Good afternoon, everyone. I would like to extend a warm welcome to everyone for joining Novatek 2025 First Quarter Online Earnings Call. This is David Chen, Vice President and Company Spokesperson. I'll be the host for today's conference. Joining me on the call are our Vice Chairman, Steve Wong, our CFO, Mr. Essi Zhou, and our IR Director, Tony Tseng, and Yvonne. The agenda for today's event is as follows. First, our Investor Relations Director, Tony, will report on Novatek's first quarter results in English. Following that, our Vice Chairman will provide further details on our Q1 results and guidance for the second quarter of 2025. Next, we'll have a Q&A session. We have already received some questions from our investors, and if you have any further questions you would like to ask, please send them to us.
Our IR Director, Tony, will review and read out the questions one by one in both Chinese and English. Steve and Mr. Zhou and myself will try our best to answer all your questions, and we will be translated into English later on. Now, I will hand over the time to Tony to report our Q1 results.
[Foreign language] David。[Foreign language] Safe Harbor Notice。 Now, let's move into our first quarter results. The first one is our revenue. Our first quarter revenue of TWD 27.1 billion increased both year over year and quarter over quarter from TWD 25.3 billion in quarter four last year and TWD 24.4 billion a year ago. This result also reached the high end of our guidance of TWD 26-TWD 27.2 billion. Now, let's look at our next line, the gross profit. Given our stable gross margins, our first quarter of gross profit reached TWD 10.78 billion. Also, we managed to grow both quarter over quarter and year over year from TWD 10 billion in quarter four last year as well as TWD 10 billion a year ago. The next page shows the gross margin trend for first quarter 2025 compared with quarter four last year as well as a year ago.
The gross margin of 39.76% increased 25 basis points quarter over quarter and also reached the high end of our guidance of 37-40%. Now, let's take a look at our operating expense. First quarter of operating expense of TWD 5.09 billion was flattish quarter over quarter from quarter four last year and slightly increased 4% year over year from TWD 4.89 billion a year ago. That's due to our good cost control. Now, let's look at the operating income in the first quarter. Operating income of TWD 5.7 billion in first quarter increased 16% quarter over quarter from TWD 4.92 billion in quarter four and 10.7% year over year from TWD 5.14 billion a year ago. Now, let's take a look at our operating margin for quarter four as well as last quarter, quarter four last year as well as first quarter 2024.
Operating margin of 21% increased 154 basis points quarter over quarter and again reached the high end of our guidance of 18.5-21.5%. Now, let's move down to see our net income in the first quarter. Our net income in first quarter reached TWD 5.26 billion, which is up 9.6% from quarter four last year and 7.6% from a year ago. Lastly, let's look at the EPS line. Our first quarter EPS reached TWD 8.65 per share, which is up TWD 0.76 from quarter four last year and TWD 0.61 from a year ago. Now, please take a look at our overall income statement for the first quarter compared with our quarter four last year and the first quarter 2024. You do see the positive growth across different lines for both quarter over quarter and year over year.
Now, this page shows our revenue breakdown for three business groups. For this quarter, the small medium size driver remained the largest and accounted for 40% of first quarter revenue. The percentage is slightly down from 41% in quarter four. The second largest group was SoC in first quarter with 37% revenue in first quarter, and the percentage was flattish quarter over quarter. Lastly, for large size driver ICs, which accounted for 23% of first quarter revenues, up from 22% in quarter four last year. We also just released our April revenues. Our April revenue of TWD 9.12 billion continued to post positive year over year growth at 9.5%, but slightly down from the March level by around 3%. The first four months' revenue reached TWD 36.2 billion and is still up 30.6% year over year for the first four months.
Also, there's a table here to show the revenue breakdown for SoC and the drivers for our April revenues here. The next page shows our monthly revenue trend since the beginning of 2024 until April this year. You can see the overall trend has been stable and see the upward trend with year-over-year growth since February this year. This page shows some brief key financial figures at our balance sheet. The first quarter, our cash reached TWD 53.2 billion. It's up 9% quarter over quarter, but down 7% year over year. That's due to the cash distribution in the second half last year. Accounts receivable in the first quarter was pretty stable quarter over quarter at TWD 20.4 billion. As for inventory, the first quarter inventory increased 10.3% and 5.4% quarter over quarter and year over year to TWD 9.6 billion and mainly due to the increased sales.
This page shows our dividend payout history as well as the payout ratio. For 2024's earnings, we proposed to pay out TWD 28 per share, which is equal to 83.76% payout ratio. This ratio has been stable and slightly on the upward trend over the past few years. Now, let me pass the call back to David. Thank you.
Thank you, Tony. The following slide is a recap of our recent major events. Novatek's Board of Directors has approved the date for our 2025 AGM, which will be held on Wednesday, May 28, 2025. As mentioned earlier, the Board of Directors proposed a cash dividend of NT$ 28 per common share with a total amount to NT$ 17 billion, which resulted in a payout ratio of 83.76%. We are happy to announce that it is our third consecutive year to be ranked in the top 5% of companies in the 2024 corporate governance evaluation. The 2024 CDP scores have been announced, and our climate change score has improved from B minus to B, and the water security score has improved from C to B. Of course, we have our ESG report. If you want to read them, you can download from the following link.
Now I'll turn over the call to our Vice Chairman, Mr. Steve Wong, to provide us more details on Q1 results and Q2 guidance. [Foreign language] 。
[Foreign language] David。 [Foreign language] result [Foreign language] 。 [Foreign language] 7.35%。 [Foreign language] 11%。 [Foreign language] ， [Foreign language] guidance [Foreign language] 39.76% [Foreign language] ， [Foreign language] guidance [Foreign language] ， [Foreign language] cost reduction [Foreign language] 。 [Foreign language] guidance [Foreign language] 。 [Foreign language] guidance。 [Foreign language] 32 [Foreign language] TWD 26.5 billion-TWD 27.7 billion [Foreign language] 。 [Foreign language] 32 [Foreign language] 。 [Foreign language] $828 million-$866 million [Foreign language] 。 [Foreign language] versus [Foreign language] $830 million [Foreign language] ， [Foreign language] $830 million [Foreign language] 。 [Foreign language] 37%-40% [Foreign language] 。 [Foreign language] 18.5%-21.5% [Foreign language] 。 [Foreign language] Q2 guidance [Foreign language] 。
Okay, thank you, Steve. Steve just mentioned that the revenue in Q1 increased by 7.35% compared to Q4, and this is mainly due to the introduction of the old four news subsidy policy in various provinces in mainland China. This led to an advance in shipments and an increase in demand for consumer electronics products, reaching the upper end of our guidance and performing better than traditional seasonal trends. As for our Q1 margins, the Q1 gross margin was 39.76%, a quarter-over-quarter up by 0.25 percentage point, also reaching the upper end of our guidance, and this is mainly contributed to cost reduction. For our second quarter outlook, the advance pooling of shipments in Q2 driven by China subsidy policies and reciprocal tariffs is now starting to show signs of slowing down.
The most important focus now is to closely monitor the development and tariff policies and their impact on the global economy and the end market consumer demand. Based on the current customer's demand, our Q2 guidance will be as follows: revenue in terms of TWD 26.5 billion-27.7 billion, TWD 26.5 billion-27.7 billion, at an exchange rate of 1 to 32 dollars. Due to the recent forex fluctuation, we also provided our revenue guidance in US dollar for your reference. In terms of US dollar, our guidance for Q2 will be $828 million-$866 million, compared to our Q1 results, which was around $830 million. This is for your reference. As for our gross margins, they'll be around 37%-40% range, 37%-40% range.
Our operating margins will be in the 18.5%-21.5% range, 18.5%-21.5% range. Next, we will move on to the Q&A sections. Please be reminded, if you have questions, do send them, and we will try our best to answer them. As I mentioned earlier, we already have some questions on hand, and I will ask Tony to ask one by one some of the questions that we already have on hand. Tony, please.
[Foreign language] David。 [Foreign language]
[Foreign language] ， [Foreign language] 。 [Foreign language] base [Foreign language] TV QOQ [Foreign language] QOQ [Foreign language] 。 [Foreign language] NB [Foreign language] ， [Foreign language] ， [Foreign language] QOQ [Foreign language] ， [Foreign language] 。 [Foreign language] monitor [Foreign language] 。那这 [Foreign language] QOQ [Foreign language] 。 [Foreign language] auto [Foreign language] ， [Foreign language] 。
Could management share the view on the sequential trend across major applications in terms of the demand into second quarter?
In terms of the second quarter demand by product-wise, the demand in TV will increase quarter to quarter. As for notebook, which will be flat to down, while tablet and monitor are up quarter over quarter. As for mobile phones, we are expected to be flat to up, while automotive will maintain flat.
[Foreign language] 。
[Foreign language] 。
Given the huge volatility of FX rate recently, would you also comment on the impact of FX to your overall operations?
As for the revenue impact, the appreciation of the New Taiwan dollar, NT dollar, it will directly affect revenue because as the products are all quoted in US dollar. The production costs are primarily in US dollar, so short-term exchange rate differences may raise inventory costs affecting gross profit margins, but medium to long-term there will not be much impact.
[Foreign language] ？
[Foreign language] OLED Driver IC [Foreign language] SoC [Foreign language] 。 [Foreign language] IC [Foreign language] 。
Consequently, could you also provide your quarterly revenue trend across three business groups?
If we look at the three main product business groups, the small medium driver IC revenue in Q2 will be better than the previous quarter, primarily due to the increased shipments of mobile OLED and tablet TTDI, while the automotive shipments will remain stable. As for revenue for SoC product line, we expect it to continue to grow, basically driven by gaming monitor and smart imaging recognition products. The large driver IC basically we're expecting to decrease sequentially.
[Foreign language] 。
[Foreign language] 17% [Foreign language] ， [Foreign language] 17% [Foreign language] 。 [Foreign language] 17% [Foreign language] notebook [Foreign language] auto [Foreign language] 。 [Foreign language] 。
In terms of end product, what percentage of revenue does your company generate from the U.S. in your estimation, and which products have the higher exposure to the U.S. market? Also, could you provide some comment on the impact of higher tariff, particularly for either shipments or pricing?
Novatek has basically no direct shipments to the U.S., but the revenue exposure to the U.S. basically is via indirect shipments account that's about 17% of our total revenue. Among these, the notebook, automotive, TV-related products account for the higher percentage. Currently, shipments are normal as customers have not made any major changes.
[Foreign language] OLED TTDI， [Foreign language] ？
[Foreign language] OLED TTDI [Foreign language] TTDI OLED TTDI [Foreign language] ， [Foreign language] touch [Foreign language] 。 [Foreign language] touch [Foreign language] 。
As for smartphone OLED TTDI, could you provide some updates including the timetable for the mass productions, the benefit of product for your customers, the technical barrier, lead time over the years, and any shipment target for 2025?
Regarding our OLED TTDI, our customers have already introduced their new models in April as scheduled, and the mass production has already kicked off in this quarter. The OLED TTDI basically has architectural advantages, which results in the reduction of the thickness or the increase in battery space. In addition, the power consumption for the touch has also been reduced, more efficient, power efficient. Along with that, we are also seeing some component reduction which can eventually lower the material cost. This especially if it is applied to foldable phones, we can see the advantages, more advantages in that area. The technical barrier particularly lies in the touch related experience, which is very important. The products currently are under production, as mentioned earlier, and we are expecting the number of adopted models to increase as we move forward.
[Foreign language] OLED TTDI [Foreign language] ？
[Foreign language] Novatek [Foreign language] project [Foreign language] ， [Foreign language] 。
Management mentioned about your effort at diversifying your quantity, particularly for smartphones. Could you comment on the progress at the panel customer in South Korea and also for all years in out of China?
I mean that's a good question. As you know, Novatek's strategy basically focuses on diversifying our customer base and also applications. Currently the overall progress is smooth and also positive.
[Foreign language] 2025 [Foreign language] OLED [Foreign language] 。
[Foreign language] OLED display [Foreign language] Novatek [Foreign language] 。 [Foreign language] TV [Foreign language] 、NB [Foreign language] gaming monitor [Foreign language] Novatek [Foreign language] 。
As for the overall OLED product in 2025, do you have other growth drivers in addition to the smartphone driver IC you just mentioned?
The primary applications for OLED display is smartphones, which we have concentrated on for a number of years. Regarding other applications such as TVs, notebooks, gaming monitors, or automobiles, Novatek does offer related products that are either in mass productions or under development. However, these markets are still in their early stages, with relatively small shipment volumes at this moment.
[Foreign language] TTDI [Foreign language] ？
[Foreign language] tablet TTDI [Foreign language] Novatek [Foreign language] tablet TTDI [Foreign language] 。
According to the third party research, Novatek has expanded share at the tablet TTDI over the past two years. What are major factors? Also wonder if you can share with us about the gross margin for tablet TTDI versus your smartphone?
Our performance on the tablet TTDI, this is attributed to strong customer recognition of our technological advancements and product designs, especially in relation to the experience offered by our Easy Pen and also the touch technologies. Our market share in tablet driver IC has continuously increased over the past two years.
[Foreign language] ， [Foreign language] 。 [Foreign language] ？
[Foreign language] new model [Foreign language] design in。 [Foreign language] 。
Also according to the third party research, we also notice Novatek has maintained the top two position for automotive drivers. Could you also share with us about your deployment for 2025, particularly about the panels and OEMs in China? Do products at the automotive driver IC enjoy better margins versus other products?
Novatek is currently focusing on the new model design-in of the automotive brands. In addition to European and American car manufacturers, the expansion in the Chinese market is also progressing very smoothly, with shipment expected to increase year by year in the future.
[Foreign language] AI [Foreign language] ？
[Foreign language] 。
Management previously mentioned about AI enabled product at the Smart Unit SoC. Could you provide some updates on your expansions about quantity and the margins, and also major factors behind this progress?
Incorporating the AI elements into our image recognition product is the direction for Novatek's product development. At the same time, we are also moving towards smart home and also computer vision applications, and also improving our product computing power to meet those requirements. Aside from the Chinese market, the expansion among the international brand customers is also receiving very positive feedback, making future development very promising.
[Foreign language] ？
[Foreign language] cost reduction， [Foreign language] Q4 [Foreign language] 0.25 [Foreign language] 。
Now we have a few questions about the margins. The first one is your gross margin first quarter was at the upper end of your guidance. What are the major factors?
The price reduction across products in first quarter from annual negotiations were basically offset by the cost reductions, which helped our gross margin increase by 25 basis points from the last quarter in Q4.
第二 [Foreign language] ？
[Foreign language] Q2 [Foreign language] 37%-40% [Foreign language] 。
Your gross margin guidance for second quarter is similar to what you provided in first quarter. Does that suggest your gross margin second quarter is again similar to first quarter?
Given the recent volatility of forex and also the gold price, it is indeed very difficult to predict, but Novatek still expects our gross margin in the second quarter to be at the range of 37%-40%.
[Foreign language] ？
[Foreign language] 。
Given the potential increase of tariff to the U.S. market, have you discussed with your customers about the cost sharing? If yes, in the future, how will Novatek cope with that?
Basically, the importers are responsible for the tariffs, and currently Novatek has not yet discussed with customers on this matter.
[Foreign language] ？
[Foreign language] ，SOC [Foreign language] 。
Could you provide your gross margin ranking for your three major product groups?
The gross margin for the SoC is relatively higher than the driver product line.
[Foreign language] 40% [Foreign language] ？
[Foreign language] ，40% [Foreign language] 。
As your gross margin has maintained at the 40% level over the past two years, will at least 40% be a reference point for your gross margin guidance in the future?
As we mentioned a few times, the revenue growth and the gross margins are the two major KPIs for Novatek management, and gross margin of 40% is our near-term target, while for us we do expect to improve in the long term.
TWD 445 million， [Foreign language] TWD 756 million [Foreign language] ？
445 million [Foreign language] NTD 275 million， [Foreign language] NTD 162 million。
We have some questions more about some detailed financials. The first one is what are the major items for the non-operating income in first quarter as it came down to NT$445 million in first quarter compared with NT$746 million in quarter four last year?
The non-operating income of NT$445 million in first quarter came from interest income of NT$275 million and forex gain of NT$162 million.
[Foreign language] 9 [Foreign language] ， [Foreign language] 96 [Foreign language] ？
[Foreign language] 60 [Foreign language] 1 [Foreign language] 。
The inventory dollar of TWD 9.6 billion at the end of first quarter increased by TWD 0.9 billion from quarter four last year, so what are the inventory days as of first quarter? Could you also provide some comments for this into the end of second quarter?
The inventory days for first quarter were 60 days, down by 1 day from 61 in Q4, and we are expecting inventory dollars to increase quarter on quarter at second quarter, but still should be at the healthy level.
[Foreign language] 4%。 [Foreign language] 2025 [Foreign language] 2024 [Foreign language] ？
higher than the first quarter.
We notice your operating expense dollar increased by 4% year over year from a year ago. Last time you also mentioned about your operating expense dollar in 2025 will increase year over year from 2024. I wonder if you can provide the magnitude of the gross rate for your OpEx in 2025, and also the OpEx dollar in second quarter will increase compared with first quarter 2025.
The OpEx dollars in 2025 will decrease yearly from 2024, and the growth rate will be subjected to the revenue momentum, but likely to be at a single digit. The OpEx dollar in second quarter will increase sequentially from the level in first quarter.
[Foreign language] 14.3%。 [Foreign language] 2025 [Foreign language] 16%， [Foreign language] ？
[Foreign language] 14.3%， [Foreign language] 2025 [Foreign language] 16% [Foreign language] 。
The tax rate of 14.3% in first quarter, which is lower than the guidance of 16% for 2024, what are the major reasons? Could you provide your tax rate guidance for second quarter this year?
The tax rate of 14.3% in first quarter of this year mainly benefited from higher tax credits, and the tax rate guidance for 2025 remains around 16%. Tony, see if there's any more questions that we haven't answered.
[Foreign language] ？
[Foreign language] issue [Foreign language] 。
[Foreign language] 。
You asked the question in English.
Sorry, English. The first question is you mentioned about a lot of uncertainty from the microeconomics right now, just wonder if you can provide very preliminary outlook for quarter three or even second half of this year.
As mentioned earlier, due to the forex volatility and also the tariff uncertainty, it is difficult to predict because of the low visibility, so we have to wait and see how the tariffs settle.
[Foreign language] ？
[Foreign language] 100% [Foreign language] ， [Foreign language] 100% [Foreign language] 。
There are some follow-up questions about the impact of FX rates, particularly for the revenue and also the cost line, so could you provide a little bit more color for these two lines?
Basically all our revenue are based on US dollar and all our costs also nearly 100% US dollar.
[Foreign language] ？
[Foreign language] 1% [Foreign language] 0.2%， [Foreign language] 0.2%。
Also in addition to impact to the revenue and the cost, could you also comment on your sensitivity for the FX rate?
Basically if the NT dollar appreciate by 1%, that will have 0.2% impact on our net income. I think we mostly cover all the questions, so thank you so much all of you for joining in and hope to see you again next quarter.
See you, bye bye.