Earnings Call: Q2 2020

Aug 12, 2020

Welcome to EMEA's 2020 second quarter webcast investor conference. Today with us, we have Chairman, Doctor. Charles Tree, President Doctor. Rixin, Vice President of Business Development And Stokesman, Mr. Michael Ho, Director, Ms. Li Jing Chen, and Director of Finance Department, Ms. Karissa Cole. We will start off today's meeting by an opening remark given by our Chairman, Doctor. Charles Street, Next, our President, Doctor. Rixin, will summarize our operations in the second quarter, followed by an outlook for the future. Doctor. She will provide the closing comments at the end Following management's prepared remarks, there will be a question and answer session. Please feel free to submit your question in the input box on the webcast window throughout the conference. As a reminder, this conference is being recorded and the webcast replay will be available within 3 hours after the conference is finished. Please visit trupow.emaming.com attw 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 semiconductor And IT Business. Please refer to the cautionary statement as shown on Pit 3 of today's presentation. Now, I would like to turn the floor over to EMEA's Chairman, Doctor. Shee, please go ahead. Thank you. Good afternoon, everyone. I hope you're, wealthy and doing well. In Q2 2020, we delivered a record high revenue. As mentioned in previous conference calls, we are poised to enter multi layer growth cycle, with a strong set of tables in the pipeline, besides the continuous strength of a 12 inch royalty. The inch royalty has gained momentum as 2 to 3 times femix content increase in 5gsmartphone, as well as medical. Online working and the entertainment related demand. In addition, we are experiencing strong interest in particular for our security half based technology due to security requirements for 5gai, automotive, and IoT. We are actively engaging with the leading companies for designing our new path into their security architectures and expect more design wins for the rest of the year. Next, I would like to invite our president Rich to report our operating results of Q2 and the future outlook of our business. And after work, I will elaborate more on our new app, unique, content on the mechanisms and why we believe we will be the winner of the security silicon IP provider. Thank you. Good afternoon, everyone. This is Rick. Thank you for attending Yeeami's 2020 2nd quarter investor conference. Webcast. In today's presentation, I would like to report our operating results of 2022 followed by the status update of our technologies and the future outlook. So, anyways, I would like to report our 2020 Q2 results. Q2 revenue was 400 and $23,000,000, an increase of 1.9% substantially than the 33.7% year over year. In terms of the U. S. Dollars, Q2 revenue was $14,000,000,000. A growth of a 2% sequentially and 33.1% year over year. The operating expenses of 22 was $227,800,000. Up 2.7% sequentially and 21% year over year. Q2 operating income increased 1% sequentially 52% 52.3% year over year. If updating margin was 46.3%, a decrease of point 4 percentage points potentially, but increased 5.7 percentage points year over year. EPS of Q2 is $2.28 and ROE at 41.9 percent. For the first half of twenty twenty, Revenue was $839,000,000, up 17.9% year over year. The operating expenses increased 15.4% and operating margin was 46.5% with an increase of 1.2 percentage points, EPS up 18.3% to for $0.66.20 and the ROE and 5.9 percentage point to 42 0.8%. In the following section, I will breakdown the revenue contribution and licensing under Rohit. I think from Q2 is 100 and then $18,000,000. Accounted for 27.9 percent of the revenue, up 10.9% sequentially. And a 12.6% year over year. In terms of US dollars, 550 revenue is US4 $1,000,000, up 11.6% sequentially and 17.2% year over year. Attributed to 72.1 percent of the total revenue is $305,000,020 decreased 1.2% sequentially, but increased 44.1% year over year. In terms of U. S. Dollars, the royalty is US10 million dollars, down 1.4% sequentially up 48.4% year over year. In the first half of twenty twenty, The total revenue grew by 17.9% as compared to the previous year. That's in a row each has a growth of 6.6% 22.6% respectively. In terms of U. S. Dollars, Licensing and royalties grew by 10% under 26.2% respectively. If we present the revenue by technologies, the resource are as follows. Accounted for 17.2 percent of the total licensing revenue of the 2nd quarter. Decreased to 2.6% compared to previous quarter and a 26.7% year over year. This is RODI accounted for 55.6 percent of the total RODI. Increased 0.5% sequentially and 31% year over year. Please This was due to the contribution from PMICddi and TDDI. Milligos accounted for 70 1% of the total licensing revenue of the 2nd quarter, up 12% sequentially and 27.6 percent year over year. This is a reality decreased 2 push rates sequentially, but increased 100.4% year over year. Because of the increasing contribution from 4028 nanometer OeroED BDI. GTV and the networking applications. A rowdy of new fields contributed 31.5 percent of total ROE. Our POP based security IP contributed to 2.4% of licensing revenue in the 2nd quarter. Grow release technology has not contributed. ROE yet, engagement with industrial leaders are still actively ongoing. As for MTP Technology, IP and revenue increased 56.3 percent sequentially and 3.3% year over year. Relatic on MTP decreased 22.2 percent sequentially and 18.3% year over year. Our MTP team is still working with partners on developing MRAN REN AI Memory. In the first half of twenty twenty, for new pit, our licensing revenue decreased 6.9% year over year, but loyalty increased 1.2% accounted for 52 0.9% of total revenue. For new fuels, the licensing and the ROE revenue grew 21.4% and 136.8% year over year. Contributing to around 42.1 percent of total revenue. For cloud based security IP, Licensing revenue increased 443.2 percent year over year about 0.4% of total revenue. For MTP Technology, the licensing and routing revenue declined 42.6% and 15.2% year over year. Content for 4.6 percent of the total revenue. If we pay down ROE by 8 inches and truck engine wafers. 8 inch wafers which accounted for 54.1% of the roadie. Decreased 1.2% sequentially, but increased 22.7% year over year. Growdy from 12 inches wafers contributed 35.8 up 0.9%, 35.9% of the RODI decreased 1.2% sequentially, but increased 139.4% year over year. Regarding customer product level, 115 product tables were completed in Q2, up 10.6%. From the previous year. This shows the persistent persistent if I update, please. Our customers with our IPs. We will provide more information in the management report that will get released later today. In the next section, I would like to address our financial outlook. We expect the growth of the revenue to continue in the second half and beyond. For licensing revenue. The main contributors to our revenue are still new pit and new fields. Due to the increasing advanced technology platforms and a more comprehensive top based security IP. We anticipate the licensing from new fields and the new path will continue to grow. For road for royalty revenues, we expect 8 inches wafers to regain momentum due to the 2 to 3 times PMIC content increase in 5g Smartphones. In addition, We have developed various automotive grade process and expect the TV Automotive sector will drive further growth momentum of production loading for 8 inches wafers platform. 12 inches roads will continue to grow as more than 300 terawatts for various epic in the pipeline ready for production, which include TDDI OLED. TCOM, ISP, Bluetooth, Wi Fi, AWS, switch, set about video processor as a key controller. I owe a security processor, digital power, Iran and others. For new application development, our new applications are centered around the development of top based technology. As mentioned before, the path RT was adopted a customer in IoT platform AI training modules, blockchain, DGA, and industrial automation applications to ensure data security and increase attack resistance ability apart from PAP RT, or top IoT is also well developed and engaged with customers is ongoing. Aside from our development efforts. Our collaboration with Arm to embed our new fields in its security platform which already has customer adoption and has entered the production verification stages mostly. Contribution from the development mentioned above well within this year. For the new technology development, turn the attention to financial measures in order to perform MRIN or IRAN. Security activity for which we mentioned in previous quarter, we are developing 6 nanometer and a 5 nanometer plus. Technology with our leading foundry partner and have already demonstrated immuno to the current results successfully. While the further nanometer has been adopted into automotive application, 2nd, we are developing new security IPs after the completion of TRNG. That is a published to a random number generator and a This growth of trust of IOT Security Solutions Security elements and hardware security modules, IPs are also under development. Justin, we are in the process of creating an open platform. This open platform focuses on how we're security integrating OTT path. Security function IPs and the quick teleconference and IPs to provide total security solutions for AIOG and the 5G applications. Despite the global pandemic, the need for increased performance year, and the security continued to create strong and sustained demand for our IPs. I would like to thank all our employees for their efforts to continue success in penetrating new markets and maintaining our position in existing markets. With that, I will conclude my presentation on our taking results and future outlook. Thank you for your attention. Thank you, Doctor. Shen. Now, I would like to invite Chairman Charleshi wants to give an introduction of Newpark's quantum tunneling mechanism. Doctor. Xi, you may go ahead. Okay. So in the following section, I'm going to, tell you a little bit about the mechanism of a content paneling, to form our near fuse and also using the near use fuse to form our near path. Please turn to page 23. Here, I will explain the mechanism of our near fuse. We invented the near fuse transistor The programming mechanism is to apply voltage, just high enough, to generate a tunneling current path in the get outside. And then we call this, current Hess Content Colony. And it's showing in the figures, Do we take the, there's a near field transistor and we appoint the voltage and on the right hand side of the figure? You can see there's a, a path from the gate to the the, the software. And, after the programming, So you want to and we call the sale after programming, the data is 1, and the result, programming is 0. So only the sale with, for when we applied to it, she was she was the the paneling pass on the on the sale. Without a private voyage to, to which it will it does not have the crowning path. So by doing this, we can differentiate, 1 and a 0 and a so when we want to store the data, into this, our near future, then you can, apply some of the sale. You apply the validity to the sum of the sale. If you don't, then you will get your data store in our new fields. And, in the page 24, So explain, what does it mean by a content paneling? Okay. So in the page 24, On the left hand side of the figure, it is the physical structure of the hotspot, with many defects in the upper figures. And without effects in the lower features. The figure on the right is the corresponding energy and background. And from a semiconductor physics, we know the defect in the off-site is a trap. And in the corresponding fan diagram, it is a quantum well. So if you have many quantum well in the offline, it will facilitate the electron to tunnel from one well. To another, such that election can follow from subject to the case and the contribute to the talent current. And for the in the lower figures, if the outside without defects, it is very difficult for electron to tunnel from the subject. To the gate. And if you look at the energy bank diagram, the platform has to demand a huge energy area. In order to, get over the outside and reach the gate to contribute any currents. So so in such case, consequently, it generated very little. So and once the, the the trap or the feedback is generated by the high volume stress, it is very difficult to recover. In the farming literature. It shows that, the broken silicon oxygen bomb meets at least more than 600 degrees c will recover. Therefore, the the proven number created by this mechanism is very stable. It is resilient, to voltage variation, temperature variation, noise, and the hygien effect. So that's why, when we have so many, customers use our near fields, in their eyes, in their chairs. And, none of them have the, any issues because, once the OTPs are used, the the details that they use in their, chips is not not any issue offer because they the near fuse once you store the data from the data into it, it is very stable. Okay. After you spend the turn in mechanism, like turn to, page 24. So as I mentioned that, the common pattern in is a program in mechanism of use. So it is known for its, reliability. So data will stay there much more than 10 years. And also because it's a mechanism of content. So it is, not visible and it's it's not a transport. Because, it is very difficult to to trace what kind of what the the the the groundbreaking in the second dial side. It will become the perfect, for the secure storage because it's, invisible and untraceable. And the contrast to the issues which is some of, into the traditional method, for the one time Pivotal storage. And then you can see that, the, the mechanism of issues is, when you want to progress data into the issues. You have to open up the fuse. So in in such a circuit, you can see in page 25, on the right hand side you can see that we compare the unproven the effusion and the proven effusion. You can see that, in the proven issue. There's a very clear mark. The broken of a metal, metal art, there. So it is the the is a transport and also visible to you to the reverse engineering. That will cause the data leakage So it is not safe to show the data in the eclipse. And, please turn to, page 26 So now if we take the 2, NIO fields as a pair, okay, and apply the voltage on their teeth imperative, So the point of voltage is high enough. We will see the oxide with small defect. We'll generate. Let's see. Well, with small defect, we'll with more data generated, what begins to have higher tunnel and current. And the the off-site with few defect generators. We'll have less tunneling turn. So every time when we choose a pair of a near field transistor, to compare the turning current during high voltage stress. We will always see one of them, either the left one or the right one. Have having higher toning curve. So it is like a toasting a coin. You never know which side will turn up So I'm looking at the the page 26, the figures, on the in the middle So you can see if we apply the voice to a pair for nephews, you will see the probability probability of tunneling occurred in the left hand side is the same as the publicly occurring in the right hand side. Also are 15%. Okay. So in in such case, so when the tunneling occurred on the left hand side, We will divide it as 1, and the tunneling occurred on the left hand side to divide it. Right hand side will divide it as 0. So as our new power was based on the nature readiness of the outside quality. So we amplify the radiation in the outside and transform them. Into the signal. So it should become the unique fingerprint, for chip itself. So in summary, our new party is to be on the foundation of our new fuse technology, and it shows the same quality of reliability, invisibility, and the long tragedy. So we have many new options platforms already. So that means we have also many new platforms that are available and are ready to be used. So Near Palm is the 1 and the the only one produced using content power in Mexico. And this is something no other competitor or any newcomers can do and to catch up with So I think our new cost technology will dominate the world's, cost technologies. Okay. So in the Next, I will explain, I will explain how we use, the near field and the near path to build the hardware rule of trust because hardware rule of trust is the most important fundamental element in the, power security. So we can look at the page 2728. The, a rural trust must ensure that the secret key is installed in a manner that cannot be detected and it's not susceptible to reverse engineering. And such that you can guarantee the safety of the data. And then the rule of trust is therefore the key component that protects the storage of system. Data and then maintain its integrity. So our part of our IT solution, our role of trust, It's a robot solution. It's leveraging our near path and the near future technology to establish a robot robust, robust. So how do we do it? First, we, We, returned a unique number from the helicopter for the chip. And so first, we, check the unique number, from the near path for the chip. So that become the the unique ID. And essentially it is a digital fingerprint for the chips. And this tuning ID is then stored We think our nephews. So where it it remains security and free from detection. And then the threat of reverse engineering. So for key generation, okay, NET you want to generate based on this, our root of trust, which you the key generation is crucial. For coding and coding sensitive data. So coding recording means, encryption and encryption. Okay. Encryption and encryption. Can be executed through the combination of the unique ID and the the 2 render numbers generated. And then the kids are securely protected from the physical temporarily in the embedded secure near path, near field OTP. So this help solve the major security problem, the chip designer faces. Okay. So, in summary, it's, we extract the secret from the near path because it's a random source. So nobody knows what the number is extracted. And then we store this number We treat this number as unique ID and then we store in the near, fuse, the near fuse. It's it is, untraceable and it is invisible. So this is very, it's a rule of trust. And then for the future entities, due based on this, rule of trust is generally the additional case. Okay. But the, so when you use the key outside, this region is those keys which is now the original unique IP or the fingerprints. Okay. So the rule of trust is on the near future and the near path as many outstanding features in particular easy of use, high speed, low power utilization, and the low cost. Before the availability of our road trust solutions, a customer need to incorporate these 3 IP vendors IP. For example, your OTP from one vendor, apart from another vendor, and the TRNG from 2 regular number of generators to come another vendors. So this this 3 IV to into their design, and they're all used very expensive, depending on how we'll run the number generator. So consequently, we have a strong, conviction that our POP RTS will become the future of market leader due to its overwhelmed competitive advantage Okay. So this is about my, introduction and the explanation for the content partnering part. Thank you, Doctor. Elushi. We now begin the question and answer session. And you will enter a queue. We are now going to collect questions and we'll reply to you in a minute. Please stay with us. We have a question from the desk. Please provide some example of new new park customers and which is specific type of new park product is driving Okay. Regarding the, the new path, customer here, I will check 2 cases as an example. Out of all costs, we use new power for the from the IoT. It is only interconnect application. Another customer used a new part for the FPGA application. So I think that is a very a good example for everyone to know that the new can be used for interconnect interconnection and also for the FPGA and the other security related applications. So for the another question is, which specific type of new top product is driving the development. Well, I think the the new parts is just provided in the randomness, the random numbers, for security IPs. So the security IP based on your path can enable some use cases. As we mentioned, that the top RT is the root of trust is a new path to generate the UID and the key storage related, usage. And then now we also directly have IoT so that we can embed the CPU inside selected, select customer can use it. There's some path to decrypt and do decrypt the cadence. So so we think the there are various applications which will drive a new path. Usage in the near future. Okay. I can have some more comments. Now we have the, customers use the Nearpop alone. Also, we, increase we create some additional function to create the so called rule of trust as our second, IP predated the path. And for path, role of trust, as I mentioned, inside the power of trust, it's near fields, near park, and the 2 render number generator. I think, basically, customers very interested on using this one as their hotel solutions because, it provides a role of transfer functions. Okay. So currently a lot of our customers request on this, and that we also, have a promotion we call IP Go which you can customer can free freely download our top r team and to do their simulations. Okay. So we do have a lot of requests on this. And another serial IP is we call it the POP IoT. So part of IoT is a part of all the cryptographic, functions. So the cryptographic functions because part of it is to generate the key, right, and the crypto ethic is to use the, mathematical method to by using the key, the key generated by apology to encrypt all the data. So we'll just create all the data and they also do all other signature functions authenticate authentication functions. So that's our cert, proper related IP. And, of course, it's, we just recently concrete in IP and that's already have customers interested in it. And the the the another one will be we call it the pop SC as a pop, security which is under the government. So I think, we will have various of customers. And, I think the requirement from them is basically based on our their interest mainly on our path. They would like to also ask us to give them the solutions So, actually, in the future, we are not the only IP providers to be also the security solution providers. Okay. Thank you. Another question related to the past. It's regarding what how will the revenue model work for Neo Park related new IPs? Okay. Regarding the revenue model. Basically, just partition of revenue stream. For example, one customer, we license, the new IP, like the top r t. We we will have 2 royalties. Okay. One royalty through the n chip company, which is like, collateralities through the chat company. And when they go to production, we will have the royalty, from the fab, which is the foundry. So this creates additional, royalty stream for, the email address. And you will answer a queue. We will collect your questions and we'll get back to you in a moment. Please hold on. We will collect your questions and we'll get back to you in a moment. As there are no further questions, we will now begin closing comments. Doctor. Xi, please proceed. Okay. So with 20 years of innovation, in memory continues to develop the foundation no semiconductor technology, which help our customers They are their technology development and improve their chip performance. So we hope to use our innovation to ensure all online activities are secure. And this is our is our company's vision, embedded everywhere and secure everywhere. Once again, thank you for your patience and the support for your memory. Thank you. Thank you, ladies and gentlemen. Thank you for joining us today. You may now disconnect. Bye, and have a good day.