Dear investors, analysts and media, good afternoon. Welcome to Novatek 2021 Second Quarter Online Investor Conference. This is David Chen, Vice President and Company's spokesperson. I'll be the host for today's conference. Hope everyone is doing well, healthy and happy.
Even though Taiwan pandemic situation has improved, But for security reasons, we have decided to maintain online and this enable our foreign investor to be able to join in too. Please be reminded that all questions can be sent in by text. The agenda for today's event will be as follow. First, I'll be reporting Novatek's 2nd quarter results in English. After that, our Vice Chairman, Mr.
Steve Wang, will provide more details on our Q2 results and Q3 guidance. Following that will be our Q and A session. As mentioned earlier, if you have questions, you can send them to us by text. Our IR Director, Mr. Tommy Zeng, will be processing and reading out the investor questions one at a time, both in English and Chinese.
And our Vice Chairman, Steve Wang CFO, Mr. Cho and myself will answer all questions in Chinese and will be translated into English later. As usual, please take a look at our Safe Harbor notice. So let's start with our 2021 Q2 financial highlights. Our net sales in Q2 was RMB34,11,000,000,000 up QoQ 29.37 percent from 26,370,000,000 yen, YOY up 83.29 percent from 18,610,000,000 yen in Q2 2020.
Net gross profit in Q2 was 17 point RMB17 1,000,000,000 up 49.19 percent from last quarter RMB11.51 billion and up 175.52 percent from RMB6.23 billion in Q2 Our gross margin in Q2 was 50.33%, up 6.69 percentage point QoQ from 43.64 percent, YOY up 16.85 percentage point from 33.48%. Our operating expense in Q2 was RMB5,180,000,000, up 20.45 percent QoQ from 4,300,000,000, YY up 68.84 percent from RMB3.1 billion. Q2 operating income was RMB11.99 billion, up Q on Q 66.31 percent from 7,200,000,000 yen, YOY up 278.8 percent from 3,170,000,000. Our OP margin in Q2 was 35.16%, up 7.81 percentage points QoQ from 27.35 percent, YY up 18.15 percentage points from 17%. Q2 net income was RMB9.79 billion, up QoQ 66.57 percent from RMB5.88 billion, YY up 282.76 percent from 2,560,000,000.
Overall Q2 EPS was $16.08 versus last quarter $9.66 a QoQ increase of $6.42 and last year Q2 EPS was $4.2 a Y o Y increase of $11.88 Please take a look at our Q2 consolidated income statement. Next slide is our first half consolidated income statement. Our net sales in first half was RMB60.48 billion, YOY up 70.35 percent from RMB35.5 billion in first half of twenty twenty. Net gross profit in first half was RMB28.67 billion, up 142.2 percent from last year's 11,840,000,000. Our operating expense in first half was RMB9.47 billion, up 55.97 percent from RMB6.07 billion.
2029 first half operating income was RMB19.2 billion, up YY 233 percent from RMB5.77 billion in 2020. First half net income was RMB15.66 billion, up y o y 228.48 percent from RMB4.77 billion last year. Overall first half EPS was $25.74 versus last year first half, dollars 7.84 YY increased by $17.9 Next is our sales breakdown by product line. SMTTIC, which is the small and medium driver accounts for 36% of our sales. SoC, which is all non driver accounts for 34% and the LDD IC, which is the large driver IC accounts for 30% of our total sales.
We have just released our July sales, which is 12,500,000,000 month on month up 7.94 percent, YY up 85.35 percent. SoC accounts for 34% and driver accounts for 65% of the total revenue. 2021 accumulated revenue January to July is RMB72.98 billion, YOY up 73%. Comparing our 2021 2020 monthly sales, you can see that there is a significant worldwide growth for the first 7 months of this year. Next, let's look at other key financial numbers.
Our cash and cash equivalent in Q2 was RMB36.11 billion increased QoQ by 24.21 percent from RMB29.08 billion. YY increased by 63% from RMB22.15 billion. Account receivable. Q2 was RMB21.4 billion increased QoQ 32.8 percent from RMB16.11 billion and YY up 64% from RMB13.05 billion. Inventory Q2 was 10,820,000,000,000, QoQ up 11.55 percent from 9,700,000,000 YY up 14.41 percent from RMB9.46 billion.
Short term loans. Q2 was RMB7.5 billion. QoQ increased by 4 15% from RMB1.46 billion and increased YY by 565.54 percent from 1,130,000,000, basically mainly for the natural hedge. The following slide is a recap of our recent major events. AGM approved the distribution of 15.6 dollars per share cash dividend, ex dividend record date on August 23 and the dividend will be paid on September 11, 2021.
And Novartel was selected as a constituent stock of FDIC For Good, TIP Taiwan ESE Index and also the Taiwan High Compensation 100 Index and also the Taiwan RA Taiwan Employment Creation 99 Index. And now I'll turn over the call to our Vice Chairman, Mr. Steve Wang to provide us more details on Q2 results and Q3 guidance.
Stay safe and stay healthy.
Thank you, Steve. Regarding the 2021 Q2 revenue, after experiencing above seasonality in Q1, Novatek Q2 business continued to grow and has exceeded our Q2 guidance high bar. The main reason is follow. Our SoC related products, our user shipment increased significantly and also our driver IC demand continue to be strong due to COVID work from home demand and this includes the large, medium and small size driver. As for the Q2 margins, Q2 margin was 50.33%, up 6.69 percentage points QoQ.
This is mainly due to the ASP adjustment to reflect our rising costs and also the strategically adjusted our product mix. And looking at Q3 outlook, As we can see there, most countries have speed up the vaccination process. Hopefully, the pandemic will soon be contained and our lives return to normal and economy can be back on track for positive growth. As we enter Q3, which normally high season, we expect overall demand to continue to grow and we see that the overall foundry supply is still very tight with limited expansion and currently we are still unable to fulfill the market demand. So both our driver IC SoC lines are expected to maintain growth momentum.
So based on this, our guidance for Q3 is as follows. Revenue will be RMB 37,800,000,000 to 38,800,000,000 at an exchange rate of 1 to 28. And the gross margin will be from 48% to 51% range and operating margin 33% to 36% range. And If you look at more in details, we are expecting both SoC and driver to have similar teams growth And the large panel driver will be a little bit stronger than the small and medium size And the overall SoC will be similar to this medium and small size driver. Next, we'll switch to Q and A And I'll turn the call to Tony.
And Tony will be reading out the questions our investor have for us.
So you mentioned about your gross margin. Could you provide the amount for your NIE in the Q2 also provides some explanation for your reduced operating expense ratio in the second quarter.
Okay. The Q2 NRE is around 90,000,000, okay? And The question is for the OpEx. Basically, if you look at our OpEx, even though percentage wise seems to be down, but if you look at Q on Q, The absolute amount has increased by 878,000,000 QoQ. Y o Y increased by 2,100,000,000 and a lot of these are mostly on R and D.
You had impressive growth from SoC in the 2nd quarter in terms of both quarter over quarter and the year over year. Would you like to provide more color among your individual major product line and the SoC in terms of the contribution from the shipment versus ASP as well as the gross margin trend across different lines.
Basically, what we are seeing is that in Q3, all the And in Q2, SoC lines, all the product lines, no matter whether it's the revenue or gross margin has improved.
Would you also like to provide some shipment number for your overlay driver and the TDDI in the 2nd quarter in terms of quarter over quarter, also how about the year over year growth was in the first half for these two products and any view for your whole year shipment target.
Our OLED DDIC has returned to normal momentum. We are expecting 2021 to outgrow 2020 in terms of unit shipment and we are expecting second half to be stronger than the first half. And Q3, we are expecting our unit shipment to have a record high for the OLED DDIC. And as for TDDI, as everybody knows that in 2021, days of wafer constraint. So the growth will be limited.
We noticed inventory dollar continue to rise quarter over quarter to a new record of NT10.8 billion, which is up 12% quarter over quarter. Could you provide some color on your inventory?
The oral SoC business basically because of the SoC line has a very good momentum growth. And as you know, the SoC lead time is relatively longer then the DDIC. So basically this will turns out the inventory level will go up because of the lead time.
Investor wonder why you expect to enjoy higher quarter over quarter growth from large size driver
Basically, the overall if you compare to large and the small medium driver. The small medium driver is relatively weaker than the large. And because of the large size TV, There's some shortage on some of the components and some mismatch. So basically, a lot of the panel maker are moving their panel to the high end product. So that's basically helping the high end product to go up.
Just wonder, Can you give more color on your gross margin trend in quarter 3? Where about your price high for your major product line?
As Steve just mentioned, our DDIC, our cost has gone up. So moving forward, we'll be reflecting the cost to our ASP.
First question is about overall demand across different major applications, particularly we heard some weakness from the smartphone TV over the past couple of months as well as some potential slowdown from the PCO template space.
What just Steve mentioned is that we can see that the TV wise, if you look at the TV, the larger size TV relatively weak The smaller size TV is relatively weak, but the larger size TV demand is very healthy. And what we're seeing now is that the Chromebook demand has weakened a bit, but commercial notebook and the automotive are still strong. And smartphone in China, India, Southeast Asia were weak in Q2, but due to COVID and some of these issues, but we are seeing that new models are ramping up in Q3. And the auto that I mentioned earlier, The current situation is that the supply is still very tight and we are still not able to fulfill the total demand.
Just wonder if the gross momentum is slow down, how will Informatech to react to reduce the potential impact?
Well, the core value of IC Design House is technology and quality. And besides short term profitability, Novatek is working hard to enhance our long term position in a few areas. In technology wise, we are developing our core technologies to support our customer. And product wise, they're expanding our product lines and applications and bundled solutions and to enhance the customer long term stickiness. And in terms of customer wise, we try to establish long term and stronger partnership with our suppliers and our customers and also expand our market to various areas.
Maintaining long term health of the market is of most importance for NovoTech. Novatek is committed to support our customers and dedicated to work alongside with our customer to face the challenges to gain the support and trust.
We noticed the 2 of your major coin panel company just reported their numbers. Just wonder if you can share their unit price situation as well
We think the panel inventory currently is still very healthy. So we're not very worried about that. And as you know that for the panel makers, they are also very dynamic in terms of adjusting the production line allocating to different products. So basically, if there's any changes, for example, if the smaller size is weak, they will relocate their capacity for the larger size. And in terms of driver IC ASP, This is basically more related to the foundry tightness.
So in case if the foundry price goes up, So basically that will directly impact our ASP.
Please provide some update on the country supply in second half as well as the 2022. Also had a lot of discussion on the potential impact on the next chip expansion, could you also provide some update?
Looking at the driver IC process, and usually it is 8 inches and also 12 inches below the legacy process, we were 28 nanometer. And basically, the legacy process, no matter 8 inches or 12 inches currently is still very tight and we don't see it will be eased till the end of this year. We don't see any chance of becoming loose. And regarding 2022, the supply, we are already working very closely with our supplier. But so far what we are seeing that is that even in 2022, the supply is still tight and we don't think they will be able to fulfill our customer demand at this moment.
And As we look at the other question that asked about the next chip, and we don't think there'll be any major impact in short period of time, because as you can see all major product lines are experiencing shortage, not just DDIC. Therefore, I mean, if you look at the capacity as a whole, the shortage will not be resolved in short period of time. And from the supplier, we also be thinking about adjusting to more favorable product mix for various different applications. So at this moment, we also notice that Besides foundry, there are also other materials or components like some substrate, PCB, all these are also in shortage. So this is also some of the reason why we think that the for our foundry partners, there will be always very dynamic to adjust the some of the extra capacity for other, if there is any shortage in other area, they will do some adjustment.
So we don't think there will be any impact.
Just wondering if you can provide some visibility into quarter 4.
Okay. Steve just mentioned that looking at the quarter 4, we don't think the supply tightness will be resolved. And especially on the wafer side, it will be tight and we don't expect it to be resolved in a short period of time. And in 2022, that's for next year, I think the situation will continue. The tightness will still be there.
And currently, we don't think we'll be able to 100% fulfill our customer demand based on the numbers that we have received at this moment.
Just want you mentioned about the outlook on the supply side, but just wonder how about on the demand side as well, which implies a quite starting price trend as well.
Yes, as we mentioned earlier, the supply, the demand is still very strong and steady. So we are expecting the ASP should be solid.
Would you like to provide more color on your small, medium size driver? You mentioned about TDDI briefly earlier, but could you provide more color on particular on the OLED side?
Yes, I mean, we talked about the TDDI, but as regarding OLED, everybody knows that the China OLED panel capacity is increasing. And because of that, I think a lot of the smartphone player will be willing to adopt OLED panels more and more. And therefore, we are expecting the penetration rate of OLED panel to increase as we move forward. And for Novatech, what we'll be doing is we'll be increasing our R and D into the OLED product line, try to develop more products for our customers. And as we mentioned earlier, we are expecting the second half of this year, the unit shipment for OLED driver will be greater than the first half.
And We are expecting this coming quarter Q3 will have a record high unit shipment for OLED drivers.
On the OLED driver side, I have some follow-up question such as your progress at the 28 nanometer as well as TDDI or for the competitive landscape such as high steel in China.
Well, looking at our OLED TDDI, currently we already have our sample ready and we are working very closely with our panel maker and to develop this technology and to have it in mass production. But currently, we are working closely with our customer. And as for us, will continue to enhance our technology, not just the design, IC chip design, but also in terms of the process. Currently, we'll continue to use more 28 nanometer and to enhance our chip performance moving forward to support our customer in the OLED space.
Okay. As for small medium sized drivers, could you also provide an update on your auto driver as well as new products such as Under display OLED fingerprint, the available OLED driver and also your FTDI.
Okay. I'll explain 1 by 1. Regarding the auto build fuel driver, and currently the demand is still very healthy and strong. And because of the foundry capacity shortage, we aren't able to fulfill the demand 100%. So we're still working on it.
But as for the automotive TDDI, we are already engaging with our customer, designing in and fine tuning those solutions. We are expecting end of this year, it will go into mass production. And as for the wearable device, currently our wearable solution is designing in and expecting in Q3, it will be in small volume production. And as for the fingerprint, Because of the module player delay, so it has delayed a little bit, but it's already in mass production now. So we're expecting Q4 to have huge volume production in Q4 this year.
And regarding the FTDDI, Since the panel maker is using LCD and they need more mask layer, So but what we are seeing now is that FTDI still has its value. So we are working very closely with our customer to design those solutions into the panel.
Now we switch to the SoC lines. We already delivered very impressive growth for the first 7 months in 2021. Would you provide some outlook for 2022, particularly on the civilian side?
Well, as mentioned about surveillance, We are making very good progress both in the front end in the back end. And we are engaging very closely with our customer and we're expecting this product line to grow moving forward. But as I mentioned earlier, We still face a wafer shortage, the capacity constraint for all the product line, including surveillance. But Nevertheless, we are expecting our surveillance product line to grow moving forward. And on the other product line, For example, recently, we are seeing the LED public display, the large format display is also picking up momentum and we are expecting this business to grow.
And besides that, our TV product line, we have share gain this year, market share gain. And moving forward to next year, I think the demand will still be very healthy.
Now we switch the question to the life side driver. You may also wonder if the reasonable gross margin
The large panel driver product line is also facing the wafer shortage issues, a constant limitation. But even though there is a limitation, but we are still maintaining our market share in 2021. And from competitive side, what we are now doing is that we are bundling our solution and we're trying to supply a total solution for our customer so that they can resolve the mismatch issue because as you know, There are a lot of different components of different IC chips required for a display. And Novatek is one of the very few that can supply the total solution, all the various IC chips for the display system. So what we are doing is, we're trying to supply them the bundled solution so that they won't be caught up in the mismatch situation.
And also because from a system level, We're able to supply them value added differentiation solution so that they can have a better performance, better cost, very competitive solution. And if you look at the large fund driver, we no longer look at as just a pure driver, more like a system solution. So moving forward, will work very closely with our customer, not just pure driver, but as a system level solution. And for example, a lot of the high interface, EDP 1.4, a lot of the other or even the power consumption, a lot of these, we add all these into the solution to help our customers to compete in the market.
We've got a lot of question about the gross margin trend for the 3, because the midpoint at 49.5%, lower than the 50.3% in the Q2. They just wonder if Our price hike to cover the cost increase and the margin on individual product will at least maintain into the quarter 3.
Well, if the question is whether the ASP can cover our costs, okay? Basically, if our supply cost goes up, we will work very closely with our customer to reflect the cost. Of course, the whole process is a rolling process. So it's difficult to give a very exact number. But basically, we don't think the 3rd quarter margin will be lower or anywhere getting worse.
But we do expect to work very closely with our customers. So the margin should be okay.
Okay. The next question also about the Q3 guidance, because based upon your guidance for gross margin, the operating expense,
So basically, our OpEx will increase. I mean, in absolute term, it will increase, but the growth rate will be lower than our revenue growth.
Just wondering if the management could provide more overview for 2022 outlook and also you mentioned about some way to improve your competitiveness. Could you also provide more color on that?
Well, we're not worried about the demand, but we are worried about the supply more than very well the demand because currently the wafer shortage is a constraint is the main thing that really impacts the growth. So we are aggressively working with our foundry partners to try to increase the supply and we are still working on it. And as for the other growth, I mean, we mentioned earlier, OLED definitely will grow and there's no doubt about that. And then TDDI, basically the growth will be depends on the wafer supply. But currently, I think we still have some wafer constraint on the TDDI.
Also, you mentioned about your positive outlook for your OA driver. Over the past couple of months, we have also heard some discussion for potential outsourcing from Korean customer in the future.
Well, the question was about the potential Korean customer on the old line. Well, Steve just mentioned that for NovoTech, our target is all the major smartphone tablet player. So we're aggressively working with everybody. So it's very difficult for us to specifically talk about a specific customer. And not just the smartphone that will be adopting the OLED display.
What we are seeing now is that even the tablet and even moving forward notebook potentially will be adopting the OLED solution also. Any more questions?
Working very closely. Some follow-up on the OLED. First, I wonder if you can give some competitive guidance
As to what extent, how much or how many percentage, it's difficult. It all depends on the wafer supply, but we are working on it. We are working on it. And so OLED TDDI, it really depends on the panel maker, the progress. So we are working very closely with our customer, engage with them in developing that technology.
So we would like to wish everyone healthy, stay safe during this pandemic. I hope everyone will be outperforming the market and getting better. Okay. We'll end our investor conference today. Thank you so much for joining in.