Dear investors, analysts and media, good afternoon. Welcome to NovoTech's 2022 Third Quarter Online Investor Conference. My name is David Chen, the Vice President and Company's spokesperson. I'll be the host for today's conference. We are so happy to see you all again online.
Please be reminded that all questions can be sent in by text during the conference. The agenda for today's event will be as follows. First, I'll be reporting Novatek's 3rd quarter results in English. After that, our Vice Chairman, Mr. Sif Wang will provide more details on our Q3 results and Q4 guidance.
Following that will be our Q and A session. As mentioned earlier, If you have questions, you can send them to us online. Our IR Director, Mr. Tony Tan, will process and read out the investors' questions one at a time, both in Chinese and English. And our Vice Chairman, Mr.
Steve Wang and CFO, Mr. Zhou and myself will answer all your questions in Chinese and will be translated into English later on. As usual, please take a look at our safe harbor notice. So let's start with our 2022 Q3 financial highlights. Our net sales in Q3 was $19,560,000,000 down Q02 37.82 percent from RMB31.46 billion, YY down 48.98 percent from RMB38.35 billion in Q3 2021.
Net gross profit in Q3 was $8,300,000,000 down 44.31 percent from last quarter 14,980,000,000 and down 58.11 percent from RMB19.92 billion in Q3 2021. Our gross margin in Q3 was 42.65%, down 4.97 percentage points Q on Q from 47.62 percent. YY down 9.29 percentage points from 51.94%. Our operating expense in Q3 was 4,100,000,000 down 18.18 percent QoQ from 5,000,000,000 yen and YY down 14.73 percent from RMB4.8 billion. Q3 operating income was $4,260,000,000 down QoQ 57.38 percent from 10,000,000,000 yen YY down 71.86% from 15,1200,000,000 Our OP margin in Q3 was 21.75%, down 9.99 percentage points QoQ from 31.74 percent.
Down 17.68 percent this point from 39.43%. Q3 net income was 4,310,000,000 down Q on Q49.27 percent from 8,500,000,000 down 64.92 percent from 12,270,000,000. Overall, Q3 EPS was $7.07 versus last quarter, dollars 13.95 a Q on Q decrease of $6.88 and last year Q3 EPS was $20.17 a YOY decrease of $13.1 Please take a look at our Q3 consolidated income statement. Next, please take a look at our 1st 3 quarters consolidated income statement. Our first three quarters net sales was RMB 87,540,000,000 down 11.42 percent y o y from RMB98.82 billion.
1st 3 quarters gross profit was RMB41.85 billion, down 13.87% yoy from 48,590,000,000. Operating expense was $14,330,000,000 up 0.45 percent yoy from $14,270,000,000 First three quarters operating income was $27,520,000,000 down 19.82 percent yy from $34,320,000,000 1st 3 quarter net income was $23,930,000,000 down 14.34% y o y from $27,930,000,000 EPS in 1st 3 quarters was $39.32 a YY decrease of 6.58 from $45.9 Next is our Q3 sales breakdown by product line. SF DDIC, which is small and medium driver accounts for 38% of our total sales. SoC, which is all non DDIC accounts for 38% and LDDIC, which is a large driver IC accounts for 24%. We have just released our October sales, which is $6,870,000,000 month over month up 11.37 percent, YY down 45.42%.
SoC accounts for 38% and driver accounts for 63% of the total revenue. So the next slide shows you a brief picture comparing our 2022 2021 monthly sales numbers. Next, let's look at other key financial numbers. Our cash and cash equivalent in Q3 was $39,600,000,000 decreased Q on Q by 43.64 percent from $70,260,000,000 YY decreased by 7.46 percent from $42,790,000,000 Account receivable, Q3 was 13,970,000,000 decreased QoQ 24.73 percent from $21,410,000,000 and YY decreased 40.41 percent from 27,080,000,000. Inventory, Q3 was $17,180,000,000 QoQ down 8.8 percent from 18,840,000,000 yen, yoy up 39.94% from $12,280,000,000 short term loans Q3 was 0.
The following slide is a recap of our recent major events. As you can see that we've been awarded numerous awards and then some rankings and then noted was selected as some of the continued stocks for various index. I'm not going to go through that in details, but this is just for reference. And now, I'll turn over the call to our Vice President, Mr. Steve Wang, to provide us more details On our Q3 results and Q4 guidance, Okay, let me translate that into English.
Our 2022 Q3 revenue was RMB19.56 billion was within our guidance, but Q on Q down 37.82 percent. And this is mainly due to the rapid freeze of consumer demand and the brands and OEM makers inventory digestions and also the panel maker production cut to cope with the weak demand. And as for the margins for Q3, it was 42.65%, which is in line with our guidance by QoQ decreased by 4.97 percentage point. And this is mainly due to ASP erosion and cost up. And looking at the Q4 outlook, The global economy is still impacted by inflation, rising interest rate, Russia, Ukraine war.
Therefore, the macro economy is still full of uncertainties. The consumer market demand is so weak. And after period of inventory digestion and capacity cut at panel maker site, the panel price has stabilized. And the brand and system maker OEM has started to place new orders and we've seen some rush orders. To prepare for coming seasonality like Double 11, Double 12, Black Friday, Christmas and Chinese New Year.
But We still need to watch closely the final sell through numbers. So based on the above, Our guidance for Q4 is as follows. The revenue will be within the range of 18,800,000,000 to $20,000,000,000 and we had an exchange rate of 1 to 32. And the gross margins would be 38.5 to 40 point range. Operating margins 18.5% to 21.5%.
So thank you, Steve, for the Q4 guidance. Next, we'll move on to Q and A session. Please be reminded to send in your questions. And currently, we already have received some questions and Tony will read it out and we'll try to answer them 1 by 1. As I mentioned, if you have certain questions, you can send them in and we'll process them and we'll answer them.
Tony, please. Thanks for your guidance for quantitative guidance for quarter 4. And by applications for the small medium driver, we're expecting it to be up QoQ mainly due to OLED. And as for the SoC, it will decline. And for the large driver IC will be flat to up slightly.
And for the small smartphone TDDI, Now, we're looking back to your quarter 3 results. First, on your revenues, which only achieved the low end of year target, just over what are the major factors and also which product line or by application Well, as mentioned earlier, the decline in revenue was due to the rapid freeze at consumer end demand like a smartphone, notebook, PC or TV. And then the brand and system maker, they're undergoing inventory digestions. And panel maker production the production cut to cope with the weak demand. And based on the 3 product line, the decline rate is the highest as the large DDIC side and then the small medium side.
The relatively smaller magnitude is on the SoC side. And a follow-up question on your 3rd quarter gross margin, which also at the low end of your guidance, what are the major factors and also which product were more affected Well, the reason for the decline in gross margin was mainly due to cost up including the provisions for LTA and the AST erosion and also the product mix. And among the all the product lines, I think the smartphone TDDI ASP is relatively impacted the most. Now looking over to your 3rd financial guidance. Operating margin only reached 21.75% in quarter 3, below your guidance of 23% to 25%, how are major factors?
Our Q3 operating margin was lower than our guidance, mainly due to softer revenue and lower gross margin and R and D expense was higher than expected. But the overall operating expense declined by 18.18 percent to NTN909,000,000. We also noticed you have a big jump in the operating Well, the Q3 non offering was mostly contributed by ForEx gain of NT750 1,000,000 and interest income, NT145 1,000,000. The next question about your quarterly financials. We noticed the inventory dollar decreased 9% quarter over quarter to $17,100,000 on the fast dollar inventory days What was the major factors?
Well, the Q3 inventory of the DOI is around 111 days, 1, 1, 1 days, okay. And we think it is manageable. Well, due to the longer cycle time of 3 to 4 months. Usually, the drop in demand will take about 2 to 3 quarters to adjust inventory. So taking into account consideration the supply chain stability, we will adjust our inventory dynamically.
So basically, we have review our interest. So the other reason why our inventory came down is we actually we manage our wafer start. So we actually control the wafer starts, so the inventory level has come down. Now we switch gears to the overall big picture question. The first question is about Could management provide some preliminary outlook into the Q1 compared with quarter 4 and also by the major applications and also what relative to your quarterly revenue will affect the normal channel in 2023?
Well, as we all know, Q1 has a less number of working days due to Chinese Lunar New Year and also traditionally low season. We'll need to monitor the overall inventory digestion progress, the inflation and the potential demand rebound in March. As for the TV smartphone in Q1 inventory, We think it will likely return to normal level, but still highly depending on overall environment, especially the geopolitical development and the inflation situation. So the Revenue in 2023 are also likely to resume quarterly growth next year. Want to get more color for 2023, could you expect some of your product to have positive unit or revenue growth Yes.
I mean the product lines that has the potential growth will be like the OLED related product like that's been adopted to smartphone and it would be used on TV and also in some of the IT product. And we're also seeing the opportunity on the old automotive TDDI and we're expecting it to grow. And we also have the VR, AR, DDIC for the VR, AR display and also mid to high end TV SoC, for example, the 4 ks, 120 hertz and the 8 ks TV. And last but not the least, the ASIC, we also are expecting it to have a good result Regarding the OLED DDIC opportunity, We are seeing the higher OLED penetration rate, which is good for NovoTech and then it's a good opportunity. And the trend in replacing the rigid OLED panel by flexible panel is also a positive for NovoTek.
And we also think that wider application to IT like notebook, tablet, automotive and we also even moving to TV. So these are some of the good opportunities that we see. Of course, there are some challenges as you see that the 28 nano high voltage capacity is still tight at this moment. And of course, we also think there'll be new competitor in the market. Could you provide the We are expecting our Q4 inventory dollar to further decline.
And looking at our October inventory level, it is already moving down trend. And again, considering the stability of the supply chain, will be adjusting our inventory level dynamically. A lot of questions about the gross margin trend. The first question about the pricing. I wonder And also which product can be first gate stabilized among the 3 product lines?
Basically, ASP and cost is they are subjected to supply and demand. So pricing at this moment basically is under pressure because due to the soft demand. However, Looking ahead, room for further price erosion will be limited. And We are seeing that the ASP OLED for OLED DD driver IC is relatively stable at this moment. And our focus will be on developing more value added new products to improve our ASP margins.
Okay. And the follow-up question is about the cost. The management have some view on the cost trend into 2023 or year over year comparison for 2023 versus 2022 and also order which product or no product still have the high supply. But as mentioned earlier, the consumer end product demand is relatively weak. And so we do expect the manufacturing costs for product products will be lower gradually and we do expect that moving forward.
And I also mentioned earlier that the 28 nano high voltage, the supply is relatively tight compared to the others. If yes, then could you provide our guidance? Well, the LTA provisions actually already factored into our Q4 gross margin guidance. And Basically, we'll continue to negotiate with our supplier to deal with the situation. And looking at the LTA in general, actually it only accounts for portion of our oil wafer.
And amount in 2023 will be manageable. And also roughly quarterly expense and will you incur any year end inventory write down? Well, our inventory write down of provisions have been reviewed on a quarterly basis. So based on accounting rules, like including lowering the cost, net realizable value and aging days. So there won't be one off year end adjustment.
Under which circumstance or which product among your major driver IC lines could get stabilized first? As we mentioned earlier, the pricing costs, they're all subjected to supply and demand. But moving forward, chances are there in lowering the manufacturing costs and this is expected. And you can see that inventory level also becoming also coming down. So because of this, chances of gross margin getting stabilized is also expected.
Well, I think the best way to deal with this competitive landscape is to focus on the enhancement of our design competitiveness and differentiation and also value added products with the optimal product portfolio for various display technologies and providing the total solution for our customers. And you can see that under current environment, OEM customers are greatly in need of stable and resilient supplier. And Novatek definitely has a position and the capability to meet their needs and continue to be their reliable long term partner. Well, for NovoTek, we'll continue to leverage both the competitors and the advanced node process. And as for the foundry player, I mean, they will also adjust the product mix based on the market demand because they don't just supply driver, they also supply the process for CMOS sensor and the power management in applications.
Trey, for your gross margin? For the gross margin, the best way again is to continue to focus on some new technologies and to speed up the launch of new products and also try to broaden the product portfolio to enhance our competitiveness and also our gross margin. And looking at more in details, for example, for the large panel side, we have application for high end IT product drivers and the gaming 8 ks display and also the high speed interface, for example, the DP1.5, TED and also OLED for TV. And for the small and medium size smartphone and all, we have like OLED also used for the notebook And then we also have the OLED TDDI and also automotive adopting TDDI solution. And next year, we do have expectation on our ARVR solution and also some special purpose ASIC on the smallmedium segment.
And as for the PEC side, I mentioned earlier, we have the 1420 Hertz solution and also we have also ASIC, especially for the picture quality and also the high speed interface. For NovoTek, our supply chain has already expanded in to Taiwan, China and South Korea. And we'll try our best to make the best allocation adjustment to meet our customer needs. And for those that our customers are also relatively diversified geographically And NovoTech will continue to focus on providing competitive and value added product to our customer and making sure that they have the stable and resilient supply. Now in terms of the cash usage, in addition to the distribution of cash dividend, Well, cash will be mainly used for long term tech development and expansions of product portfolio and the introduction of new product.
And part of the cash will be also reserved to maintain flexibility when needs arise. We noticed there are big volatility in terms of operating Given the guidance for Q4, the operating expense ratio for 2022 will be around 17%. And the operating expense amount during 2023 will be stable, But the operating expense ratio will be subjected to the revenue fluctuation. So we've got you a lot of the questions. So Tony, if there's still follow-up questions.
So if you have new ones, do let us know. Well, for the past many years, our dividend policy pretty much maintaining pretty high payout ratio. And we don't think there'll be any major changes to that policy. At this moment, And this is again, this has to be decided by the Board. Just wonder if you can provide some guidance for inventory dollar at the day.
Wondering to your explain when you will inventory return to normal Anytime early next year or what's your cover? Well, based on the current inventory reduction rate, I think it should go back to a normal level. But as mentioned earlier, In order to take into consideration the stability of the supply chain, we need to do some adjustment. But basically, I think the inventory level should be healthy. You mentioned about the asset as one of the major growth opportunities into 2023.
Would you provide more details on your basic product for next year? Yes. As you all know, the core competence The Millitech is the display and image technology. And our technology has been very well accepted by a lot of the big customers. And so that brings in a lot of opportunity for E6 including driver, picture quality, high speed interface.
So these are some of the areas that we'll be providing to our customer. So we can take one more question. I just wonder if you can provide more detail. Yes. And then for NovoTek, we have developed quite a number of leading edge OLED display technology.
And it has been designed in to various customer. So we do have high expectation moving forward next year. Well, thank you so much for joining in of our 2022 Q3 Investor Conference. And thank you so much