Today's conference. Joining me on the call are Vice Chairman Steve Wang, our CFO Mr. S.C. Chou, and IR Director Tony Tseng and Yvonne. The agenda for today's event is as follows. First, our IR Director Tony will report on Novatek's third quarter results in English. Following that, Vice Chairman Steve will provide further details on our Q3 results and guidance for the fourth quarter of 2024. Next, we'll have a Q&A session. We have already received some questions from our investors, and if you have any questions you would like to ask, please send them to us online. Tony will review and read out the questions one by one in both Chinese and English. Our Vice Chairman Steve Wang and CFO Mr. Chou, myself, will answer all the questions in Chinese first and will be translated into English later.
Now, I'll hand over time to Tony to report our Q3 results.
Thank you, David. Cool. That's it. This is Tony Tseng. First, let's take a look at our Safe Harbor notice. Now, let's look into our third quarter results. The first page is the consolidated revenue. Quarter three, our revenue reached TWD 27.87 billion, which is up 10% quarter- over- quarter, but slightly down 3.7% year- over- year. The revenue in quarter three also met our guidance of TWD 27.4 billion-TWD 28.4 billion. Now, let's look at our quarter three gross profit. In quarter three, our gross profit of TWD 11.07 billion increased 6.7% quarter- over- quarter, but down 9.4% year- over- year. This page shows the gross margin trend. In quarter three, our gross margin of 39.74% down from 41.14% in second quarter this year, and also down from 42.25% from a year ago. But the result of 39.74% also is within our guidance of 38%-40% range.
This page shows our operating expense. For quarter three, our operating expense of TWD 4.83 billion down almost 1% quarter- over- quarter, and also around 5% year- over- year from a year ago. Now, let's look at our operating income result in quarter three. Our operating income of TWD 6.24 billion increased 13.4% quarter- over- quarter, but still down 12.6% year- over- year.
Now, let's look at our operating margin trend. For quarter three, our operating margin of 22.4% up from 21.82% in second quarter this year, but down from high level of 24.69% a year ago, and our result of 22.4% slightly higher than our guidance of 20% to 22% for our operating margin. Now, let's move down to see our net income number. Our quarter three net income of TWD 5.26 billion slightly down 2.4% quarter- over- quarter, mainly due to lower non-operating income, but also decreased 17.4% year- over- year.
Now, let's look at our EPS. For quarter three, our EPS of TWD 8.64 is down TWD 0.22 from TWD 8.86 in second quarter this year, and also down TWD 1.82 from a year ago. Now, let's look at the summary of our income statement for quarter three and also compare with the result for second quarter this year, as well as a year ago. Overall speaking, our revenue and the gross profit are both up quarter- over- quarter, but also back down year- over- year. Operating expense is roughly down 1% from second quarter and also down year- over- year. Therefore, our operating income is up quarter- over- quarter, but still down, and the net income, the EPS, is down quarter- over- quarter and year- over- year. This page shows the first three quarters of income statement for 2024, as well as 2023.
For the first three quarters, our revenue is TWD 77.5 billion. It's down around 7% year- over- year. Gross profit of TWD 31.5 billion is also down around 10% year- over- year. Operating expense of TWD 14.6 billion is almost flattish year- over- year. And the net income of TWD 15.5 billion is down 13.6% year- over- year. EPS of TWD 25.54 is down TWD 4.02 from a year ago. This page shows our quarter three revenue breakdown. The biggest portion now is small- and medium-sized drivers due to the launch of all the driver ICs for new business. The portion is up from 33% in the second quarter. SoC business percentage came down to 37% in quarter three, compared with 42% in second quarter. Large display driver IC only accounted for 21% in quarter three, down from 25% in second quarter. We are also releasing our October revenue.
October revenue of TWD 8.52 billion is down 10.5% year- over- year and also down 4.4% month- over- month. For the first 10 months, the revenue of TWD 86.0 billion is also down 7.28% year- over- year. In terms of revenue breakdown between the SoC and driver, also is included in this table. We see these two business driver business down slightly more than SoC business month- over- month in October. This page shows our monthly revenue since the beginning of January, as well as the year- over- year comparison for the first 10 months of 2024 for individual months. Now, let's look at our summary table for the key financial numbers. The cash at the end of quarter three was TWD 41.997 billion. It's down quarter- over- quarter and year- over- year, mainly due to the distribution of our $32 per share cash dividend in quarter three.
Accounts receivable of TWD 20.68 billion, up 11.18%, is mainly due to a sales increase of around 10% and a flattish year- over- year. Our inventory dollar has been relatively stable over the past few quarters. In quarter three, inventory dollar of TWD 9.36 billion was down 0.5% quarter- over- quarter, but slightly up 2.71% year- over- year. Now, let me pass the call back to David.
Thank you, Tony. The following slide is a recap of our recent major events, and the Novatek 2023 ESG report has been published and ready for download, and we are delighted to announce that we have been awarded the CommonWealth Top 100 Sustainability Award for our excellence in corporate social responsibility, ranking 18th among the manufacturing sector. Additionally, we have also received the 2024 Talent Sustainability Award, and the 2024 CHR Corporate Health Responsibility Health 99 Enterprise Award was also received recently. Another exciting news for us is that the groundbreaking ceremony for our Tainan Research and Development Building is scheduled to commence imminently. Please also visit our website for more information on our ESG achievements, and now, I'll turn over the call to our Vice Chairman, Mr. Steve Wang, to provide us more details on Q3 results and Q4 guidance.
[Foreign language]. The 2024 Q3 revenue, QoQ up 10.4%. This increase by 10.4% QoQ, this is mainly contributed by the ramp up of the new OLED smartphone model. And this is also in line with our guidance of TWD 27.4 billion-TWD 28.4 billion. And the Q3 gross margin was 39.74%, which is down QoQ by 1.4 percentage points, also in line with our guidance. And this is primarily attributed to the ASP adjustment for specific products and the recent increase in gold price, and also the lower NRE numbers.
And as for the Q4 outlook, although China recently had a surge in urgent orders due to subsidies, the overall momentum of the consumer electronics market recovery still appears to be insufficient. Combined with the gradual onset of the off-peak demand season in Q4, it is expected that the Novatek revenue in Q4 will decline compared to Q3. So based on the above, our Q4 guidance will be as follows. Revenue will be around TWD 24 billion-TWD 25 billion with an exchange rate of 1 to 32. Gross margin will be within 37%-40% range. Operating margins will be 17.5%-20.5% range. Next, we'll move on to Q&A sessions. Please be reminded if you have further questions, do send to us. We'll proceed with the questions that we have already received from our investors. Tony, please. Okay.
[Foreign language]
[Foreign language]
Could management share a view on the sequential trend across major applications in terms of demand into quarter four this year?
The recovery momentum of demand in the consumer electronics sectors basically remains weak in the fourth quarter, with only smartphones expected to see sequential growth, while other products are experiencing declines. Product-wise, demand for TV is expected to experience a slight decrease quarter to quarter, despite we see some rush orders supported by the subsidies program in China, and the demand for monitors basically remains weak, and there's also a decline in demand for notebooks despite rush orders for Chromebooks. We see a better demand for Chromebooks because of the subsidies program, and as for auto, demands remain impacted by year-end inventory adjustment. However, there is expected growth in smartphone demand driven by the stocking of new models in preparation for year-end promotions.
[Foreign language]
[Foreign language]
May I ask, could you also provide your quarterly revenue trend across your three business groups?
What Steve just mentioned is that all three product lines are projected to experience a quarter-over-quarter decline in the fourth quarter. Among them, SoC is expected to see the most significant decline due to the low season, followed by the large display driver IC. As for the small and medium display driver IC, we will also see a decrease quarter-over-quarter. And this is attributed to the drag from smartphone OLED DDIC and inventory adjustment in the automotive product segment. However, the sequential decline is expected to be more moderate, supported by the sequential growth of TDDI products for smartphones.
[Foreign language]
[Foreign language]
Could management also provide a very preliminary comment on the industry and your company in terms of the growth drivers that all look into next year?
As we look ahead to 2025, the key trend in the market continues to be the demand for AI-related products, with a significant focus on the anticipated replacement demand for AI-powered PC, notebook, and smartphones. However, the outlook for demand in consumer electronics remains uncertain and needs to be monitored closely. But despite this uncertainty, Novatek remains optimistic about our revenue growth for 2025, especially with the introduction of new products.
[Foreign language]
[Foreign language]
Could you provide the mass production timetable for your OLED TDDI? Also, can you also give some color on the advantage of OLED TDDI on cost and the performance over your mainstream discrete DDIC? And also, how about the progress of your negotiation with the panel and the handset customers on this product?
The mass production schedule for our OLED TDDI remains unchanged for the second quarter of 2025. So the MP schedule will be the second quarter of next year. And as for the advantages of OLED TDDI technology, this includes improved performance, cost efficiency, and also the lower power consumption for the touch. And it can also enhance the form factor, which means that it can provide more room for battery. And as for the development progress with our customer, currently it is proceeding very smoothly.
[Foreign language]
[Foreign language]
Is it likely to further expand your market share as a smartphone DDIC for your new smartphone customers? And what's your competitive advantage over your competitor? And also, how about the potential opportunity as a DDIC for other products and even for non-DDIC products?
What Steve mentioned is that one of our major goals is to further diversify our customer mix and also our product portfolio. And we'll continue to enhance our design capabilities, such as advanced process nodes and also product quality. And also, very importantly, the mass production capability to earn our customers' trust. In addition to smartphones, we have also developed new products in response to our customers' demands and market needs. And as for ongoing projects, we are making very smooth progress in expanding our efforts, and we believe that the future developments hold promising prospects.
[Foreign language]
[Foreign language]
Is it possible to supply OLED DDIC to Samsung's panels in the near future?
As previously mentioned, diversifying the customer mix and product portfolio is a key goal. And basically, the current progress in this area is positive and also on track.
[Foreign language]
[Foreign language]
Could you also provide your comment on the development and opportunities for AI-related products?
For us, we are concentrating on the edge device and expect to gain from the growing replacement demand for AI-enabled smartphones, PC, notebook. As the AI functionality continues to advance, we hope to gain some traction there. Furthermore, the demand for smart TV, gaming monitors will be also driven by the integration of AI capabilities, and at the same time, display specifications will be also improved. For example, power consumption, picture quality, etc.
[Foreign language]
[Foreign language]
Could you update your progress on the ARM Neoverse platform and the 40 nm node process? And also, your ASIC business outlook in the mid to long term?
The cooperation with ARM on the Neoverse platform, basically, it is the extension of our current ASIC business. Basically, what we're doing is preparing in advance for customer potential future requirements. For this project, we are not expecting immediate contribution. As for Novatek, as you all know, we have ASIC business in both driver IC and SoC product lines. What we see is that the outlook for this business is pretty positive.
[Foreign language]
[Foreign language]
Your quarter three gross margin was at the upper end of your guidance, but still down quarter- over- quarter. What are major factors and how about gross margin trend across three business groups quarter- over- quarter?
As mentioned earlier, the decline in gross margin in third quarter by 1.4 percentage points was primarily attributed to two factors, the adjustment in average selling price for a specific product and the increase in gold price. And among the three product lines, the gross profit margin slightly decreased QoQ for SoC product line, but remained flat for the large DDIC and the small medium DDIC.
[Foreign language]
[Foreign language]
Why is your quarter four gross margin midpoint guidance slightly lower than result in quarter three? And also, how about gross margin trend again across three business groups quarter- over- quarter and quarter four?
The decline in Q4 gross margin guidance midpoint guidance is primarily attributed to three factors. One is the adjustment in product mix. As mentioned earlier, the SoC will be down, and the second one is the increase in gold price and also the adjustment in ASP for specific products, and as for the three major product lines, the margins, the small and medium and the large display driver IC, it will be moderately declined, and as for SoC, it will kind of flat.
[Foreign language]
[Foreign language]
For pricing, which products are facing more competition into quarter four?
Due to the slow seasonality, and we are seeing that the driver IC products are experiencing more pricing pressure and to address these challenges, we are focusing on maintaining or even enhancing our gross profit margins through cost reduction initiatives and also the introduction of new models.
[Foreign language]
[Foreign language]
As for cost, could you also comment on the cost trend of ASIC and TSMC foundry and the packaging into 2025 compared with 2024, particularly about 28 nanometer high voltage products? And also, any comment on the impact from LTA?
The trends in cost are basically highly correlated with the demand and supply balance, and for Novatek, we are currently engaged in active negotiations with our suppliers to secure favorable terms and also trying to manage the cost more effectively.
[Foreign language]
[Foreign language]
After discussion on the cost pricing, could you also provide a very preliminary view on your gross margin trend into 2025 compared with 2024, or highlight any positive or negative factors?
Again, Novatek's key objective is to sustain and stabilize their gross margin, and to achieve this goal, Steve just mentioned that we'll be focusing on launching new products to drive growth and innovation, and also enhancing our product portfolio with a particular emphasis on the high-end segment, and we also will adopt cost control measures to optimize expense and also maximize the profitability.
[Foreign language]. What are major items for your non-operating income in quarter three?
The non-operating income of TWD 169 million for Q3 came from interest income of TWD 303 million and foreign loss of TWD165 million.
[Foreign language] What are your inventory days as of quarter three this year? Could you also provide comments on inventory dollar or days into end of quarter four?
Inventory days for Q3 were 63 days, down from 67 in the second quarter, while the dollar amount was TWD 9.36 billion, down QoQ by TWD 48 million. And we expect the inventory dollars to decline slightly quarter on quarter in fourth quarter, maintaining the healthy inventory level.
[Foreign language]
[Foreign language]
Why was your operating expense dollar in quarter three similar to that in both first and second quarter this year? Also, given your OpEx dollar for first three quarters similar to the same period of 2023, could you also provide your thoughts on your operating expense into 2025 compared with 2024?
The quarterly operating expense varied largely due to the R&D expenses. The relatively stable operating expense over the past three quarters primarily due to the stable R&D expenses. And we anticipate year-over-year increase in the operating expense for 2025. And this is mainly driven by the extension of our R&D team and also investment in advanced process nodes. And we are currently finalizing our 2025 budget to account for these expected changes.
[Foreign language]
[Foreign language]
Given the tax rate of 15.7% for first three quarters, could you maintain your guidance of a tax rate of 16% for 2024?
Yes. Due to increased R&D investment tax credits, our estimated effective tax rate for 2024 is approximately around 16%, which is lower than the 17.4% rate recorded in 2023. We've covered most of the questions. I'm not sure if there's any further questions. Tony, could you just check again if there's any further questions that we haven't yet covered?
[Foreign language]
[Foreign language]
just wonder why this time your gross margin guidance range of 300 basis points is slightly wider than you used to provide? And also, the lower end of the guidance at the 37%, what are the reasons behind?
Not really any specific reason. It's just to take into account all the variables. So it's pretty much around this kind of range.
[Foreign language]
[Foreign language]
So you mentioned about your OLED DDIC shipment will be down quarter- over- quarter in quarter four. Just wonder if this will be caused by the new competitor. And also, any comments on the competition into next year?
As mentioned, the China market in Q4 basically looks good, but there's always some seasonal adjustment in between.