Good afternoon, everyone. I would like to extend a warm welcome to everyone for joining Novatek 2025 Fourth Quarter Online Earnings Call. This is David Chen, Vice President and Company Spokesperson. I'll be the host of today's conference. Joining me on the call are Vice Chairman Steve Wang, and our IR Director Tony Tseng, and Yvonne. Today, we would like to extend a special welcome to our newly appointed CFO, Ms. Jane Chen. Jane, would you please say hello again for those who didn't understand what we said earlier in Mandarin?
Hi, everyone. This is Jane .
Okay. Thank you, Jane. Welcome on board.
Thank you.
The agenda for today's event is as follows. First, Tony will report on Novatek's fourth quarter results in English. Following that, our Vice Chairman, Steve Wang, will provide further details on our fourth quarter results and guidance for the first quarter of 2026. Next, we'll proceed with the Q&A session. We have already received some questions from our investors. If you have any additional questions, please feel free to submit them online. Tony will review and read each question in both Chinese and English. Afterwards, our Vice Chairman, Steve Wang, and CFO, Jane, and myself will try to answer all your questions in Chinese. I'll later translate them into English. We do encourage all of you to participate actively and look forward to addressing your concerns. Now, I'll hand over the time to Tony to report our Q4 results.
Thank you, David. This is Tony. First, please take a look at our safe harbor notice. Also, from this page, we'll show our quarter four financial figures. But please bear in mind, all these figures are audited and will be reviewed by the auditors and also our board of directors. Let's first look at our revenues. For quarter four, our consolidated revenue of TWD 22.8 billion was down 7% quarter-over-quarter, and also down 10% year-over-year, but at the high end of our guidance of TWD 22 billion-23 billion. Next. Now, this page shows our gross profit for quarter four and also the comparvison.
Gross profit of TWD 8.7 billion in quarter four, also down 32% quarter-over-quarter from quarter three, 2025, also down 13% year-over-year from a year ago. Next. Now let's look at our gross margins. For quarter four, gross margin of 38.2% was down from 39.5% a year ago, but improved from 36.9% in quarter three last year, and also exceeded our guidance of 35%-38% range. Next. Now, let's look at our operating expense. For quarter four, operating expense of TWD 4.85 billion was down 4% quarter-over-quarter, and also 4% year-over-year, showing our good cost control. Next. Now, let's move down to see our operating income.
For quarter four, our operating income of TWD 3.86 billion was sluggish quarter-over-quarter, but down from TWD 4.9 billion. Next. Now this page shows the operating margin trend. For quarter four, the operating margin of 16.92% was down from a high level of 19.46% a year ago, but improved from 15.73% in quarter three, and also made the guidance of 14.5%-17.5%. Next. Now, let's look at our net income. Net income in quarter four reached TWD 3.69 billion, increased 1% year-over-year, but down from TWD 4.08 billion a year ago. Next. This page shows our EPS.
For quarter four, our EPS of TWD 6.07 increased from TWD 6.01 in quarter three, 2025, but down from TWD 7.89 a year ago. Next. This page shows the overall income statement for quarter four, along with the comparison with quarter three and also a year ago, 2024. This page shows our 2025 over the full year of 2025 results compared with those for 2024. For revenues, we reached TWD 100.7 billion, down 2% quarter-over-quarter. Gross profit of TWD 37.9 billion was down around 9% year-over-year. Operating expense of TWD 19.67 was flattish year-over-year. Operating income of TWD 18.24 billion was down from TWD 21.81 billion.
Net income of TWD 16.35 billion was also down from TWD 20.34 billion a year ago. 2025 reached 26.87, down from 33.43 a year ago. Next. This page shows our product mix for our three business groups. Small and medium drivers, SoC, and the large-size drivers represented 43%, 35%, and 22% of quarter four. This compares with 41%, 37%, and 22% in quarter three, 2025, and also 21%, 36%, and 22% in quarter four, 2024. Basically, the percentages have been relatively stable across the quarter. Next. We are also reporting the January revenues now.
For January revenue of TWD 6.762 billion, increased 4%, month-over-month, but down 10% year-over-year due to a high base a year ago, due to the China subsidy policy. Next. The next page shows the monthly revenue trend for 2025 and 2024. Next. From here, you can see, the monthly trend for 2025. Again, due to the China subsidy program, particularly the first half, for last year, our first half revenue was higher than in the second half. Next.
This page shows the key of our balance sheet. For our cash position, basically, our cash increased sequentially, due to our positive earnings from operations. But, quarter three is always, down quarter-over-quarter due to distribution of cash dividends. Our accounts receivable inventory dollar has been relatively stable. Now, let me take the call back to David, our ESG activity.
Thank you, Tony. The following slides is a recap of our recent major events. Regarding the biodiversity, we have signed MOU with Yushan National Park to support Formosan black bear conservation education. We've been collaborating with Yushan National Park for the past two decades, and we are just expanding our collaboration to biodiversity, which is a good move. As for the CDP for 2025, we are delighted to show you that the Climate Change has moved from B to A-, and maintaining a Water Security at B level. We have also completed our product carbon footprint inventory verification for our SoC chips. Our renewable energy have reached 24.2% in 2025.
We also achieve an outstanding enterprise for promoting workplace gender equality. We have also, you know, received Excellent Leadership Award for 2025 Buying Power. Also, the Novatek Foundation also wins the Ministry of Education Third Youth Volunteer Award for Outstanding Promoter. We also passed the TIPS, Taiwan Intellectual Property Management System for the sixth consecutive year. For more information on our ESG, please visit our website. Now, I'll turn over the call to our Vice Chairman, Mr. Steve Wang, to provide us more details on our Q4 results and Q1 guidance. Yes, please, Steve.
[Foreign language]
Hello, everyone, Tony has already reported our Q4 results, and our Q4 revenue of TWD 22.82 billion, QoQ declined by 7.15%. This revenue decreased by the 7.15% is mainly due to the consumer market low season, but actually it's reached the upper end of our guidance. As for Q4 margins, it reached at 38.19%, which is up QoQ by 1.9 percentage point. Also, this exceeded our guidance, and this is mainly due to favorable Forex and positive product mix.
[Foreign language]
Looking ahead to 2026, tight memory supply and rising memory price will require close monitoring as they may lead to higher-end product pricing for consumer electronics impacting overall market demand, especially on the smartphone and PC product line. As for Novatek, we'll continue to diversify beyond driver applications with a particular focus on image and machine vision products integrated with the AI capabilities for numerous edge AI applications.
We have invested quite a lot of resources into all these areas. In Q1, due to the traditional Lunar New Year holidays and a reduced number of working days, Novatek expects our revenue will be TWD 22.2 billion-TWD 23.2 billion, and this is at an exchange rate of $1 to 31.2 TWD. The gross margin is expected to be around 36%-39%. The operating margins between 1 5%- 18% range.
Thank you, Steve, for the Q1 guidance. Next, we'll move on to Q&A sessions. Please be reminded if you have any questions that we'll be covering, and if it's not included there and you can send them to us online. Okay, now I'll hand over the time to Tony. Please go through some of the questions that we already have on hand.
[Foreign language]
Could management share the view on the sequential trend across major applications in terms of order flow into first quarter?
According to the panel production base across major application into Q1, what we see here is that TV is slightly down, and monitor is also expected to be down QOQ. As for notebook, is expected to be up as brand OEMs are pulling in earlier, while tablets are flattish. As for mobile phone, we are expecting it to be down QOQ. This is mainly due to the tight supply of memory and the rising price. As for auto, automotives, it should be flattish.
[Foreign language]
Consequently, could you also provide your quarterly revenue trend into first quarter across three business group?
As for the three main business group, what we're seeing here is the SoC will be up the most. This is mainly due to strong demand on imaging and machine vision, Edge AI related. And following that will be our large driver IC, which will also increase quarter-on-quarter, and this is mainly due to the demand from notebook products. As for the small medium-sized driver, we are expecting it to decrease. As mentioned earlier, mainly due to the higher memory price, which really impacted the smartphone demand. And while for the tablet and automotives, we expecting it to be flattish.
[Foreign language]
Could you maintain your 2026 revenue outlook with the positive growth, if any, any major growth driver? Also, you have mentioned about memory price. Could you also comment on the impact?
Given the current memory shortage and price increase, we definitely should closely monitor the effects on electronic end user price and also the market demand. For Novatek, actually, we'll launch new products across different lines, particularly high-end devices such as the OLED TDDI for foldable phone and imaging and machine vision for edge device, AI device, and also the high-end gaming monitor. So we are expecting that these products to contribute to the revenue growth in 2026.
[ Foreign language ]
[ Foreign language ]
As for your advanced node ASIC progress, given your 4-nanometer test chip was released in quarter four last year, would you update the progress or timetable? Would you also recognize revenue either by the end of this year or sometime next year?
HPC, POC demo system, basically is still under development, and we do not expect any revenue distribution from advanced node ASIC in the near term. But we do aim to leverage the Arm CSS ecosystem together with the leading process technology and also the advanced packaging, and to integrate the high-speed interface and also the system integration expertise, all together to offer flexible ASIC design services for the various application that meet our requirements.
[ Foreign language ]
[ Foreign language ]
Could you provide some update on your view regarding the Edge PC and notebook PC?
Demand for Edge AI, PC or notebook has not picked up as fast as we expected. But, Novatek do believe that maximizing AI PC and notebook is still the future trend, especially as we see that the future will have the human and machine interaction, it will become more and more important, and a lot of these features will be integrated into the AI PC and notebook.
[ Foreign language ]
[ Foreign language ]
Among SoC product line, which one has the best visibility or growth opportunity for your company, in 2026? And also, could you give us a little bit more color on the growth driver?
We are continuously introducing imaging and machine vision products with the embedded AI for multiple edge AI cases, for example, smart home, vacuum robots, drones, action cameras, smart glasses, etc. The customers' reactions have been very favorable, and these offerings are likely to bolster future SoC revenues. We do expect the portion of SoC revenue related to AI-enabled products should grow each year.
[ Foreign language ]
[ Foreign language ]
About Driver IC product line, which one has the best visibility of growth opportunity for the company in 2026? And could you also give a little bit more color in terms of growth driver?
As for the DDIC product line, we're launching numerous new products in 2026, including OLED TDDI for foldable phones, OLED DDIC for high-end smartphones, and also OLED driver IC for IT product line, and also the automotive TDDI, all of which will definitely generate revenue momentum.
[ Foreign language ]
[ Foreign language ]
As for your effort in customer diversification, would you also provide update on DDIC in terms of opportunity and the challenge, and particularly about your OLED product?
To further diversify customer space and application is one of our, you know, a major and long-term targets. And regarding OLED, the development and shipment of projects related to the new customers basically are progressing smoothly, and they are expected to contribute to near-term 1-2 years of DDIC product revenues.
[ Foreign language ]
[Foreign language ]
For smartphone OLED TDDI, could you give us the shipment units for 2025, and also any shipment target? Would you also update the progress in the customers expansion?
The shipments for OLED TDDI for 2025 actually exceeded 10 million units, higher than our expectation. But given the additional new customers and new model launch, our shipment for 2026 are expected to grow YoY.
[ Foreign language ]
[ Foreign language ]
First of all, gross margin exceeded the guidance of 35%-38% and increased by 190 basis points sequential. Could you also comment on the impact of gold and the memory price?
Yes, I mean, our Q4 margin did improve by 1.9 percentage point, and this sequential improvement came from favorable Forex and also positive product mix.
[ Foreign language ]
[ Foreign language ]
According to your positive gross margin guidance for the first quarter, what are the major positive factors, particularly given the rising cost pressure from gold and memory pricing?
Yes, the rising gold price and memory price does have impact on our costs. Despite this, we are taking multiple action to improve our gross margin, such as the reduction of gold consumption, the replacement of gold with alloy, and also, negotiations with customers to reflect higher costs. Last but not the least, we also try to improve our product, the new product launch, to improve our margins.
[ Foreign language ]
Could management provide the sensitivity analysis of gold and memory price on your gross margin?
Basically, the each product cost structure actually differs. And, for Novatek, we'll dynamically negotiate the customer to reflect the cost.
[ Foreign language ]
[ Foreign language ]
Would you share the situation in the supply chain, such as which part is the tight supply, such as the foundry, testing, and other parts?
Yeah, you're right. I mean, KGD, known good die, substrate, materials, and also the logic testers, and also the ABF substrate, are currently tight in supply and have longer lead times. And that said, Novatek has long-standing partnerships with the supply chain to deal with these changes.
[ Foreign language ]
[ Foreign language ]
Could you update the pricing mechanism of the supply chain at this moment and into the second quarter compared with first quarter? And could you also even share some preliminary view for your gross margin in 2026 compared with 2025?
Well, due to the current tightening in the supply of certain materials and rising costs, Novatek will continue to negotiate dynamically and with our customers, and we'll try to pass on the costs and, based on the market supply and demand conditions. Also, we'll continue to take actions to reduce the cost.
[ Foreign language ]
[ Foreign language ]
What are major items for non-operating income of TWD 554 million in quarter four compared with TWD 518 million in quarter three?
The non-operating income of TWD 554 million in fourth quarter, it came from forex gains of TWD 176 million, dividend income of TWD 93 million, and also interest income of TWD 219 million.
[ Foreign language ]
[ Foreign language ]
What are your inventory days in quarter four compared with those in quarter three? Could you also provide the trend into the first quarter? Could you also provide more color on the inventory days or trend for some key raw materials at this moment, such as KGD, gold, and even other key components.
Inventory days for fourth quarter were 59 days, flatish compared with the third quarter. We expect inventory dollars at the end of Q1 to be slightly up QoQ, due to selective component rising costs, but should be still at the healthy level. As for these selective key components, Novatek will continue to manage inventory level and costs through a long-term sourcing strategy and supply chain management, and also product optimization.
[ Foreign language ]
[ Foreign language ]
Given your operating expense dollar in 2025 was similar to that in 2024, how about the trend into 2026 compared with 2025?
The OpEx dollars in 2026 is expected to grow slightly from 2025, last year. And this is due to the increase in R&D and also the talents.
[ Foreign language ]
[ Foreign language ]
Given your tax rate of 16.3% for 2025, in line with your earlier guidance of 16%-17%, what's your guidance for first quarter of 2026 for tax rate?
The tax rate guidance for 2026 is at the range of 16%-17%, which is similar to 2025. So we need to cover all the questions? We'll just go through and see if there's any further questions that we haven't yet covered. Please.
I think the first question is, as we mentioned about very good momentum in both first quarter and 2026 coming from some image device. So it makes you wonder if this is existing product is coming from new product launch?
[ Foreign language ]
Okay, the, as Tony already used the input to ask the questions, and basically, the, the momentum that, we just mentioned about the, imaging and some machine vision, some of these, products actually we've been working on and product that we mentioned earlier, it's already in mass production. And what we are doing is we're adding our imaging product and add to it some of the AI functions for some of those edge devices, and, we are launching new, more new products in the future.
[ Foreign language ]
[ Foreign language ]
The question is more about the impact of the DRAM price on TV SoC. The investor is wonder to know how we can mitigate the DRAM cost inflation on our TV SoC product.
Well, as you know, for the TV SoC, the KGD is supplied by our supplier. And, so, low cost to our customer. On the other hand, at the same time, we also trying our best from the system level to minimize the, memory size to reduce the cost. I think we have covered most of the questions that. Okay, thank you so much, and we'll end our Q4 investor conference here. And thank you all of you for joining in, and wishing you all a very happy and fruitful Year of the Horse!