Earnings Call: Q1 2021

Apr 29, 2021

Good morning and good evening, ladies and gentlemen, no matter where you are. Welcome to Windsemi's results webcast conference for the Q1 of the year 2021. My name is Zhou Chen, spokesman and Associate Vice President of Finance to Windjamming. Joining me on today's call is Steve Chen, General Manager of Corporate Administration. Today's call is organized into 3 sessions. First of all, Steve will comment on company's results and provide brief guidance for the Q2 2021. Secondly, I will go through the financials in detail. After that, we will open to the floor for Q and A. Please freely submit your question in the input box on the webcast window throughout the conference. Before we begin, I would like to draw your attention to the Safe Harbor notice on Page 1 of the presentation slides. Please note that this presentation contains forward looking statements. These statements are based on our current expectations. Actual results may differ materially from our expectations, and the company undertakes no obligation to update its forward looking statements going forward. Now, let me hand over the call to Mr. Steve Chen, General Manager, Bob Wissamie. Thank you, Joe, and welcome, everyone. Given the Q1 in a traditionally low season, our revenue for all product segments in the Q1 of 2021 decreased sequentially compared with the Q1. 5 gs today shipment accounted for slightly less than 20% of the overall cellular revenue in the quarter. Revenue of $9,000,000,000 decreased 12% quarter on quarter, in line with our expectation. This translates into a mild decline of 1% Y o Y. Due to the impact of the product mix and the capacity utilization, gross margin declined sequentially to 33.5%, with a decline in revenue and an increase in operating expense. The operating margin in the Q1 was 19.9%, declining by 4.4% sequentially. EPS was NT2.72 dollars Looking at the product mix in the Q1, the magnitude of the sequential decline in cellular and Wi Fi revenue was relatively mild. We attribute this mainly to the fact that working from home and learning from home have become the new normal since the outbreak of the COVID-nineteen pandemic. Driven by the demand for long time intervals and the large amount of audio and video data transmission from wireless connected devices. Devices including handheld, Wi Fi based stations and IoT applications all required better and more stable connection quality. We have provide high quality and high performance power amplifiers for a long period of time. And our product has become the first choice for the market. In addition, since last year, despite the rapidly change in the market share of the smartphone brand and tension of the deposit conflict, Many of our Asia based customer has actually benefit from this change with a continuous increase in demand. Given our diversified customer base and competitive advantage in technology and capacity. We have always played an important role in the market. We are actively trending the development of our new fab in Southern Taiwan sized park in Kaohsiung this year. And it is expected to officially start construction in the middle of this year. This is to serve customers' long term demand for production capacity and to lay the foundation of our continuous growth in the future. Looking ahead to the Q2 of 2021, we expect revenue to grow low single digits quarter on quarter and gross margin to be around the level of low 30s. I will turn the call back to Joe. Okay. Thank you, Steve. This is our pleasure to present our financial results for the Q1 of 2021. Please press the page in your presentation slide, starting from Page 4. Page 4, we discuss about the revenue and the margin. Q1 twenty 21 revenue was RMB69 1,000,000. QoQ was down 12% and Y o Y is down 1%. And because of the product mix and the capacity utilization, our Q1 gross margin declined by 1.5 percentage point to 35.5 percent and operating margin was down 4.4 percentage points QoQ to 19.9%. And talk about the product mix because as Steve mentioned on his management comments like the 5 gsPA actually below 20% of the overall cellular business. And at the same time, cellular and the WiFi it looks better than infra and optical. But it's in this kind of mix, it's unfavorable to our gross margin. And another one that the operation expense also higher in Q1 compared to last quarter. That's because our bottom line and EPS in the whole year 2020 better than expected. So the company decided to adding add more employee bonus for the normally in the Chinese New Year and it's making the Q1 all tax ratio higher than before. And in the next page, we talk about earnings in Page 5. In Q1 year 2021, the net profit was NT195 million and the QoQ was down 14% and Y o Y down 30%. So therefore, ETS was $2.72 compared to $3.07 last quarter. And please flip to the next page, Page 6, talk about free cash flow and fuel rolling, which is the balance sheet figure. In Q1, because the CapEx was lower than last quarter, so we have an increase in net free cash flow inflow. And you probably see interest bearing debt and the gearing ratio both increased significantly, that's because we successfully issue an ECB, which is a euro convertible bond for US dollar 500,000,000 in Q1. So both the interest bearing debt and the yielding ratio went up significantly. And next page, we talk about the product mix in Page 7. Page 7, compared Q1 to Q4 last year, you probably already noticed that the cellular, the percentage of the cellular was 40 between 45% and 50% which is higher than last quarter. And another one will be the optical including 3 d sensing in others. It went down from 22% to 19%. And with the revenue, total revenue went down 12% QoQ, the WiFi and infra probably remained in the same level. So because of the cellular and the 3 d sensing percentage change, so which is unfavorable. And this kind of problem is unfavorable to our gross margin. Okay. Then next page, we'll talk about Q2's guidance. As Steve mentioned in his management comments, so I'll just repeat again. We expect Q2 2021 revenue to grow by low single digit Q o Q. And we also expect Q2 2021 gross margin to be around the table of low 30s. Okay, then we can quickly go through our financial statement, including the income statement and the balance sheet. Before I begin, I still I always want to remind everybody all our figures here it's unaudited basics. The net revenue for the Q1 2021 was RMB609 1,000,000 and TQoQ down 12% y o y up 1%. The gross profit was TWD2012 1,000,000 and gross margin become 33.5 percent, which is around 1.5 percentage point and operating expense was TWD 8.15 million. And so therefore, the operating expense ratio was 14%, which is 3 percentage points higher. Operating income become RMB1196 million and so the operating margin was 19.9% compared to last quarter, it's 4.4 percentage lower. And the non op item for this quarter is positive KRW 191 1,000,000. The detail will be in Page 11. The income before income tax was NT1386 million. So the net the income tax expense was NT291 million, the equivalent the tax rate equivalent to 21%. The net income becomes KRW395 million. So the net margin was 18.2%, which is 0.4 percentage point lower than last quarter. The EPS was $2.72 in this quarter and the ROE become 14%, which is 2 percentage lower compared to last quarter. Approximately, utilization rate was 80% in this quarter, which went down from 85% from last quarter and compared to the same quarter last year, last year was 90%. The depreciation expense was TWD 1,000,000,000 in this quarter and the CapEx is 1,834,000,000. Net income statement for Q1. The next page will be the non op item. In Page 11. The mainly come from the foreign exchange gain. Then we can talk about balance sheet in Page 12. Okay. In the dated March 31, 2021, the major item difference will be the cash and the cash equivalent is NT22,334,000,000. And first of all, because we successfully issued an ECB in this quarter by U. S. Charter 500,000,000 T so I'm sorry, 500,000,000 U. S. Charter ECB for making a couple of items different, for example, like cash and cash equivalent. And another one will be the total assets went up to $70,000,000,000 $149,000,000 And for the liability, you can see that there is a bond convertible bonds payable, which is exactly coming from the ECB issuance. And another one, the current liability also went up significant that's because the Board approved a dividend payout on March 18 for payout $10 per share for it's about dividend payable about 4,200,000 dollars So the total liability becomes NT36.919 million. And the common stock are pretty much the same as before. So the total equity was NT33,230,000,000. The book value per share becomes $74.62 And the key impacts including current ratio was almost 280% and the debt ratio went up to 53% because of issuance of ECB. Okay. This is what I have. So now we can begin the Q and A. Please submit your question in the input box on the webcast window now. Okay. There's a question asking about the gross margin, operating margin, those kind of questions. And okay, first of all, as I mentioned that the gross margin, the major reason for gross margin this time is because of the change in product mix and also the decline in capacity utilization rate. And so, of course, it depends on in the future, it depends on both utilization and the product mix. If both are favorable to the mix and utilization rate can be better and it will be favorable to our gross margin. Operating as to the operating margin side, as we explained it, there is additional employee bonus for Chinese New Year this year at this time because the bottom line EPS was outperformed in last year. So it's a one off reason and one off item for Q1. And normally our operating ratio most of the time below 12%. So what we believe that after this Q1, then it should be back to normal for the operating ratio. Thank you. Okay. It looks like not many questions on the list, and we will give you more color about what we have in this quarter and the next quarter. If you can see that in the Q1, our customer in cellular, it looks like a little bit stronger. And looking forward, we may see a little bit for the Q2, we also still seeing that the cellular customer looks have a stronger demand. And at the same time, the 3 d sensing, normally the high season for 3 d sensing will be in Q3. And this time in Q2, probably the 3 d sensing business will be under some kind of product transition period. So the 3 d sensing business may be weaker in Q2, but the cellular business looks even stronger. Since the rest of the other business pretty much in line with Q1. So that's why the although the revenue we look a little bit growing in Q2, but margin maybe still not favorable from the product mix perspective. So yes, that's what we see that here. And also, I would like to talk about the some a lot of investor interesting about the demand from IDM customer. As you know, you guys know that right now the compound semiconductor, the limited IDM for us is only few And most of the business, Windsemi have the with those IDM customer in it was in the Wi Fi product, especially Wi Fi router, IoT gateway, which is like Wi Fi base station, those kind of business. In the past over 1 year, because of COVID-nineteen pandemic work from home, learn from home making the Wi Fi base station, the demand stronger. And so the Wi Fi 6, normally the Wi Fi router, Wi Fi base station will need a better performance, higher volume in the compared to the smartphone, I mean, the mid end and low end smartphone. So, WiFi 6, we do see WiFi 6 integration happening the mall in the mall and we have a very good relationship and business with both IDM on this kind of business. So the this in the Wi Fi business, and I think I know there is a lot of investor also interesting about Wi Fi 6E. I have to say, yes, we do see Wi Fi 6E is coming and we have already have project with important customer including those IDM customer and I believe that Wi Fi 6E should be contribute our revenue further in the near future. Yes, that's about the front of it in the IBM customer and the Wi Fi. Thank you. Okay. I think there's a question. Want to know, well, the millimeter wave 5 gs SoC impact the 5 gs PA. I think, first, we should say that until right now, what we call 5 gs PA, we provided is all any arsenide base PA and the last more relate to the sub 6 gigahertz PA. Until right now, I think all the millimeter, millimeter wave 5 gs PA installed in the handheld devices, I think it's not made by any offline. So I think it's not such an impact that the SoC for the millimeter wave TA will impact the getting us on that because I think until right now you can see all the sub 6 gigahertz PA that was made by getting us on for GTA. Yeah. And so I think until right now, we don't see that some kind of replacement for sub 6 gigahertz PA to become used SoC. Okay. I think it's a very complicated question, want to know about first the competition, second is how is the opportunity for wind semi and infrastructure and even for LIDAR. I think maybe you can all consolidate to Windsemi is how is the strategy about Windsemi, about the technology. I think as you know that in since we semi established, I think we are more focusing to become a technology leading country in the world. So we develop all of technology by ourselves and provide all the total solution to the customer from 100 of gigahertz to 100 of megahertz. So any customers, no winter, he wants to design any kind of application from the cellular PA to cellular PA. He can find total solution technology to them in Winsemi. But for other competitor, I don't think they can do that because they may be more focusing on some spatial technology, not a very fully covered part of frequency and applications. So I think that's a big difference from Windsemi and other competitor. So and especially because of the technology, so definitely Windsemi has a better opportunity in infrastructure and even in LIDAR because we I think right now Wind Semi should only pure play foundry who can provide fully infrastructure pre station related or even a satellite kind of PA technology in a world. It's not a no other competitor can provide with that. And at the same time, for the LiDAR, I think because wind sending are so successful in the 3 d sensing, so definitely, we already have a very good experience to mass production, those kind of very complicated and powerful devices than traditional optical company. So I think the technology leading strategy still will provide with any in a very good position in those new coming new applications? Thank you. Okay. There's I think several investors concerned about the Tier 1 smartphone maybe there is a 3 d sensing design change may impact our business or anything, any kind of caution like that? Yes. Okay. First of all, I have to say sorry that anything related to US Tier 1 smartphone or our customer, is a sole source to them, a major source that may be sensitive. It's not as a supplier to in this supply chain, we may not describe too much about that. But something I share is our customer still the major shareholder, I mean, having the major share in this supply chain and then in this product And even if is there any change of the design that only will making the entry barrier higher, which is to make sure our customer still have the major share. And so for us, we are the only source. We are the only foundry partner to our customers. So there is nothing to worry about that about 3 d sensing this year. Thank you. Okay. I think let's continue this question about the meaning with 4 gpa. We maybe should say more clearly is the mini meter wave PPA that the 5 GPA that you think getting out like mainly right now using for the small cell or often cell, those kinds of infrastructure related devices. Yes, but for the silicon based SoC, I think right now is more using in smartphone devices. Okay. I think because there's still some investment, I want to know about our new capacity expansion, no matter in Taxi or the new fab that will build in parts of China, parts of Taiwan in Kaohsiung in the future. I think, first, I think in this year, we may not have any new capacity that were added to us. Yes, because right now, we just have to view our FEPC 1st floor in this year and that should be maybe well completed and move into equipment in next year Q1 and Q2. So for this year, I don't think we will edit that. And for the new fab in Baoxiung, I think we will start to the construction, like I said before, middle of this year and maybe we will take 2 to 3 years to feel complete the construction and then move the equipment into. So maybe around like 3 years to prepare for the new fab in Kaohsiung before we got to collect the added for that. So that's why although we still have plenty space to expand in subsea, but we need to start the Kaohsiung site right now. Otherwise, we will have a very long term demand and supply gap in the future. Thank you. Okay. Let's do some questions related to Lidar. Yeah, I think as I we mentioned before, yeah, because like I said, we certainly was successful in 3 d sensing. So definitely we have a lot of project and car and the customer come to recently and try to co developing the LiDAR application with us. But because until right now LiDAR is not a vendor equipment for the car. So in most of the case right now, we see those LIDAR developing projects still in the project base and also in a very initial stage. So definitely we will have some revenue from those projects, but I think compared to our total revenue, we still be pretty small. So I think for this year, it still should be in that kind of project based revenue and taking a very few contribution to us. Thank you. Okay. As there are no further questions, thank you for your participation in Windsemi's conference. There will be a webcast replay within hours. Please visit www.windfoundry.com under the Investor Relations section. You may now disconnect and