Earnings Call: Q3 2020

Oct 29, 2020

Welcome everyone to Qurmas 2023rd Quarter Earnings Conference Call. All lines have been placed on mute to prevent background noise. After presentation, there will be a question and answer session. Post follow instruction given at a time if you would like to ask the question. For information, a webcast replay will be available within an hour after the conference is finished. Please visit www.chroma.com.tw/investor slash index under the Investor Relations section. I would like to introduce CFO, Paul Dean. Mr. Ying, you may begin. Hi, good afternoon, everyone. Welcome to CallMutter Quarter's conference call. This is Jennifer speaking. Because the, testing improvements, the business models, the first quarter and third quarter results will be focused on only, financial status the operation status will be stay the same as the last we guide in the second quarters. And this call will be hosted in English, and begin with the 5 to 10 minutes of financial highlights hosted by our CFO, Paul E. Then followed by some key issues addressed on the product mix. We will move on to Q And A afterwards you may ask the questions either in English or Chinese, and we will comment accordingly. Now we pass on to our CFO, Pauline. Hi, everyone. This is Paul from Chroma. Well, for the 1st 3 quarters, Chroma's consolidated income statement, sales revenue for the first three quarters reach at the $11,355,000,000. And this is a 20% growth on a year over year basis. And for that gross margin, the number we made is around $5,613,013,000,000. And This is 49% on gross margin and 22% growth on a year over year basis. And for the operating margin, we reached a little bit over $2,000,000,000, which is a $2,028,000,000, and this is a 51% growth on a year over year basis. As to the parent company for the 3rd quarter alone, If we look at the first revenue, approximately BRL 2,394,000,000 This is a 4% growth on our Q over year base and 22% growth on a year over year basis. And for the gross margin, for the 3rd quarter of a third company, which I see a 55% And for the operating margin, for the current quarter is 27% And this is, over decades, of a record, which will, would remain over 25% of the gross margin ratio. And for the net income, we reached at the $583,000,000 and this is a flat to Q over Q base, but 21% growth on a year over year basis. As to the 3rd quarter numbers, the sales revenue in 3rd quarter is mainly contributed from semiconductor and photonics sectors and the testing, measurements and ATS for these sectors, we've been doing pretty good. And as to the for the year of 2020, our guidance is still maintained pretty similar to what we have on the last quarter. So please reference to the 2020 guidance. And this is pretty much my bridge to the financial statement for the third quarter and now open to any questions. If you have a question for any after we are announced, please ask you a question. Please press 2 to Our first question is coming from Jeff O'Wether, Macquarie. Go ahead please. Yeah. Hi, Paul and Jennifer. Thanks for the, your questions and answer. First question, it looks like gross profit margin in 4th or sorry, in 3rd quarter, for both parent and consolidated was up q on q, which was positive, but the OPM looked like it was down. So can you talk about why it looks like the OpEx was a bit high in 3rd quarter versus the prior quarter? Thank you. Well, the main reason for that is for the provision for the FS think, well, for the third quarter, we increased the provision for the balance. Maybe it's for the M and A So what was roughly the number of increase of bad debt? Hi, Jeff. Are you, are you focused on the consolidated financial statements. Right? Going through the the emails we sent out, that includes some, consolidated financial statements. And in the third quarter, we do, evaluation for the AR accounted for math. So there is a provision for, for that credit better, from that. If you look at as a consolidated basis. Yes. Okay. And any thoughts about back from the back at some point, or is that a not looking good? Oh, I think this issue we have been addressed a couple of several quarters ago that the masks, you know, they have some warranty, feed that, you know, 10% which is considered a warranty fee. And I don't think this year, they're able to, gain more extra order to cover kind of, warranty costs and claim those warranty costs back. So, our auditors have to evaluate those AR costs. So without these cards, I think the, operating expense is not as high as I think it's pretty similar as the last quarters or not very much changes. Okay. And then my second question, last question. Can you talk about 4th quarter outlook by, you know, parent product and also it's overall consolidated, how to have the momentum that can fork into 4th quarter? 4th quarter, currently based on the old will be similar as the quarter. Maybe around slightly up or down. Number of March changes. Yes. We do have several projects on hand planning to deliver that the improving EV battery cell. And also, we do have another, customer flowing to relocate to South Asia. I think this project has been, postponed due to pandemic. And we're expecting the customer to be able to deliver before end of this year. And we don't have very much change according to the order guidance. So, overall, I think we're still able to reach, I think, in the later top line of all times, like, 20 sorry, around double digit growth. I think our phone line one should be, yeah, 20% or I think we expect the year 2020, let's go back to the traditional seasonalities. Well, 2nd quarter to 3rd quarter probably to the peak. And we're expecting a 4th quarter probably somewhere like third quarter or a little bit down like between 1st 2nd quarter. I think that's where we expected. Okay. Thank you very much. The next question is coming from Gary Sue, Credit Suisse. Go ahead please. Hi, thank you for taking my question. Just want to follow-up on your comments about the, you know, some order that is scheduled in the fourth quarter. I remember previously you were mentioned that, some maternity projects this year. In your support, they should be booking in 2 to 3 q. So now, it sounds like this will be, you know, 18 in 4th quarter. Right? And then, is there any risk for further delay? Oh, okay. Well, the reason for delay for store from 4th quarter to 4th quarter is due to customers, their factories, construction, the schedule is being delayed. But this order is already being secured by a letter of credits. So, we're still able to claim the order. Anyway, we hopefully everything could be delivered before end of years. So that I think according to our guidance, that's already including both several projects on hand. And I think it's already end of this year. We don't want maybe our guidance is not very much changed. I think we're still able to reach like a double digit growth for top and bottom. Like, for this year. And, I think we already start to move on to next year, And I think we already I think several of our customers, especially with semiconductor sectors already start to replace repeat order towards, but we don't think we're able to lead time to, we don't think we're able to deliver, you know, over helping out the fourth quarter to be strong quarter like last year. Okay. Thank you. And then speaking of 2021, can you provides us some of, you know, initial, outlook or what we think about the each segment, for next year? For okay. For 3rd quarter, I think our biggest deliver is SLTC level testers. And that's mostly covered from AI. Many come from AI OT related. And we just almost finish to deliver, those big projects in the third quarter, for the particular customers. And customers already placed another single price or even bigger sizes for next year. And so you can see actually IoT so far for launching IT later, we can see the pretty much strong CapEx needed for coming next year. And we do have several projects regarding to VCSEL coming on next year, our customers are planning to launch new products by adopting new VCSELs and also following today's some of the, maybe facial recognition needs that for next year. And regarding to, optical fibers related, it's also a photonics sectors. Maybe this year is the biggest draw growth coming from China. And you may see this kind of trends in slowing down the second half. But you see this year, mostly not from, United States. So currently, we have, we do see some several customers or vendors single peers are planning to face out this market because they they they think they couldn't compete the insurance vendor like us. So we don't see stable order has been transferred to Chroma. So we expect the next year, maybe US will start to building out those optical fiber related when these 5G installations speed up. Okay. Thank you. And then, lastly, in this question, for Paul or, is related to that, the credit, you know, the expected credit impairment I think this year, we have already done that for, you know, 2 quarters. So how much is left? You know, should we expect any impairment into the 4th quarter. How much? Sorry? Yeah. How much of the, you know, the credit impairment related to, as the AR, I'm just wondering, how much is still left on the AR that potentially could be written down? I think that the provision has been, over 50% and more So I think the last of that will be as well, not the majority of the impairments left. So Well, you can calculate it, but yes. Thank you. The next question is coming from Geoff Owelder, Macquarie. Yeah. Can Paul on, Jennifer, can you remind us, for how the headquarter sales go in terms of timing? You know, what's the cash flow? What's the gain? When do you expect to see that gain and what do you expect to do with that cash? Thank you. I think for the construction of the new headquarters, I think this is your question, Brian? Yeah. And then the sale of the old headquarters in terms of, you know, the cash coming in and also the profit and when that hits the top female. I think the consumption, I think for the CapEx spending for the consumption of the new headquarters, right now, it's reaching the final stage and probably we're going to see that, new headquarters start to use that the December. And, for the, for the, deposition of the, current headquarters, I expect that will be a cash inflow probably on the first quarter of 2021. And can you remind us what what's the data on the sale of the old headquarters and, you know, what do you plan to do with that cash? We expect to have a capital gain around 1,000,000,000, slightly over 1,000,000,000. And of course, we do concierge payouts. The next question is coming from Markkuley, Citi. Hi. Thanks for taking my questions. I'd like to, have some updates about the, NLT business, because I remember last time you mentioned, this year, you have a 10, like, like, reaching 1,000,000,000 of the sales many by US shootmakers in Taiwan helped as players, to do the target of sales, So, you guys still, have that target or, any revision of this? Because, one of the customer said that as customer has been, and and, and, would like to have some update about that. Thank you. Okay. Let me summarize the overall operations lately. Okay. Our Chase and Equipment business have been somehow year to date pretty much on schedule, we're pretty much in line with our explanation of what we've guided towards. As you may notice, our first three quarters as we guide at the beginning of the year, as we're expecting semiconductor and for home expenses, we'll be doing better than last year. So 1st week quarter, we already generates over 2,300,000,000. And what is already over the larger total sales of semiconduct and performing sectors. But it doesn't mean we don't have any performing factors our semiconductor sales in the fourth quarter. We're coming to continue to receive the order from a semiconductor and performance related especially for SOP, these are level testers. As I just mentioned in a couple, you know, the previous in the previous questions, Thank you for logic and special for Iai0t. Customer switched to almost complete the current orders and customers already finalized another new order, and we expect them to deliver in the first half next year. So based on this kind of front, you may see on 5G's information continue to speed up. It actually brings up the related products country launch in the market. Especially for image process related, which we consider as ai or or a, ai or ARVR features. Okay. And for 20 sectors, we're expecting, VCSEL, there was a new solution. As you may see, the iPhone 12 is already have been gradually launched by series, several series, type. And our customers planning to launch another, new product, which may elaborate their current devices And we expecting this project could be finalized in next years. And regarding to optical fibers related, maybe this year, the biggest driver is come from China, but maybe maybe it looks like a second half of the rolled down, but it doesn't mean China will freeze out the 5 gs market. But, however, I think, I think this kind patient or where they wanna speed out this list to, like, the US elections and then how this policy will go. But we will see the US customers like the Cisco was, you know, are calling up, you know, speed of this kind of 5 gs department. So we do see we're looking for some talk maybe your expectations upon U. S. Markets next year. Thank you. Very clear. So, so, what you have some, update about, do you guys have, the target of SLT maybe in the first half of next year or the full year for next year? I think this year, we already reached over the results Alright. So but tell me, we we don't do the very clear breakdown between spending and contacting Total Acceptor. Do you as you know, we have another quarter to solve, but it doesn't mean we don't have any more room to be delivered in the 4th quarter. And we still doing our budgeting at the moment. So maybe it's too early for us to really give you a clear comments regarding what we see for next year. Then it comes down for 20 factors. But you see, we just finished the 3rd quarter and customers already gave us another big order. So you may see the semiconductor is pretty strong even in spite of the Calabaca status. Got it. My second question is, in, the last conference quote, you have mentioned about the nano particle monitoring system. So do we have any, like, target of, revenue contribution about, this year and next year? Because I think, it is related to the, advanced notes and, so we see more and more devices, and, chips are using the advanced notes for Dex. This year, like we guided at the beginning of the year, so I think nano particles already reached over 100,000,000 cells. This year based on the order they received. And then I think this order already been booked. We booked under our geyser suspectors called sales for overseas operations and related subsidiaries. And we booked a nano public called this company sales under the sectors. And we are, planning to launch another solution to data from the customer which is related to H202. And this is the, you know, these passengers already become a protocol type for business foundry customers. But because we're so new, maybe both Walmart and at least one customer couldn't really figure out how many tests do they actually need for their current capability, but we'll continue to develop a new solution to be to be to secure mark market decisions So maybe as I say, regarding anything regarding to our forecast next year, it is too early for us to give a comment or clear conclusive at this stage. Maybe we will need to come as if at the end of next year. Okay. Thank you. Thank you. Our next question is coming from John CFO, Windler, Macquarie. Go ahead please. Yeah, Jennifer, just to clarify, so the nanoparticle, that means in your presentation materials, it does not, it's not included in the semiconductor testers. No. No. Because we're only holding 75%, 25% just holding by the original, you know, technology founder. Okay. But it falls under parent, or does that go through the actual the the it's a grateful founder, plumber, consolidating equipment. Already booked, but as you may notice, when you say that sales from overseas operation and related subsidiary, that's where Nao and Hariko booked. Okay. And what was the biggest quarter for that? Was that over a few quarters or is that only in like 1 or 2 quarters? We are not so sure because this is only fifteen people companies. And then the lead time in, like, the 4 months is very hard, so this is very clear. They all which quarter will be, yeah, Okay. But I think the whole year is definitely overhoming it in full. Yeah. Okay. 2 more quick questions. 2021 growth SLT or photonics. What what do you expect to grow faster at this point? Since we already got the new order for SOP, maybe at least at Paris stage, I would say maybe SOD has more higher visibility, but we are in the middle program is about US market's optical fiber penetration. So it's hard to say. Yeah. Okay. And then last question. Can you talk a little bit about, how the EV downstream battery pack? How the The demand for that has been 2001 year to date, how it was in third quarter, when you look at the 4th quarter, and what's your outlook for next year, just kind of downstream EV related? Hi, Jeff. I want to highlight 2 things regarding to our product mix. You can notice on the product mix slide on slide 13. Our first three quarters of capital measurements and 8 years presenting, I'll generate about 3,700,000,000 sales present about 4% growth compared to last year's first three quarters. This actually indicate, 2 things. The first thing is actually power business for power industry remain very strong. And another issue is actually this kind of strong contribution is come from, honestly, from China. And why is that? And I wouldn't cover I wouldn't highlight business sector because actually, it's possible. No matter of consumer electronic goods, 5 g, and even are all have a, yeah, are all strong demand. And why does that is because of pandemic? Because pandemic and also the tension between US and China. Kind of get Everything's stuck in China and people still want to make it, you know, high ticket industry this year is still not falling down and still on the same path. So relocation kind of the synergies due to Asia, you know, south of the Asia and the India lockdown. So this campus has been postponed or slow down. So you see actually China, especially for power industry, they're very strong. And this was also Chinese people would like to reduce the proportion by adopting US equipment, so we continue to gaining, market share and also because people couldn't relocate to South Asia due to a lockdown, So overall industry, from China is very strong and also including the factors of EV adoption. Thank you. Does that mean that next year could be more difficult or does that mean next year should also be decent, but maybe for different reasons? It's hard to say, especially when the US complete the the US, I mean, election issue because So far, you know, beginning of the year, we're expecting this kind of location sentiments will go on. Especially, you know, the tension between US and China. But because the lockdown and also pandemic takes so long, so more than a year, So people still want to make the products, so we see the demand from China become stronger. Okay. Great. Thank We're now in question The next question is from Arthur Wai, Citi. Go ahead please. Hi, CFO and Jennifer. Thanks for taking my question. So I want to answer about, the PO's question. We understand the, one of the limited plans, and they are are just released their new products. And then, look at the feedback. Actually, the, people are, give a quick feedback on the, social taking, using the, TOS. So, my question is, do you see, this product can upgrade the, you know, no powerful, function in the future. And do you think, you know, the equipment demand they will be also assimilate in the future. Thank you. I think, after, iPhone, and the mini launch in the market. I think, just like our customers stated, I think regarding to the VCSEL or TRS developments, they already ahead of their competitors more than 2 years. And Android camps decide to redesign and because the VCSEL is acquired in expensive elements. You may also can be noticed from, you know, they So U. S. Cash management tried to remove several accessories because it's meant to support some of the expensive items like VCSEL. And so for Android camp, I think Huawei couldn't yield to further progress and then Samsung and they consider it to be designed because, they find maybe, the spec needs to be to be even further improve. And, if you look at it from the mix of being launched in the market since the year 2017 2018, I think you have to say our customers, these U. S. Customers already holding more than, I would say, including 2 new designs coming out next year, I would say more than 4 or 5 different patents were designed. Next year, they believe the new product launch will be even, you know, build out more customs regarding to their phone sales because the mixture maybe will be some kind of accessory to be elaborate with their current devices. So I think next year, I think regarding to this kind of, like, a smartphone, this kind of device, will really move on to so called AI feature AI devices. So we We continue acting as a kind of R and D for supporting our customers, besides these kind of features. And so far, it's very hard to tell whether, maybe going forward, several new design will be mostly leveraged elaborate by pure designs. The reason for they were glad to remove their structural lights. Okay. Thank you. Thank you. The next question is coming from Mark Lee, Citi. Hi, management. I just want to, update about the questions, previous investors have asked that, the power business so if if, we break it down in this year, through the EV and consumer electronics and, other, like, side to power component. Would you like to, get give a some of the breakdown of this policy? We think the breakdown is not changed. Because I just mentioned the previous, of questions that, this year, the power business could have more than 10% growth versus last year. It's possible. Every factors pretty much go at the same task. We couldn't help you with your last one good. And then 5 g and shown. And as we just highlight, I think the key point is we see those demands actually come from China. And why couldn't you sign up? It's because most of people couldn't relocate to South Asia. So they just continue spending in China using capital system. Got it. So can we see, like, any slowdown or recovery of the, like, FaiQ infrastructure, let let demand in China. I don't understand what you mean by recovery because of makers. Yes, maybe the CapEx spending, they've been quite they tried to speed out in the first half, so CapEx spending in the first half looks very strong. And second half, Yeah. It's a 1st half. I think it's lower than 1st half. But overall, we don't see the so cold, slow down or evolve my jeep. Yeah. Problem. Sounds good. Thank you. Thank you. Thank you. There are currently no questions. I will hand it over to CFO, Paul Yin, for closing remarks. Mr. Ying, please proceed. Thank you. Hi, everyone. It seems to us that the, for the 1st 3 quarters, although for the pandemic, situations. I think we stay in Taiwan. It's pretty safe and, well, we are enjoy our life and also enjoy the growth from the cooperation. We are lucky. And we are expecting 4th quarters maintain this kind of momentum and waiting for 2021 is coming. And also our completion of our construction of the annual headquarters. And thank you until next time. Bye bye. Thank you. Thank you for your participation in Corbus Conference. There will be a webcast replay within an hour. Please visit www.chroma.com.tw.investor/index under the Investor Relations section. You may now disconnect. Goodbye.