[Non-English content] Dear investors, analysts and media, good afternoon.
Welcome to Novatek 2021 fourth quarter online investor conference. This is David Chen, Vice President and Company Spokesperson. I'll be the host for today's conference. First of all, we would like to take this opportunity to wish you all a very happy New Year of the tiger. Wishing you all the best of health and shalom. Currently, the global and local pandemic is still very challenging, and considering everyone's safety, we have decided to maintain our investor conference 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 fourth quarter results in English. After that, our Vice Chairman, Mr. Steve Wang, will provide more details on our Q4 results and Q1 guidance.
Following that will be our Q&A session. As mentioned earlier, if you have questions, you can send them to us by text. Our IR director, Mr. Tony Tseng will be processing and reading out the investors' questions one at a time, both in Chinese and English. Our Vice Chairman, Steve Wang, and CFO, Mr. Chou, 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. Let's start with our 2021 Q4 financial highlights. Our net sales in Q4 was TWD 36.54 billion, down QoQ 4.7% from TWD 38.35 billion, YoY up 62.75% from TWD 22.45 billion in Q4 2020. Gross profit in Q4 was TWD 18.8 billion, down 5.6% from last quarter TWD 19.92 billion, and up 120.18% from TWD 8.45 billion in Q4 2020.
Our gross margin in Q4 was 51.45%, down 0.49 percentage point QoQ from 51.94%, YoY up 13.42 percentage points from 38.03%. Our operating expense in Q4 was TWD 5.35 billion, up 11.59% QoQ from TWD 4.8 billion, YoY up 41.19% from TWD 3.8 billion. Q4 operating income was TWD 13.45 billion, down QoQ 11.06% from TWD 15.12 billion.
YoY up 183.24% from TWD 4.75 billion. Our operating margin in Q4 was 36.8%, down 2.63 percentage points QoQ from 39.43%. YoY up 15.65 percentage points from 21.15%. Q4 net income was TWD 10.93 billion, down QoQ 10.9% from TWD 12.27 billion. YoY up 200% from TWD 3.64 billion. Overall, Q4 EPS was TWD 17.97 versus last quarter TWD 20.17. A QoQ decrease of TWD 2.2. Last year Q4 EPS was TWD 5.99. A YoY increase of TWD 11.98. Please take a look at our Q4 unaudited consolidated income statement. Next slide is our 2021 unaudited consolidated income statement.
Our net sales in 2021 was TWD 135.37 billion, YoY up 69.3% from TWD 39.96 billion in 2020. Net gross profit in 2021 was TWD 67.39 billion, up 141.05% from last year, TWD 27.96 billion. Our operating expense was TWD 19.62 billion, up 48.85% from TWD 13.18 billion last year. Operating income was TWD 47.77 billion, up YOY 223.28% from TWD 14.78 billion in 2020. 2021 net income was TWD 38.87 billion, up YoY 220.89% from TWD 11.82 billion last year. 2021 EPS was TWD 63.87 versus last year, TWD 19.42.
YoY increase by TWD 44.45. Sales breakdown by product line. This is our Q4 sales breakdown by product line. SMDD IC, which is small and medium driver, accounts for 42% of our sales. LDD IC, which is a large driver IC, accounts for 29%. SoC, which is all non-driver IC, accounts for 29%. Monthly sales. If you look at comparing the 2021 and 2020 monthly sales, you can see significant YoY growth for each month throughout last year. We have just released our 2022 January sales, which is TWD 12.32 billion, month-to-month down 3.65%, but YoY up 51.65%. SoC accounts for 29%, and driver IC accounts for 31% of the total revenue. Next, let's look at other key financial numbers.
Our cash and cash equivalents in Q4 was TWD 60.13 billion, increased QoQ by 40.52% from TWD 42.79 billion. YoY increased by 162.86% from TWD 22.88 billion. Accounts receivable, Q4 was TWD 23.57 billion, decreased QoQ by 12.97% from TWD 27.3 billion. YoY up 36.27% from TWD 13.37 billion. Inventory, Q4 was TWD 14.19 billion.
QoQ up 15.55% from TWD 12.28 [inaudible] from TWD 8.16 billion. Short-term loans Q4 was zero. The following slide is a recap of our recent major events. Novatek was selected as a constituent stock of FTSE Russell Taiwan ESG Index, Taiwan High Compensation 100 Index, Taiwan Employment Creation 99 Index, Corporate Governance 100 Index, and also the CommonWealth [inaudible]
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Thank you, Steve. Regarding the Q4 revenue, it was decreased by 4.7%, but YoY up 62.57%.
The revenue decline was attributed to SoC and TV DDIC seasonal demand and year-end inventory adjustment. As to Q4 margins, was 51.45%. It exceeded our orderly guidance. This is mainly due to product mix and ASP increase for some of our products. Looking at Q1 outlook, traditionally Q1 is a consumer low season, and also has less number of working days due to Lunar New Year. With solid commercial and automotive demand, Novatek still expects to have a decent quarter maintaining roughly flat QOQ revenue. Looking at the Omicron, we still see that it's spreading globally. Besides the vaccination and also new COVID treatment pills is becoming available.
Hopefully the border restrictions, traveling restriction, will be lifted soon, and hopefully the economy can return to normal. In the meantime, Novatek will continue to strengthen our partnership with our customer by developing and introducing more advanced design technologies, best quality product to our value customers to enhance our mutual competitiveness. Based on the above, our guidance for Q1 will be as follows: Revenue will be from TWD 35.8 billion-TWD 36.8 billion with an exchange rate of 1 : 27.8. The gross margins will be 48%-51%, and operating margins will be 34%-37% range. Looking at the Q1 revenue, we expect SoC, the non-driver portion, to be slightly up. The small medium driver IC to be kind of flat.
DDIC to be slightly down. Next, we'll move on to Q&A sessions. Please be reminded to send in your questions if you have any questions, and we'll try to answer them one by one. We already have some questions with us. I'll ask Tony to proceed with the Q&A.
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First will be some follow-up for the quarter four revenue. Just wonder if you can provide more color on the quarter-over-quarter comparison for your three business groups.
Looking at the three major product groups, we see that the SoC has the highest quarterly decline, then followed by large panel driver. Whereas the small medium driver IC maintained.
[Non-English content] Wonder, you mentioned small medium-sized driver posted high performance in both quarter four and likely in first quarter 2022. Just wonder if you can provide more color in terms of units in quarter four, quarter-over-quarter, and also year-over-year performance for 2021 for your small medium-sized driver business.
Looking at the small and medium product for DDIC, we see that the Q4, the DDIC has an overall slight quarter-over-quarter growth, whereas the OLED was QoQ kind of flat. This was mainly due to the capacity constraint. On a yearly basis of 2021, we see DDIC shipment was slightly up YoY, while OLED shipment went up significantly.
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Also, can you provide more color for your operating expense ratio in quarter four versus quarter three, which actually increased quarter-over-quarter?
Well, the operating expense increase was mainly due to the higher R&D expense and also the structural increase in salary.
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The next question about quarter four results about inventory level, which also are most asked by a few investors. Could you provide more color why your inventory dollar increase further by about mid-teen to reach a high level?
Oh, at this moment, what we see is that the capacity is still pretty tight and then we have a longer cycle time. We actually, you know, adjusted our production allocation. We're looking at the current inventory level, we consider is still very healthy. If you look at days of inventory, you know Q3 about 67 days, Q4 is 71 days, so it's still pretty healthy.
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Overall wafer supply is still tight, and actually we are still trying to secure more capacity. You know, currently we know that we'll continue to adjust our product mix, you know, to maximize our output.
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One of your major foundry suppliers was quoted to mention about the potential oversupply for 28-nanometer in 2023. Just wonder your Novatek view of this comment?
From my point of view and it still cannot meet our demand at this moment. We are hoping to try to get more supply from our foundry.
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The third one is about can management provide assurance on foundry supply in 2022 versus 2021?
Well, the capacity, wafer capacity in 2022, we still expect to increase the supply, but it's still not enough. We still are negotiating, you know, continue to negotiate with our foundry partners to increase more supply to us.
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The fourth question is, has been reported that while some of your foundry suppliers are intended to increase the foundry selling price during first quarter, could you also provide some color and also any color on the full year foundry cost increase?
Well, now, as you know, we are, you know, working very closely with our suppliers and with our customers to deal with the, you know, changing environment. So far, Q1 is still under control and we don't expect any big changes.
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Also, switching again to the other product supply, I wonder if you can also comment the demand supply situation for the packaging and testing. Any price increase, at least area?
Well, regarding the back end, you know, we maintain a long term partnership with our back end suppliers. That's what we see at this moment.
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Second batch will be regarding the overall end demand and also the outlook. The first question is about the TV demand outlook. Last time management mentioned, I think in March will be a critical timing to see if there's any recovery of TV demand. I wonder what's your latest view on the TV side.
Well, looking at the market, you know, panel TV shipment, we see that it should be stabilizing gradually. We believe the ASP will stabilize in March. We also see that Korean panel maker is also exiting the TFT TV market. Therefore, we think the market should be healthy and should maintain positive.
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Yeah, of course, we also have to look at depend on the supply and demand. If the demand can rebound as expected.
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You mention about the TV demand, could you also provide your view about the other applications in first quarter?
Well, looking at Q1, as mentioned earlier, consumer demand relatively weak, but looking at the commercial notebook or commercial IT product, it's, and then also the gaming, all these are pretty, the demand is still there and it's pretty solid. Of course, the automotive at this moment, we see also pretty solid. The TV and Chromebook at this moment is not fully recovered yet. Looking at the smartphone, we see that it is kind of slow, but we expect to see many new models launched after March this year. We still, you know, have some expectation on the smartphone side.
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I just wonder if management can provide some preliminary view into the second quarter?
Well, we see that the COVID situation, I think the overall should be returning back to normal seasonality this year.
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TPK is highly related to the panel industry. I just wonder if you can provide some I just wonder if you can provide some trend to share with us.
As I mentioned earlier, the Koreans are leaving the LCD market, and it will be left with just China and Taiwan mainly. The panel makers are also very dynamically adjusting the TV production, you know, based on the market demand. Based on the above, I think this should be positive and good for the display market.
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[Non-English content]，could you provide some growth drivers or areas to watch for 2022 and even a year out?
Looking at the mid- to long-term at our three main product group. The large panel driver, we are expecting the trend moving to high-end IT applications, both on notebook or monitor. You have the gaming, which is also on the, you know, high-end side, and also the 8K resolution display. All these are some of the major trends or opportunity that we see in the large panel space. Looking at the small medium size, we see on the smartphone side, all the drivers, the penetration rate will continue to go up, and this is a good opportunity for Novatek. The OLED TDDI, we should pick up momentum.
We also see the tablet, especially Novatek's tablet solution has the stylus pen solution, which is very well accepted by our customers. We also have some expectation in the tablet space. Of course, looking at the medium-sized automotive, I mean, the DDIC and also the TDDI. Also, we're seeing a lot of, you know, design-in adoption of TDDI in the auto space. Of course, we have the AR and VR display, which is our core competence. We do have expectation in the mid to long term. Of course, on the last one is on the non-driver, the SoC side. You know, on the 4K and 120 Hz solution, TV solution, we are, you know, expecting to have more market share gain.
We also have, you know, surveillance. We also have expectation on that. We're also seeing a great demand on the gaming scaler controller. All these are some of the stuff that we see should be contributing to Novatek in the mid to long term.
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Last one about the overall outlook. As we notice, some of your peers have provided 2022 or even longer term growth outlook. Just wonder if you also can provide some quantitative number to share.
Well, at Novatek, we do not provide annual guidance, but overall outlook should be positive, as we mentioned earlier about some of the new growth drivers we just mentioned. I think it should be positive.
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The next stage question is about the gross margin trend. The first question is, you mentioned already provided the gross margin guidance for first quarter, but just wonder if demand situation?
Of course, if the market demand rebound, of course, it's positive from the return. But as ASP basically depends on market demand, supply and demand. You know, we maintain a very close, you know, relationship and work very closely with our customers and, you know, to deal with the supply and demand situation. We'll continue to work closely with our customers.
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Just as we notice Novatek as a leader in the driver business, providing more resilient revenue and margins for quarter four and first quarter. I just wonder if management can share what actions you have taken to outperform the market.
Well, achieving a decent margin is always, as a designer, it's always our goal. The only way to achieve this goal is to enhance our technologies in product mix and product quality, in turn providing value to our customer. That's the only way, and that's what we've been doing, and we will continue to do that.
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Just also kind of to refer to the gross margin question, I just wonder if management could provide some early view for your gross margin outlook in 2022.
Well, as mentioned earlier, we do not provide annual guidance, so we don't have a number for 2022. This is our goal, and we will continue to, you know, work on it.
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Now we also have a couple of interesting questions. The first one is, given your very strong record earnings for 2021, I just wonder if you will maintain your payout cash payout ratio around 80% level.
Well, regarding the dividend policy, we need to wait for the board for the final decision. For Novatek, we'll maintain steady and solid, you know, dividend policy.
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Though the management already provided some color for the inventory questions, I still have some questions about the expectation for the inventory dollar into the first quarter, and also if management is worried about inventory level.
Well, first of all, we are not worried about our inventory level. Basically, it is still very healthy and manageable. As mentioned earlier, due to the current tight situation, the capacity tightness and the longer cycle time, we also have some new product that we need to launch. Currently the inventory level has gone up a little bit, but it's not an issue. We are very comfortable with the inventory level.
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Now, switching to more on the three business groups. The first one will first focus on the biggest and most important group, small- and medium-sized driver. The first follow-up question will be on OLED in terms of 2022 growth outlook, competition, and also others.
Well, for the small medium size, especially looking at OLED, we expect the unit shipment to grow in 2022. We have secured more capacity this year. Our major task is trying to secure more capacity for the OLED.
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I just wonder in the more mid- to long-term, wonder if Novatek has the opportunity to enter some non-China-based and, say, OEM?
Oh, you know, expanding our customer base is our major goal. With our advanced process nodes and new design technology and high quality product and also the supply capability, you know, I think it's, you know, we've been able to earn our customers trust and position ourselves as a reliable partner. Also, you know, looking at the China market and basically we've been working on it and we'll continue to try our best to expand or to increase that market.
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The second question is about the TDDI. Could you provide your growth outlook for 2022?
Looking at the TDDI market, we are relatively conservative on the smartphone TDDI growth. Looking at the tablet TDDI, we are relatively more positive, especially our tablet with stylus solution. We are, you know, more positive on the tablet TDDI.
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Now, also I wonder if you can provide some color on your auto driver business?
Well, we are positive on our auto TDDI and driver IC and TDDI in 2022, and we think it should be a good year for us, and especially we see the EV, the adoption of TDDI trend is very clear. This should be, you know, positive for Novatek. As you know, the design cycle is longer than the other product line, so it will take a little bit time. So far, we are positive for 2022.
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Now moving to the last question at small and medium size group. Could you also provide an update for your new product such as the under-display fingerprint and also wearable OLED driver?
Well, our OLED fingerprint or the OLED, variable OLED TDDI, driver IC, basically it's in Q4 already in mass production. You know, we expect to expand our OLED fingerprint and wearable customer base in 2022.
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Now moving to the second business group, large size driver. First, could you provide the opportunity or the outlook for this business group in 2022?
Well, looking at the three main application. First of all, looking at the TV, we're seeing that the TV is adopting the higher resolution and also higher frame rate from 60 Hz- 120 Hz even going up to 144 Hz. Of course with this higher resolution, higher frame rate is positive for driver maker like Novatek. On the IT side, the notebook, commercial notebook is, you know, also the trend is moving to the from HD to Full HD. The resolution also migrating to Full HD, which is also good for us. On the monitor side, the gaming market is still very solid. For gaming monitor, the major demand is on the performance and on the picture quality, which is our core competence.
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Just kind of follow up on the potential opportunity on the back of the exit of some Korean capacity. Wonder if you can also provide more color?
Well, as we reported earlier, the Korean LCD panel maker exits the TV market, and this gives us a good opportunity to expand our market shares. Currently, we're working very closely with the Koreans, and so far, the partnership is very good.
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The second question on the large size driver is regarding the growth opportunity from some new product.
Well, for the large size driver, we especially look at the OLED TV driver, the white OLED, and we're expecting it to grow. Currently, it's relatively accounts for small percentage of our revenue. This is very meaningful for Novatek as we have the product and now it's in mass production. We just started the OLED notebook solution. This is small, but we do expect the trend to move forward. The last one is the Mini LED backlight and display, and the trend is also very positive for Novatek.
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The laptop driver is just a legacy product, and we have seen newcomers from China, along with China already become the largest panel country. Just wonder if you have seen any impact to your business from China.
Well, as you know, Novatek, we are not just a driver supplier, we are a total solution provider. We provide driver, we provide timing controller, we provide power management IC. As you know, these are all our core competence, and this is also something which we differentiate ourselves from the others. Currently, you know, working on the high frame rate or the high resolution, and all these involve a lot of technology, and this is our core competence.
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Now we move into the third business group, SoC, which account for about 30% of our revenue. I just wonder if the management can also provide more color on the business outlook for your four major lines within the SoC product.
For the non-driver side, especially on the TV SoC, we are expecting the 4K ultra-definition and 120 hertz. We expect to increase market share. On the imaging, which is the surveillance, we have expectation to grow, continue to grow. Whereas on the dash cam, we are relatively conservative because it's a more mature market. For T-CON, we are seeing a lot of good opportunity, especially when things are moving to the commercial notebook, where it needs a high speed interface. These are also some of our strength. Of course, on the Auto T-CON, we're also making a lot of progress in the automotive. We also provide the T-CON solution for the automotive.
Also, on the power management IC, as you know, we are already a leader in the display power side, but we also trying to expand, go beyond display application. Also, currently, on the display side, we're also going to the OLED power management side. Currently, you know, what we are trying to do is we have the product and we are now trying our best to secure more capacity.
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You have to ask in English.
Okay. Sorry. Now we are still compiling the incoming questions.
Steve just mentioned about the metaverse. Basically part of our metaverse is mostly VR and AR, and this is supposed to be a great opportunity for Novatek in the mid- to long-term. AR/VR, a lot of has to do with display. You know, display is our core competence. Within the display, a lot of the VR, AR, they need to have some good picture quality solution, which this is our core competence. We are one of the major supplier of this picture quality solution. It's good for us that we're gonna have a more ASIC business as we move forward.
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Just maybe I will provide some wrap up for the Q&A questions before we finalize some incoming questions. Sorry, David.
Well, overall, 2022 should continue to be a good year for Novatek. After going through last year's supply chain challenges, all our customers consider Novatek as a reliable and trustworthy partner, and have great faith in Novatek's technology, quality, and supply capability. We'll continue to work hard to service our customer.
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If you have any further questions, please send it to us. If no further questions, then we'll end our Q4 investor conference here. Thank you so much for joining in.
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Thank you so much, and have a good evening.