Welcome to AU Optronics 2023 Fourth Quarter Financial Results Conference. Before the meeting starts, all lines are being muted. After the presentations by the management team, there will be a Q&A session. Now, I would like to hand over to Ms. Julia Chao, AUO's IR Officer.
Thank you. Ladies, and gentlemen, good afternoon. I'm Julia Chao, AUO's IR Officer. On behalf of the company, I would like to welcome you to participate in our 2023 fourth quarter financial results conference. I'm joined by four executives: Paul Peng, Chairman and Group Chief Strategy Officer, Frank Ko, CEO and President, James Chen, Senior VP of the Display Strategy Business Group, and Ben Tseng, our CFO. The agenda of today is as follows. First of all, CFO Ben will go over our 2023 fourth quarter financial results and provide you with the guidance for Q1 2024.
Then our President, our Chairman rather, will provide you with an opening remark. Then we'll proceed to the Q&A. We have collected questions from analysts before the meeting. We will address those questions in the first part of the Q&A session. Afterwards, if there are still more questions, we will open up the line to take your questions. Now, before I turn over to Ben, please allow me to remind you that all forward-looking statements contain risks and uncertainties. Please also spend some time to read the safe harbor notice on slide number two. Ben, please.
Good afternoon. I would like to run over our fourth quarter financial results. As slower seasonality set in in Q4 and market demand weakened and customers tightened their inventory control, area shipment lowered by 14%. However, our vertical business revenue continued to expand, helping to partially offset the revenue slide.
In Q4, our net sales came in at TWD 63.3 billion, down by 9.6% QoQ. Due to the slower seasonality, loading rates lowered. Our gross profit lowered to TWD 2.1 billion. OP loss increased to TWD 5.1 billion, mainly due to an OpEx item. That is the recognition of a one-time labor expense associated with the BHTC acquisition. Net loss attributable to owners of the company narrowed to TWD 1.5 billion. EBITDA margin was 5.4%. Compared with OP loss, net loss narrowed significantly, mainly because we had a TWD 3.95 billion of income tax gain in Q4, which included a DTA of TWD 3.44 billion NT dollars from the loss carryforwards recognized by our affiliated entities.
This means that according to accounting rules, for our financial forecast going forward, during the period where the loss reduction is usable, which is 10 years in Taiwan, we will likely make use of the DTA of TWD 3.44 billion. Next slide, our full year results. In 2023, our net sales came in at TWD 248 billion, up by TWD 1.2 billion YoY. During 2023, we worked relentlessly on controlling our OpEx and improving the vertical business contribution to our revenue, helping to boost our profitability as a result. Gross profit was TWD 4.6 billion. OP loss was TWD 22 billion. Net loss attributable to owners of the company was TWD 18.2 billion. EPS was -2.37 TWD. EBITDA, TWD 10.5 billion. EBITDA margin, 4.3% rather. Next slide, balance sheet.
In Q4, our cash and cash equivalents were TWD 84 billion. Long-term and short-term combined was TWD 111.9 billion. At the end of the year, our gearing ratio was 16.9%, flat QoQ. In Q4, due to lower loading, our inventory levels stayed at healthy levels. Our inventory amount was TWD 29 billion, flattish QoQ. Due to the lower shipment, our inventory turnover days increased to 44 days. Next slide, cash flow. We generated TWD 6.5 billion from operating activities. CapEx was 4.3%, a billion rather. Net change in debt was TWD 5.2 billion. Next slide, revenue breakdown.... Let's look at the lower right bottom. Vertical business gained two percentage points to 18%, thanks to increasing contribution of the automotive display HMI, helping us to tackle the boom and bust cycle of the panel market.
On the upper right, TV and monitor lost 1% and two percentage points to 21% and 12% respectively, on the back of lower ASPs and area shipment. Against this backdrop of mobile PC and device increased by two percentage points to 24%. Next slide. Shipments and ASP by area. As demand slowed down, area shipment went down by 14% QoQ. ASP increased by 1%, thanks to product mix optimization and increased area shipments of mid to high-end products, such as car displays. As for our Q1 2024 guidance, based on our current business outlook, we expect the display business to have area shipment that will be roughly flat QoQ. The blended ASP denominated in the U.S. dollar is anticipated to be down by multi-digit percentage points QoQ. Q1's loading rates will be dynamically adjusted based on market conditions.
This concludes the briefing on the Q4 results and the guidance for Q1. Now, before we proceed to the Q&A session, we will have Paul to give you an opening remark.
Ladies and gentlemen, good afternoon. I would like to add an additional note to CFO's statement about the reason of blended ASP. Besides the adjustment in our product mix, the main reason, another main reason is that TV will account for a slightly higher ratio in our Q1 revenue. Now, before I start, I would like to first welcome you to participate in our Q1 financial results conference. Now, I would like to quickly go over our 2023 results. The key word of 2023 was inventory, inventory control. The entire ICT industry chain has been working very hard on lowering inventory levels.
From the perspective of AUO, our full year revenue came in at TWD 248 billion. In the first half, we had to deal with inventory corrections of our of our customers, causing their panel purchasing to be rather conservative. However, in the second half, as inventory levels resumed normal and the advent of the year-end holiday season also helped, seasonal momentum was more visible. Our full year revenue in 2023 grew by about 0.5% YoY, mainly benefiting from the revenue of vertical business. Our vertical business grew by nearly 20% in 2023, helping to offset partially the slide of our panel revenue. It also helped to improve our our loss as the entire company. In 2023, the consumer market was relatively weak. However, we benefited from the growth of the automotive displays. Our automotive display revenue exceeded TWD 40 billion for 2023.
The growth momentum was especially strong for our integrated products. We call them as FIDM or Display HMI. Their contribution to revenue continued to increase. However, the growth of these segments was not strong enough to offset the short seasonality for consumer products, resulting in 10% drop in our panel revenue in the fourth quarter. The loss was also increased in Q4. In 2023, market conditions were bleak in the first half and gradually recovered in the second half. However, we're still seeing unfavorable conditions affecting the macroeconomy, including ongoing war, inflation, high interest rates. These factors are still around, affecting the global economic activity and consumers' consumption capabilities, dragging down the pace and magnitude of market demand recovery. The performance of commercial products was weaker.
In terms of our financial structure, our inventory turnover increased by three days QoQ in Q4, while the inventory amount was flattish QoQ. The lower revenue caused the in-inventory turnover days to increase. Our gearing ratio was 16.9%, still resting at a healthy level. As I said, 2023 consumer market was relatively weak. It was evident in the muted growth of the year-end promotions during the Double 11, Black Friday, and the Lunar New Year holidays. Growth was quite depressed. However, there are also positive signs. For example, as mentioned, the industry focused on controlling inventory levels. The entire industry chain has been very prudent in how they manage their inventory levels, and today the inventory levels have returned to healthy state. That is why, after the year-end holiday season, there was no problem of inventory piled up.
In terms of the entire supply chain, panel makers have been working on addressing their inventory pileups and improving their inventory management. Companies are focusing on producing the amount as needed. And also, in response to the market demand, they are adjusting their loading rates. In terms of 2024, we are seeing some signs of market recovery. In terms of the IT segment, AI PC has been gaining traction. At the CES this year, there are three hotspots. One is AI PC, second, electric vehicles, and the other is Micro LED. In terms of AI PC, the advent of AI PC and Windows updates will likely trigger a new wave of PC replacement cycle. The previous replacement cycle of PCs took place in 2020, on the back of the pandemic boom.
This year, the IT segment is expected to see another replacement cycle, which usually happens once in every four years. Secondly, if we look at the large size TV panels, as we will have the advent of the Euro Cup and Olympic Games, usually these kind of sports events will likely help boost demand, especially for the demand of large-sized, high-spec TV sets. Looking at the macroeconomy in 2024, while there are still some uncertainties, we believe that we can be prudently positive about macro conditions if the following factors can be contained effectively. First, inflation in U.S. Today, inflationary pressure has been going down in the U.S., and it has been lowered to a range that can be anticipated, and people are anticipating interest reduction opportunities for the second half of this year. The second factor is war.
While the Russia-Ukraine war impact has been adapted to by the industry, the rising Red Sea conflict has been causing some problems for logistics and transportation. It may prolong the transportation time and causing some disruption to container shipping, thereby causing transportation costs to increase. How big the impact will be on the entire supply chain? This is something that we are watching closely. But on a positive note, in terms of Europe, Asia, transportation, land transportation is an alternative which may help to replace some part of the, aviation transportation. Another factor that we need to watch closely is political situation. Many countries, including Taiwan, have or will conduct election this year. We will have to pay attention to the stability of the political situation around the world.
In terms of the macro environment, while we haven't seen strong recovery signs, but at AUO, we remain committed to biaxial transformation. We will continue to dedicate our efforts to develop the vertical business opportunities. In 2023, our vertical business revenue has reached TWD 43 billion. We hope that it will. In 2023, it accounted for 17% of our revenue, and we will continue to grow this aspect and hoping to drive faster growth compared to the 20% of last year. Moreover, the automotive display segment is taking up a higher revenue share, and this year, as we will begin to recognize BHTC's revenue in our consolidated performance, we expect that we will be able to accelerate our automotive display growth.
Automotive systems will be a key focus of AUO going forward, and it will be one of the key revenue contributors to our revenue going forward. This is why we believe that while 2024 will be a challenging year, it will be a year that we can be prudently positive about. Moreover, we will work relentlessly toward developing vertical application business such as mobility, retail, healthcare, enterprise and education, intelligence service, and green energy. We hope that by leveraging our resources and capabilities in these areas, we will be able to help AUO to become more immune to the boom and bust cycle of the panel industry.
Of course, of course, industry panel makers may have different strategies when it comes to how they tackle the market challenges, but what we have observed is that every company has become much more disciplined in how they deal with capacity ramps. Currently, we haven't heard from any company having the plan to build a new factory. People have been very agile in how they adjust their loading rates and capacity. We believe that this will help to bring the overall supply and demand dynamics to healthier state. Next, I'll have Frank to provide an update on the progress we've made on digital transformation and some of the highlights I would like to share with you. Thank you. I also would like to wish you happy New Year. Thank you.
Okay, thank you, Paul. I'm Frank. Good afternoon.
As Paul just shared with you, AUO's management team has been very aggressively working toward biaxial transformation implementation. Our goal is to make AUO a company that is focused on our panel manufacturing capability and is able to extend our core competence in display technology to various vertical markets and field applications. In terms of the vertical markets, we currently are focusing on mobility service, retail, healthcare, enterprise and education, intelligence services, and green energy. Besides fostering internal transformation, we are also setting up subsidiaries and working with external partners on strategic collaboration to deepen our presence in the ecosystem of vertical applications, so as to make our value chain more comprehensive. Last quarter, we talked to you about our mobility roadmap, and we also talked about the acquisition of BHTC.
As for the acquisition, we are proceeding with the procedures quite smoothly, and we will update you on more progress made when they are ready. Next, I would like to share with you some of our exhibition highlights at the recently two concluded international trade shows. First of all, at the CES, which was concluded just two weeks ago, we exhibited many products, advanced products. In fact, CES may not be quite the consumer electronics show as it was before, because in recent years, it has been exhibiting more car-related products and solutions. By participating in CES, we are launching into a new milestone in the mobility services. For the past 20 years, AUO has been participating in CES, however, we were there as a panel provider.
We may, might have rented a booth, a private booth around the main exhibition halls, and so as to interact with our customers. But today, we are at the CES; we were there as an official exhibitor. We exhibited right in the halls. We exhibited our smart cockpit solutions. So this is why we are so happy to be able to report to you that we were there for the first time as an official exhibitor. This vindicates our competitiveness and our innovation achievements. We displayed transparent and rollable Micro LED automotive displays and the smart cockpit solutions. We have also been honored with two innovation awards by the organizer. The interactive, transparent, intelligent window has even garnered an innovation award, which, quite frankly, was an achievement that was better than many Tier 1 suppliers in the market.
This also represents that the industry and the market have recognized AUO's capability as a supplier of smart cockpit. Of course, as mentioned, there are several highlights at CES this year: AI, automotive solutions, and large-size innovative display applications, especially transparent displays, of which transparent Micro LED displays gained accolades at the exhibition floor. I would like to share with you that almost all the Micro LED, transparent Micro LED displays exhibited on the show floor were provided by AUO, including products exhibited by international first-tier brands, which worked with AUO to develop the products. So this shows that AUO has the capability to develop and to research compelling solutions alongside our partners, and we are also able to transition our technology into making viable products.
To sum up, I think based on our performance at CES, we not only exhibited our competence at the show floor, we also demonstrated that we are able to deliver real results from technology to applications, including our solutions for Micro LED. We have been strategically able to deliver Micro LED technology, transitioning from the technology aspect to various applications. Last year, we shared with you our progress in wearable devices, but this year we were talking about ultra large size transparent displays. In the future, we will also continue to work on co-creating more possibilities for automotive displays. Moreover, AUO has been leveraging our core capabilities to develop Go Vertical solutions. So we are also extending our advantages in the car display market integrated with our Micro LED technology to provide smart cockpit solutions, which have gained market accolades around the world.
Another key point I would like to share with you is our exhibition at the Healthcare + Expo, Taiwan, in the end of November or in the beginning of December. This expo has become a very important exhibition for demonstrating medical innovation. For the first time, AUO was there in the capacity as a member of the medical business group. We demonstrated our results alongside AUO Health, AUO Care, and AUO Display Plus, to showcase our solutions in various healthcare domains, including digital dentistry, 3D surgical imaging, elderly care, medical information, integration and management, as well as traditional Chinese medicine digital detection. Many of the applications leverage AUO's competence built up over the past 10 years in the professional medical display technology.
Today, we are also working with ecosystem partners to leverage our leading capacity to develop more diverse medical solutions, so as to address the key point, the pain points of the medical industry, and to also provide effective solutions. We believe that this segment will post stronger performance than other product lines this year. Overall, for the past three years, AUO has posted steady growth in our vertical business revenue, and the revenue continues to increase year- over- year. Of course, we are seeing the strongest growth momentum from automotive displays, and in 2023, the segment posted more than 25% of growth YoY. This year, with the acquisition of BHTC, we believe the revenue share, revenue share will be even bigger, which will help us to foster our growth, to accelerate our development in the smart cockpit solution and automotive display segment. We...
Thank you for giving me this opportunity to share with you the achievements that we've made by leading the company toward transitioning our business structure and revenue roadmap. I hope that we will be able to foster faster growth for the entire company, so as to achieve our goals. Thank you.
Thank you, Frank and Paul, for the opening remarks. Now we would like to proceed with questions and answers. For the first part of the Q&A, we will address the questions that we have collected previously. The first group of the questions are about market updates and outlook. First of all, what is our view about 2024's global panel supply and demand? Secondly, what are the inventory levels that we have observed? Frank, would you please?
Regarding the supply and demand of the panel industry, I would like to share with you that in terms of inventory levels, inventory levels have been quite healthy across applications. This year, the focus will be on demand forecasts. When will forecasts take place? However, due to macroeconomic conditions, people have been more cautious about demand forecasts. On the other hand, the industry is producing products based on demand, helping to make the supply and demand healthier than the past two years. Of course, we have observed some segments that enjoy more robust demand, including IT applications. On the back of AI PC demand and automotive displays, on the back of smart cockpit demand, and the increasing demand for big, a higher number of car displays and applications inside each car. These factors help to boost the demand despite the macro conditions.
As for inventory levels, as mentioned, inventory levels are basically quite healthy across applications. We have also observed that compared with commercial applications, consumer applications now enjoy higher visibility of demand recovery, partly because of the macro conditions impact on enterprises, causing enterprises to be more conservative about spending, causing commercial demand to be weaker.
Thank you, Frank. Next, we proceed to IT applications. We understand that the IT segment has gone through several quarters of inventory corrections. Jim, would you please talk about our views about the IT segment?
Ladies and gentlemen, good afternoon. After six quarters of inventory corrections, the inventory levels of the IT segment have been rather healthy at the moment. Brand shipments started to post growth starting from the fourth quarter of 2023. That was QoQ growth. This was a strong and favorable sign.
Looking ahead at 2024, as Paul and Frank mentioned, there are several favorable factors for the IT segment to drive its growth. First of all, the advent of replacement cycle, which will help drive the growth of IT segment. Secondly, the Windows system upgrades, upgrading from Windows 10 to Windows 11, or the enablement of Copilot functions. Thirdly, the arrival of AI PC, which will accelerate the demand for panels' power efficiency. It will expand the demand for super power-saving panels. Fourthly, as the world inches toward the goal of lower carbon emissions, brands around the world are demanding low power, low temp, super low power consumption technology platform, which happens to align with AUO's technology roadmap.
While Q1 is a slower season, and manufacturers will take a prolonged holidays during the Lunar New Year period, we believe that after the conclusion of the Lunar New Year, we will see rising demand from the industry. Also, about the TV segment, James, would you please also provide some comments about TV set sell-through for this year?
Today in the market, inventory levels for TV sets have been controlled quite nicely. In Q4 2023, every size continued to rise to a new high, resting at 51.7-inch. During the Double 11 sales promotional season in China, the average size was 65-inch. In North America and China, 85-inch and above models posted strong growth momentum in terms of set sell-through, which helped to effectively digest capacity and boost demand.
Looking ahead at 2024, there will be several sports events coming up, including Euro Cup and Olympic Games, which will drive the demand for large-sized models and likely trigger a new wave of replacement cycle. The Euro Cup will begin in June, which will likely make the demand, restocking demand to happen earlier than usual. Some companies are fearful that it will be too late for them to start restocking in February or March, so they have started to make panel purchasing ahead of time, helping to boost the demand for TV panels, even including mid- to small-sized TV panels, helping to boost their prices. So it is quite a positive sign for us to be able to see that right from the beginning of this year, there are still some strong signs of demand recovery from the TV segment.
Thank you, James.
The next group of questions are financial-related questions, which I will address. First of all, loading rates. Loading rates in Q4 lowered to 70% or so. In Q1, we will continue to dynamically adjust the loading rates based on market conditions and our product mix. Depreciation and amortization. In Q4, the amount was TWD 8.5 billion. For the full year of 2023, TWD 32.9 billion. We expect that the 2024 amount will be TWD 32 billion. Next, CapEx. Our CapEx in Q4 was lower to TWD 4.3 billion, as some of the payments were being delayed into this year, causing the 2023 CapEx at TWD 26.8 billion. As for 2024, the entire year is expected to be less than TWD 30 billion for the CapEx. So that was a reply to financial-related questions.
Ladies, and gentlemen, we now open the line to take your questions. To ensure equal opportunities for each participant, please be reminded to limit the number of your questions to three per call, and please state them all in one go. Thank you.
The first caller is Karen Huang from Citigroup. Please go ahead.
Hi, thank you for taking my questions. I have three questions. First of all, I have a question on the impact of Red Sea crisis on product shipments. There was news that the earthquakes in Japan had made a negative impact on the upstream, polarizer production in Japan. What was the impact on your upstream production due to the earthquakes in Japan, and how long do you expect the impact to last? The second question that I have is on IT. Apple is adopting OLED panels.
Could you tell us your view about the impact of new display technologies on the LCD industry? Moreover, there's a Chinese panel maker ramping its new IT production line. What is your view about the IT segment this year? Thirdly, about your biaxial transformation strategy. Some automotive component makers are saying that overseas demand is weakening. So could you tell us about what you have observed about automotive demand and the changes in the order streams? Thank you.
Hi, Karen, this is James. I would like to address your first and second questions. In terms of the Red Sea crisis, what we have observed is that customers moved ahead their restocking and production schedule by about two weeks. Of course, costs will increase slightly. Some Chinese manufacturers take advantage of the railway transportation to deliver their products, and because of this, the impact has been quite limited.
But, companies are going to restock and make preparations ahead of time. As for the earthquakes in Japan, while the production has been suspended in a certain manufacturer, but that company has already resumed production. Besides, there are also other suppliers of polarizers. Therefore, we don't believe there will be any impact in the short term. As for the potential of Apple to utilizing OLED panels, OLED applications have been around for some time. In terms of various display technologies, they each has different advantages. OLED is light and slim, but it requires a higher power consumption. As the world pursues carbon emissions reductions or net zero, LTPS will have a unique advantage.
Going forward, what will be more important is that we will see a rising demand for AI PCs, which will require stronger power-saving features for panels, and LTPS, again, will present unique advantages. We will continue to work with our customers to increase the volumes of such models. I'm Frank. I would like to address your question relating to the automotive market. Here, I would like to share with you a data point. In 2023, the worldwide car sales increased by about 10%, boosted by the delayed demand triggered by the COVID pandemic. In the prior years, the automotive industry chain was capped due to shortages of materials. Last year, the growth momentum was quite strong. Of all the kind, all the car models, EVs YoY growth was especially strong at nearly 35%. Moreover, new application or new specifications also help boost demand.
Besides, used car sales have been depressed for quite some time and finally recovered last year, helping to digest some excess inventory. Looking ahead at this year, if we take a more prudent view, I think we can project that the global car sales to be up by 3% YoY. The overall sales volume will be more stable. What can be observed is that the demand for smart car, smart cockpit, or the number of displays, or the size of displays inside cars will continue to increase rapidly. This will be aligned with our statement about the double-digit growth for car display applications and intelligent solutions.
Thank you. The answers were very clear. Thank you very much.
The next caller is Lisa Chen from Yuanta Securities. Please go ahead.
Management team, good afternoon. Thank you for providing us with details. I'm Lisa from Yuanta. I have three questions.
First of all, I think you have reached a certain level in terms of your Micro LED deployment. You have already shipped device products. Do you have any other device products that may be shipped anytime soon? As people are placing more focus on automotive markets and applications, I think car makers are the ones that you will need some time to communicate with. So could you share with us the shipment schedule of any other device products? Second question is relating to your deal with PlayNitride. Could you provide us with the updates on the schedule? Thirdly, you shut down your fab in Singapore. Do you have any strategic planning? You mentioned manufacturing positioning. Could you tell us your projection for the revenue share and the progress that you are making?
Lisa, this is Frank. I would like to answer your questions.
First of all, in terms of Micro LED, as we just shared with you, we have talked about our efforts in working with partners such as PlayNitride, to apply our Micro LED applications and technologies in high potential markets such as wearables, for which we have been shipping products to our customers. The second segment will be TV, as well as various industrial and commercial applications, where we will be able to deliver transparent displays. For these segments, we will expect to have a more rapid deployment of technologies, which may start from the beginning of the second half of this year. As for the automotive displays, we believe by 2026 or 2027, we will be able to mass produce applications of Micro LED car displays.
As for our partnership with PlayNitride, for which we are working to build up a new production line, our plan is to finish the equipment move-in by the end of this year. So in the first half of next year, we will be able to perform small batch production. Currently, we are looking at the construction from the perspective of the combined capacity of the two companies. Initially, we will work on integrating our manufacturing technologies and to have a better control of the entire industry chain, so as to strengthen our capabilities of Micro LED manufacturing and improve the manufacturing efficiency of the production line. This is what we are doing as we prepare for improving the yield rate of Micro LED production, and improving the manufacturing efficiency.
As for your last question on the Singaporean plant, because that plant was an older plant, it was a Gen 4.5 fab, LTPS fab. Currently, AUO is mainly focusing on Gen 6 fab, so we decided to concentrate on these fabs. We have already closed down the fab, and we will work on managing the equipment and the fab after its closure.
This is an ongoing process. We don't have any other questions on the line. Due to the interest of time, we will conclude today's investor conference. If you have any other questions, please feel free to contact us at the IR department at AUO. Thank you very much for participating.
Thank you. We will see you next time.