, we had to reflect the semiconductor cost. In Q1 so far, we haven't seen this situation, so the cost reflection will continue in Q2, but there isn't a shortage of materials, so we won't need additional costs to cover such COGS needs. Also in Q2, we have very much reflected the cost, so things will go back to normal in Q2.
My second question is more about housekeeping. Could you tell us the cloud percentage and also the automotive percentage as opposed to the total sales? What are the percentages? By cloud, I mean data center servers.
Okay. The first question is cloud. Our cloud computing platforms account for how much as opposed to the total sales? The second question is the automotive percentage as opposed to the total sales.
If we look at cloud, in terms of percentage, well, in sales terms, now it accounts for 15%-17% roughly. This is purely cloud. As for automotive, it's roughly 7%.
Thank you. I have finished my questions.
Thank you. Okay. Floria from SinoPac, please turn on your microphone and start speaking. Thank you. Floria, please start. Thank you. Floria, you may have some technical issues with your microphone, so we move on to the next one. If you want to ask your questions later, feel free to raise your hand again. Joanne from Nomura, please unmute yourself and start speaking. Thanks.
Hello, Mr. President, can you hear me?
Yes, we can.
Thank you. I have two questions. I will start from the simple one. I want to confirm with you, a while ago, and also in the last earnings conference, you mentioned that starting from Q4 last year, you started to go to the spot market to purchase materials, and you reflected the cost with clients. In Q1 this year, you still needed to do that. I just want to confirm with you, when you reflect such cost with clients, maybe in Q2's financial reports, the reflection would be more positive in terms of being positive for the gross profit rate.
This is my first question. My second question is this. Last time, in the last earnings conference, you mentioned that there would be new products for cloud. You mentioned PSU plus PBU, and you said that they would start to contribute to the sales this year. Could you provide some more details? Because they will start to contribute to the sales this year after all.
Thank you, Joanne, for your questions. The first question is that when there's a shortage of semiconductor materials, we needed to purchase for clients. In Q1, on the spot market, the costs continued to go up. The question is, in terms of reflecting the cost with clients, will it be more significant in Q2 compared to Q1, and will it contribute more to the gross profit in Q2? Well, at the beginning, I explained a little bit. In Q1, the shortage of semiconductor material didn't improve, so there was the cost reflection, but we couldn't immediately start to discuss this with clients. We only started to do so at the end of Q1 or at the beginning of Q2.
The cost reflection on financial reports would be more specific and clearer in Q2. As for PBU plus PSU combination, the progress on the client side so far is that in Q4 this year, there will be a trial period, which means that in Q4 this year, there will be a little shipment. In terms of mass production and generation switch, we estimate it to be next year when we see bigger changes.
Thank you. Mr. President, may I add a follow-up question? You are already making PSU, so in terms of PBUs, do you make them yourselves or do you cooperate with partners?
Well, basically, as you know, the supply chain now is unstable. In order to diversify risks, we cooperate with the top three suppliers. It's ongoing.
Understood. Thank you.
Next question, Ted from Optimas, please unmute yourself and start speaking.
Hello, can you hear me?
Yes.
I want to ask you about the GP in Q1. The sales YoY improved actually. I want to ask you the three major product lines YoY changes. Are there some situations behind or just as the president said it was mainly due to price increase? And if that was the case, how much was the impact of it on the GP in Q1? In Q1, the exchange rate was quite good. I was expecting a higher GP in Q1.
Thank you, Ted, for your question. You mentioned that in Q1 due to cost increase, our GP was affected. Was that the main reason, Miss CFO?
Thank you for your question. Indeed, the material price increase affected our GP. For the three major departments, the impact was different. Actually, the distribution of GP among these three major departments was different from the previous quarter. There was also shortage of materials, which affected our production scheduling and capacity utilization. We needed to have some flexible arrangement as a result. This affected our manufacturing costs. It was due to raw material shortage and price increase, as a result, our GP in Q1 went down slightly.
Would it be possible to provide a percentage of this impact?
Okay. Ted's follow-up question is that such material and supply chain impact, would it be possible to use a rough percentage to explain it?
Well, in terms of the impact on the entire company and in terms of YoY, it's 0.7% in total, and most of it comes from raw material price increase. Okay. This concludes my question. Thank you.
The next question comes from Kenny of Yuanta. Please unmute yourself and start speaking. Thank you.
Mr. President, Miss CFO and Julia, good afternoon. I have questions about automotive. First, in the short term, the business of charging stations, is the situation of material shortage improving? Because EVs sell very well this year, so maybe in terms of getting materials, is it prioritized compared to consumer electronics?
Thank you, Kenny, for the question. Kenny mentioned that in terms of EVs, is the situation of material shortage improving, especially compared to consumer electronics?
Indeed, from the perspective of chargers, we see that the situation of material shortage has significantly improved compared to the same time last year because the market is growing rapidly for this product. Our suppliers are very clear about that. This is something that they need to focus on in the future. When they prioritize, they choose something with greater growth potential in their strategies. If we look at the results today, indeed the situation of material shortage has significantly improved.
Thank you. I have a follow-up question about the mid to long term. Now, the penetration rate of chargers around the world is still quite elementary, we can say that. If from the perspective of Lite-On, the ASP and margin of this business, is it stabilized or is it not yet stabilized? In terms of, I think the momentum for them should be higher charging power and better specs. On the opposite side, in the future, there might be larger volumes. I don't know, in terms of cost control, how do you formulate strategies to reduce pressure of price cutting from clients?
Okay. Kenny's second question is that in terms of EV strategies, how do we show our competitive advantages to clients? In terms of ASP and margin enhancement in the future, how do we show our competitive advantages to clients?
Well, currently in our product portfolio, chargers enjoy a better GP position. The main reason is because, first of all, this is a system product, so it is more difficult to conduct R&D. Also, in addition to hardware specs, there are also software application specs. So from the perspective of clients, the product value is higher. So there's no problem with GP there. Our current strategies choose Europe and the US to promote for our promotion. There are two major types of clients. First of all, EV service providers. Second, car OEMs.
When it comes to EV service providers, they account for a major share, about 70% for this product. Gradually we are enhancing the share of car OEMs. This year, we will have a chance to achieve 30%-40% for car OEMs. There are some differences between these two. We believe that in the future, car OEM's share will be larger than that of EV service providers because the specs of car OEMs focus on their own needs, so they are more customized. When things are customized, the pricing can be better. This doesn't affect our future, GP. In the future with higher charging power. Well, there are three levels of products. Our major products now belong to level 2. Wall-mounted EV chargers, for example. In Q3, we're going to launch 30 kW DC chargers. This belong to level 3.
Level two and level three are different products. In the future, the business will be different depending on such differences. Over the next two years, we will still focus on L2 chargers when we develop markets. In terms of GP and in terms of growth, over the next two years, the growth should be rapid. Thank you. It's clear.
Thank you, Mr. President.
Next, Michael from Concord Capital. Please unmute yourself and start to raise your questions. Thank you. Michael, please start. Thanks. Michael, I can see that you are still on mute. Please turn on your microphone. Thank you. Okay. If there are no further questions, this concludes our earnings conference today. All the content today will be released on our official website. Thank you for your participation, and I wish you a great day ahead. Thank you very much.