Earnings Call: Q4 2020

Feb 9, 2021

Welcome to eMammi's 4th Quarter 2020 Webcast Investor Conference. Today with us, we have Chairman, Charles Shi President, Doctor. Rick Shen Vice President of Business Development and spokesman, Mr. Michael Ho, Director of Investor Relations, Ms. Yi Shijin Chen and Director of Finance Department, Ms. Theresa Kuo. The format for today's event will be as follows. The first, EMMA's Chairman, Doctor. Charles Shi, will give an opening remark. Afterwards, EMMA's President, Doctor. Rick Shen, will summarize our operations in the Q4 full year of 2020, followed by our outlook of our business. Next, Doctor. Charles Hsu will introduce the topic entitled Applications of Path Based Security Solutions in Data Processing Unit. Then we will go into the Q and A session where our management team will be ready to answer your questions. Please feel free to submit your questions in the input box on the webcast window throughout the conference. As a reminder, this conference is being recorded and a webcast replay will be available within 2 hours after the conference is finished. Please visit the company's website at www.ememory.com.tw under the Investor Relations section. As usual, before we begin, we would like to remind everyone that today's presentation may contain forward looking statements that are subject to risk factors associated with the Semiconductor and IP Business. Please refer to the cautionary statement as shown on Page 3 of today's presentation. Now I would like to give the floor over to Imami's Chairman, Doctor. Charles Shi. Okay. Good afternoon, everyone. Thank you for attending our conference call today. To begin, I would like to recap our technology development and provide an overview All technology takes an average of 5 to 10 years from development to take off. Don. And our first technology, NeoBid, which we invented in the year 2000 had now had a penetration rate of 20% in 8 inches wafers and they're still accounting for 60% of our Karan Rauji. As most of our technology platform has been established and the newest 10 hour uses Our fully developed IP, the RD resource required is limited. So we foresee that there will be a second growth phase as our new fit has been improved into various automotive platform, therefore making room for its penetration rate to grow. Don. And our second technology, NeoFuse, which is basically used for the 12 inches which we have invented in the year 2010. It's the main driver in our current rapid royalty growth. Don. We'll increase our penetration rate in 12 inches from the current 2% to at least 10% in the future. Don. So from our most recent royalty report, royalties from 60 nanometer below has started to kick in. And for our MTP, multiple time programmable Device Technology. We began this at 2013 and then the goal of our MTB technology is to embedded memory platform. So particularly for different kinds of of MCU and Automotive and also Power Management applications. So we have started seeing that in the BCD based technology platform, So in addition to our NTP technology, we have also figured embedded MRAM, embedded IRAM with partners and also AI memory, which uses RMDP as a memory cell to on the revenue this year as license revenue and activities significantly grow. Don. And our NeoPark, which we invented in year 2015, We'll drive our growth beyond 3 to 5 years as we expected that our top IT will play of Autonomous Driving, Edge Computing and IoT. And all of this Don. Thanks for the role for our future, and we are very confident that the growth has just begun. Next, I would like to invite Rick to report our 4th quarter and the 4 year operating results and the outlook of our business. Don. Okay. Rick, please. Thank you, Charles. Good afternoon, everyone. I will first begin with our 4th quarter results. Don. 4th quarter revenue was RMB497 1,000,000, a sequential increase of 12.6% 37.2% year over year Don. The operating expenses were TWD 251,000,000, Expenditure increases such as human resource expenses, rewards, bonus and the compensation of employees and directors. This brings us to the operating income of TWD 2.30 of NT5 1,000,000 with an increase of 19.3% sequentially and 47.5% year over year. Therefore, the operating margin increased by 2.7 percentage points sequentially our 4th quarter EPS was TWD2.6 and ROE was 41.8%. For the full year of 2020, the revenue was of NT77 $1,000,000 up 26% year over year of grew 31.6 percent in U. S. Dollars. The operating expenses increased 21% Dong. And the operating margin was 46.3 percent with an increase of 2.2 percentage points, EPS up 30.4 percent to $9.52 and ROE gained 6.7 percentage points to 38.3%. Doug. Now let's move on to revenue contribution by licensing and royalties. Licensing in the 4th quarter accounted 31.1 percent of the revenue, up 39% sequentially and of 33.2 percent year over year or up 42.1% sequentially and 40 68.9 percent of the total revenue increased 3.7% Sequentially and 39.1 percent year over year or up 5.9% sequentially of 47.4 percent year over year in U. S. Dollars. For the full year of 2020, The licensing revenue is $490,000,000 while the RODI of TWD1287 million. Licensing and RODI grew 13.9% and 31.3%, respectively, or 19.1% and 37% Doctor. Klee in U. S. Dollars. In terms of revenue contribution by Technologies, Don. The results are as follows. Neovat accounted for 17.1% of the total licensing revenue in the 4th quarter increased 6.2% sequentially but decreased 17.1 percent year over year. The royalty accounted for 57.2% of the total royalty, down 7.6% sequentially, but up 17.8% year over year, mainly due to content increase of the applications such as PMIC, TDDI, fingerprint and sensors. Don. Newfields accounted for 7 T1.3 percent of the total licensing revenue in the 4th quarter, up 60.6% sequentially and 67.5% year over year. Don. Its royalty increased by 26.7% sequentially and 94.1% year over year Due to the continuous production of existing new applications such as TDDI, OLED, of PMIC, DTV, Bluetooth and ISP. This brings the royalty of the new fuels to continue to contribute 39.6 percent of total ROADM. Our power based security IP contributed to 1 point 7% of licensing revenue in the 4th quarter. Although these technology has not yet to contribute to enrolling, Engagement with industrial leaders is still actively ongoing. As for MTP Technology, Don. Licensing revenue decreased 33.6% sequentially and 9.3% year over year to accounted for 9.9% of licensing revenue in the 4th quarter. Low discount MTP decreased 3.9% of the increased 8.9% year over year due to contributed 3.2% of the total Rode. Currently, our MTP team is working with partners on developing m of AiRen, AI Memory. Both AiRen and AI Memory have been verified with proven results and definitely have a breakthrough this year. In the full year of 2020, The licensing revenue decreased by 17.4% year over year, Doug. But the royalty increased by 9.2%, accounting for 50.8% of total revenue. Doug. For Newfields, the licensing and royalty revenue grew 38% and 119.8%. Year over year, contributing to 43.6% of total revenue. For Powerpay's security IP, licensing revenue increased 100 and 48.2 percent year over year, Dong, contributing to about 0.7% of the total revenue. For MTP Technology, Don. The licensing revenue declined 30.9%, but royalty increased 1.9% year over year, Accounting for 4.9 percent of the total revenue. Now looking at royalty from 8 inches 12 inches wafers. Don. 8 inches wafers, which accounted for 61% of loaded, Zhoukinchu wafers contributed to 39% of royalties, increased 1.7% sequentially and 80.9% year over year. The full year For the full year of 2020, 8 inches wafers accounted for 52.3% of royalties, with an increase of 18% year over year. 12 inches wafers Don. Accounted for 37.7 percent of the royalties with an increase of 61.4% in the 4th quarter, a record highest quarterly number. In 2020, there were A total of 4.94 product tables completed, which is also a record high yearly number, Don. We expect the growth of the revenue to continue in the Q1 of 2021 beyond. Don. For licensing revenue, besides continuing strong demand from our new fields and the new power IPs, of continued growth momentum. 8 inches royalties will grow due to PMIC content increase in 5 gs smartphones and the demand of TDDI, Automotive and IoT Applications. 12 inches Broadies will have strong growth as customers are increasing production for ISP, OLED, Duran, SSD controller, multimedia related, networking related such as Bluetooth, Y56, GSS and others. Beside, they are loaded from 16 nanometer, 1.6 For new business development, our new application are centered on the business development of Xiaoying. NeoView's in advanced process is being adopted for secure key storage Doctor. Zhao, is seeking to replace the conventional e fuels. We expect this will be a trend for Huawei Security. Don. Business activities of Powerpay Security Solutions are in progress in the application of IoT, Industrial IoT, AI, Blockchain, FPGA, SATA Processor Unit, CPU of Mobile Storage, UFS and Automotive. Our top audit has also Partnership with the processor IP vendors are in progress. That is with cooperation with our own and risk private. This continues to extend our top day security solution platform and bring in more customer adoption. Doctor. Liu. For the new IP technology development, we have demonstrated 6 nanometer, 6 of silicon results successfully. Our final meter plus M5P has been a tap out in of Q4 and we expect the completion of the silicon verification in 2021. Don. In Q3, we have announced crypto processors, top IoT, which integrate with our road of trust, topology with crypto engines. Top IoT Don. To provide IoT and AI Chip with a comprehensive, easy to use security solution. Don. In Q4, we have announced a joint partnership with UMC on top of development by providing an integrated security solution for encrypting and protecting the data in Flash. Dong. We will continue to develop our top based solution to implement HSM, that is hardware security module, Now I will pass the time to Charles. Okay. Please turn to Page 15. Don. I will start to explain what why TPU is booming up and also why TPU require of. As everybody knows that Sunmedia is a big company on GPU. Dong. And why GPU becomes important is because a lot of new applications, Don. Particularly, AI applications require a lot of pattern recognition or graphic recognition. So the CPU become the very good accelerator to compute the graphic data. So in general, CPU can take care of every many because CPU is very general for the computation and also for can be used for the computation, also the data storage, also of other network functions. It's very general functionality. But however, as the application increases, Such as the AI application and then now there are a lot of IoT applications. So since the year before last year, NVIDIA started to promote their CPU. And also from the last year, we started to our path security solution in North America market. We also get Doctor. Enquiry from quite a few of DPU companies. So I would like to take this chance to give Everybody, a very short brief about what CPU can does to assist the CPU. So as you can see from the Page 15, we have the a simple diagram to compare the conventional data center and also the TPU power data center. Don. The CPU process unit is a process which can offload Don. By assuming the responsibility of managing the data processing in network server and the data center, such as storage and data classification and also the security. Don. And this way, expanded data processing capability will be improved Don. The system performance in a similar way as what graphic processing unit GPU does to improve the graphic processing performance. So as IoT is booming, a lot of data will be collected from the edge device. Don. So the data centric driven processor are becoming very important to manage big data. So therefore, in addition to CPU and the GPU, CPU is required for Improving network server and the data center performance. So that's why in the Page 15, you can see that Don. For the new architecture, CPU will be taking care of the application management, Dung. While DPU will assist CPU for the network management, storage management and also security management Don. So for the as I said, so the conventional Don. After the CPU offload the CPU, so CPU can perform the application management very well and Also the when the security in the past, the CPU Need to also take care of the security, but because the security function is also occupied can occupy a lot of CPU computation time, Don. If the CPU can take care of the securities, then the CPU can take care of the application management very efficiently. Don. So the inclusion of the CPU, it can offload the networking processing and also the particularly for the networking processing because in the 5 gs, actually they are So called virtual we virtual defined the network and which can slide which need to slide The network server for the 3 different applications, one is for the many connectivity And one is for the high bandwidth and another is for the very ultra low latency applications. Don. So if the network server has a CPU, CPU can take care of that. Also because of the Don. Network now is so called virtual network. So the security will become very important because Don. For the storage and also network processing, and they are all share the same memory and also share Sam Cat. So that's why the security become very important to take care of each branch of the service. Don. So by doing this, so CPU can focus on its processing for the edge application instead and The overall performance of the server, including the network server and the data center can be have a lot of improvement. Don. And so in such case that the CPU need to have a more our security function into the DPU. So the embedded security function not only enhance the overall of Defense, but also can prevent CPU operation from being interfered Don. With the by the hacker and preventing massive security breakdown. So such as, for example, now there are a lot of Don. And also those attack from We call it, session mail or other different kind of attack, which will influence the CPU's operation. But if CPU take care of that, then the CPU can still continue to do the application of processing without being interfered by the attacks. So in terms of both the amount of Don. The CPU needs to be equipped with more solid security functions so that the data will be well protected Don. During the transmission of the processing and that is why security solutions are essential to GPU. And so most of our potential customer in North America when they inquire us about our path based hardware security solution. I think that Very interested and they think that this could be embedded into their TPU to provide a very strong security functions. Don. And the reason why the top based power security solution can intend DPU securities is because Don. In order to attend the fast and the very reliable security operations, each system needs its own unique identifier at the hardware level and this unique identifier is basically similar to the fingerprint to the human being And that is the fingerprint of the chips. So the security can use that Don. We call it the one of a kind of top value to generate because this unique identifier Don. It's created by Pabst and the CPU can use this unique identifier to generate keys and also to encrypt data and to ensure integrity and also authenticate between sensors and the receivers. So we found that embedded the PAS into and also PAS based solution Into CPU chips can enable very high security and very high performance for the chip solution and also the entire systems. So I think that is what I want to share about why CPU becomes, I think, the new architecture and also new elements in the new systems, such as the virtual network processor and also the data centers. Okay, thank you. Thank you, Charles. This concludes our prepared statement. We will begin the Q and A session. Please submit your questions in the input box on the webcast window and you will answer a queue. Should we wish to raise your question in Chinese, we will translate it to English Before our management answers your questions, we are now going to collect questions and we'll reply to you in a minute. Please stay with us. Thank you, everyone. We already have morning questions. So I will invite Rick to answer 1 by 1. The first question is regarding our general revenue, which is record high, dollars 420,000,000 And the other the GaSwan app Doug. It's the IP licensing and services revenue, which is also record high with one time recognition and it's the contribution from NeoProc or Nufus. In the last 3 months, e mail IP Licensing Service revenue are more than NT50 1,000,000 Will this be the norm in the future? So, Rick, please. Okay, please. Thank you for your attention on eMemory's revenue achievement. So here, I would like to answer that the outbound fee like the NR and license fee Don. So we can expect good growth from the license in this year, as I mentioned, as strong demand from new fields, of Nielkod and also MTD Technologies. And another question is according to the annual report, of the annual royalty revenue accounted for 70% of the total revenue, which is higher than the world's IT company arm. This percentage is also significantly better than the domestic Nd technology 20% and the N31 technology 9%. What is the proportion of Yiman royalty revenue so far? Okay. This is a very interesting question. Don. And let's begin. Some investors also asked the same question before. Don. So our business model, eMaverick's business model is end for the road management, and we charge much less upfront license fee. Our current role reflects the our accumulated effort from the past. The reason we can have the highest percentage of revenue from Rovi Don. Because for the first, our persistence and stickiness with our business model. 2nd, Don. The technology we invented is the most fundamental part of the semiconductor structure. Don. So whenever customer move into production, e memory will be rewarded by the production road. So this is a win win win situation for all parties, including foundry partners, ad users and eMemory. Dung. Another question from Mr. Chen Sinopec. In last week, top security news, Top Security's Critical Processor, Top IoT PAS, MIG, CAVP Certification. I would like to add of Pathway Needs Certification, certified KDA algorithm, including AES, CA, of CMAC ERBG Key Packaging. So they mean that no product has made a great progress and the way adopted into IoT related security application. Okay. Well, first thing, I would like to thank you, Mr. Chen, for his attention on the on our progress, especially in the technical portion. So yes, the demand of our top related IP is very strong. Don. And we already tab out, as you know, and we mentioned several impact on of the conference call that we already have several tables for the IoT chips and the other applications, Which embedded with the top IPs. The question for Ms. Li. Based on Q4 licensing revenue analysis, Don. Topic base has declined since Q3, even lower than Q2. Although the amount decline is not large, but there seems to be a contradiction in the trend. Please explain. Well, Don. The revenue recognition is based on how we sign when we sign the contract Don, which cannot be judged only by 1 quarter. So customers' requests for POP, as I mentioned, are very strong and that we expect more licensing to come this year. And As mentioned in the previous earnings call, royalty saw new pop will be seen as early as the second half of the year. Does the schedule still remain? Don. Yes. We expect the customers will move into production stage in the second half of this year. So everything runs smoothly. Don. Apple does not use our Newpark. Samsung used its own affluent park. What are the other areas that Newpark could provide opportunity to help the company create high revenue growth. Well, currently, the hardware security is using standalone of security element chip we call, that is SE Chips. Our security solution by leveraging our top new top Don. Major rendering function can be the security element as a full IP block directly embedded into chips itself. So NANEO Hub now is just at the very beginning stage. Dong. So we expect this will be the future future trend for the Huawei security. While of your POP cases we have received or are negotiating. Well, The demand for our top related solution is very strong, as I mentioned. So there are many, many projects ongoing, Including data center processor that is introduced by Charles just minutes ago and also FPGA and Edith for automotive and AI, industrial automation and IoT. Don. All those requirements are from the customers in U. S, Europe, Taiwan and also China. In the current situation of capacity tightening of the foundry, we impact the progress of our new product development End of Verification. If so, how does the company cope with this? Okay. I think most a lot of investors and shareholders are concerned about this current situation. But our answer is we don't see this an issue. Dong. So we have a record higher number in Taobao in this quarter in the quarter and for the year and for the quarter for the month of January this year. So on the other hand, for the long term business development and growth, Dong. Foundry still allocate certain resources for the new platform development and the new product deployment. So at this circumstance, eMerrin's technology and technical excellence are quite essential to support foundries and the fabless companies too for the product development. So we are now Dong, still busy in development projects. Okay. Thank you. Foundry supplanted the production of panel driver ICs for the production of automotive chips, causing their production output to reduce. What is the impact on the company? Okay. This is a very good question. And our IPR also developed in the automotive platform Doctor. Qiu, so as we reported many times. So on the other hand, the tighter capacity, of the better foundry price, which will benefit our royalty income. Dong. If there are any product heads up in automotive applications, when is royalty income expected? Dong. Oh, yes. We have many automotive technology platforms and accumulate many cables and already have a royalty contribution and constantly increased. This is the new era Progy such as 5 gs, 156 and the EV. GaN Nitro and the Freecon Carver of our web who will be calling mainstream. How will this affect the company? Okay. This is a very good question and quite technical. So I think that the purpose of using gallium nitride and the silicon carbide is for the discrete power, let it of the ultra high voltage or ultra high current driving. So our IP adopted for power management It's quite different, right? So which integrates the power management integrates different function blocks such as MCU, of Clock, Generator, LTO and IF. So therefore, the market is different. The trend for power management is moving into more advanced process nodes, and we even had customer adopt of 16 nanometer for digital power solution. So in addition, in case more power or of more high frequency products can be deployed in the system. It means that more product application will bring in of I see content are included in the electric vehicle. So it helps our customers to have more business opportunity and the benefit in memory Thank you. In the face of booming era of the semiconductor industry, a large amount of capital expenditure and employees have been increased. What is the company's strategy in employee recruitment? Don. Okay. So this is the question regarding our recruitment. Dong. So first thing, I would like to emphasize that Yimera is a technology innovation company. So we encourage engineers to create new technology for enabling new product applications. Don. So for the most important thing for Yimab is to develop our talent for more contribution instead to recruit more people. Doug. We recruit new talent based on what we need for the young talent recruitment. Dong. As you may know, eMerrin is offering 2 formal calls on our nanometer memory and the hardware security technology at National Tsinghua University. So this will help us to recruit new talent directly from the school. Thank you. The question regarding MTP, as we mentioned, we're going to have a breakthrough in licensing activity. And we elaborate more what kind of exploration are NTT. Don. Okay. The breakthrough in regarding the MTB is we Don. In this year, we hopefully, we will deliver the high end and the AI memory for customer to use in foundries. So it means that we it will bring us to the new era of the product applications. And the other is regarding our Employee Bonus. It's based on revenue, the 50% profit sharing is based on revenue or based on Doctor. Profo. Okay. The bonus is based on the of the profit before tax. So it means that 30% of the profit before tax. Should you wish to raise a question, please submit your questions in the input box on the webcast window and we will answer the queue. What do you look for when you hire engineer, what is unique about your hiring process? Okay. I think as I mentioned that eMemory is of Technology Innovation Company. So Lee, Don. The engineer we are looking for is the person with the features of of innovation and the proactiveness. So I think that will be our key factor to evaluate the potential candidates. What will be the single largest growth driver by end application in Q1 in 2021. Okay. At this moment, we foresee a lot of product application will drive the revenue growth, no major in the Q1 or in this year. So that include the ISP, OLED Doctor. Chenow, webcast leader, and you will answer a queue. We will collect your questions, and we'll get back to you in a moment. Please hold on. Don. As there are no further questions, we now begin closing comments. Charles. Please proceed. Okay. Thank you, everyone, again for your patience and the support for e memory. Don. We will continue to work hard on innovating IP and the technologies and also the security solutions for our customers and bring higher return for our shareholders. Thank you. Thank you, ladies and gentlemen. Before we conclude today's event, Please be advised that the recording of the conference will be accessible within 2 hours from now. Thank you, everyone, for joining us today. We hope you will join us again next quarter. You may now disconnect. Goodbye, and have a good day.