Welcome everyone to Parade Technologies Limited 2024 First Quarter Webcast Investor Conference. Investor Relations of Parade Technologies, Mr. Yo-Ming Chang, will present 2024 First Quarter Financial Results first. During the presentation, all lines will be placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session in English by CEO Dr. Jack Zhao and VP of Finance Mr. Kuowei Wu. We also will reserve the last 15 minutes where the attendees would like to ask questions in Chinese. Please follow the instructions given at the time if you would like to ask a question. [Foreign language]。 Now I would like to introduce Mr. Yo-Ming Chang, Investor Relations of Parade Technologies. Mr. Chang, please begin. [Foreign language]。
Thanks, Jason. Welcome everyone to Parade Technologies 2024 Q1 Webcast Investor Conference. Parade Technologies First Quarter 2024 consolidated revenue was $121.28 million, and the net income was $18.21 million. Its both basic and the fully diluted after-tax earnings per share were $0.23 and $0.23 respectively. These results compared to consolidated revenue $99.99 million and the net income of $11.62 million, $0.15 and $0.15 per basic and the fully diluted share in the year-over-quarter. In US dollars, the first quarter revenue increased 0.96% sequentially and was up 21.29% year over year. The gross profit in the first quarter of 2024 was $51.96 million, an increase over 0.09% from the previous quarter, and an increase over 17.97% compared to the same quarter of last year.
Based on the current business outlook, Parade is providing the following guidance for the second quarter of 2024. Revenue is between $110 million-$122 million. Gross margin is between 42%-46%. Operating expense is between $32.5 million-$35.5 million. [Foreign language]. This is my presentation for the 2024 Q1 financial results. Now I transfer to CEO Dr. Jack Zhao to answer your questions. Jason, you may begin.
Thank you, Yo-Ming. And ladies and gentlemen, we will now begin our English question-and-answer session. If you wish to ask a question, please press star one on your telephone keypad. You will enter the queue. After you are announced, please ask your question. Should you wish to cancel your question, you may press star two. Thank you. Now please press star key and number one to ask the question. Thank you. Our first question will be coming from Eric Chen of UBS. Go ahead, please.
Yeah. Thank you, Yo-Ming, and thank you, Dr. Jack, for taking my question. My first question is on your margin profile. So it seems from your reporting gross margin and guidance, the overall profitability seems to be slower. Could you talk about the impact, I mean, whether it is from the component cost trend and any measure to mitigate through and say more allocation to Chinese suppliers? And aside from cost, could you talk about the pricing and where do you see the broad pricing pressure coming from?
Okay. Thank you. The first question was on the Q1 gross margin. Yeah. The gross margin, as what we observed, there are two factors. One is the manufacturing cost. I think the manufacturing cost, if it continues the trend, especially for the factory in China, it could reduce the price. And that be less for the factory in the Taiwan side. And that price is pretty sticky there. In terms of our particular our Q1 gross margin, I think it was impacted by a couple of things. One was the competition from the in the panel side on the low-cost and the low-end model, and that people may have more inventory there. So the price becomes very competitive in Q1. And that's what we observed.
And the secondary, really, on the Q1, the impact was slight. We, as many others, evaluate each quarter our inventory, the aging, and the inventory situation, and have to write it down based on the rule for the inventory. And that's also the part of impact to our overall gross margin.
Yeah. Maybe a quick follow-up to that. So I think you talked about the Q1 margin. Q2 margin, I think, is also by quarter. You used to guide around 43%-47% for the margin target. But now it seems everything is coming down one notch lower. So could you also, I mean, so what's the variable that drives the, I mean, your margin guidance being lower than prior guidance?
I would think that we just try to be conservative to evaluate the situation we're facing. I don't see the dramatic change in market force that impact our margin significantly. Aside from what I just had said, in the panel low-end side, we did see the price pressure there. Other than that, I don't have much to add on. Of course, we are working very hard with our supply side and try to be persuasive to reduce our cost. But supply side reduction to include the margin will take a few months because the wafer will not come out until a quarter later and so on and so forth. We are doing the best trying to do the best to adjust to meet our gross margin range. That's the gross margin target.
And yeah, that's what we do, the sensitive adjustment to make sure we will be able to hit the range, hit our target.
All right. Thank you. And my second question is on your Singapore customer. Could you talk about your recent, I mean, the recent demand status for your major U.S. customer and maybe got into the rumor share loss in the iPad LCD side? And it would be great if you could quantify the impact. And how should we think about the future relationship with this customer and what's your take on 2024- 2025? I think some people may say the impact could be limited given the low adoption of OLED in those premium tablets. But what if the OLED penetration continues to go up? And how should we think about the impact if OLED penetration really goes up in the high-end iPad models?
Okay. So for the Singapore customer, we remain in a pretty good relationship with them to fulfill their needs and to whether they are the current LCD or future AMOLED. And we are playing a significant role there and providing the key product. However, the AMOLED is very subjective which AMOLED foundry you will use, right? So there's a particular foundry they may think differently or they persisted to use. Would they have? And the change or the customer may not be able to persuade they to use. But having said that, I think we are regardless whether the AMOLED or LCD, we have, I think, a dominant market share. And USC and most for the iPad, when they introduce to the market, the dominant percentage will remain is the Parade, the supplier, the T-Con. And things may change as we're going.
But we try our best to satisfy the customer at the same time, satisfy those foundries. But yeah, the foundries with the AMOLED foundries with the customer, there's some agreement that's beyond what we can do, okay? So I don't think there are impacts that too much, frankly speaking. Let's see how the AMOLED adoption in the marketplace. We are also excited. We have been shipping AMOLED T-Con for a long time. We would like to see what the system will be introduced to market early next month as we observed. Yeah, I would like to wait to see. But one thing it is we try to tell the investors that we are on the dominant percentage for the AMOLED supplier even for the current solutions.
All right. Thank you, Very helpful . And I'll go back to the queue.
Thank you.
Thank you. Next one, Stephanie Daukus, Stanley. Go ahead, please.
Thanks, Jack and Yo-Ming, for taking my question. Okay. So my question is regarding the PCIe side on AI servers side. So is it possible that you can update our current estimates for PCIe-related products on AI servers? And I also have a follow-up.
Okay. On the PCIe AI server, we are continuing shipping our PCIe Gen 4 retimer in the ample volume and both on the four channel and the 16-channel. We recently, as we started the PCIe Gen 5 retimer in the volume shipment, and we worked with the Tier- 1 customer and tried to win more models. We also, as the community noticed, we introduced our silicon germanium BiCMOS-based PCIe retimer with the Gen 4 and Gen 5 and the future maybe go to the Gen 6. We observed the silicon germanium BiCMOS performance are extremely good. So we would like to be noticed. We pray the company could supply both qualified retimers and the redrivers at the same time.
Yeah, recently, we have more sort of design wins with the workstation level of a PCIe Gen 5, both Gen 4 and the Gen 5 redriver and the retimers. And customers start to see the value for the retimer and both redriver retimer and the value of that. So we continue to drive the design win and the design win. And hopefully, we can have more meaningful revenue. And we make sure by every quarter and to deliver the result to the companies.
Thanks, Jack, for the sharing. So my follow-up is that as we are seeing some architecture changes on retimers on the NVIDIA's GB200 design, will we see the situation being reversed again when PCIe Gen 6 retimers is introduced?
I would think the retimer itself has its value there. However, the power consumption of retimer is getting significant. And the retimer becomes a more complicated device. And so it becomes a certain burden for the integrator. And we do find out it becomes less burden to the customer when your redriver performance can achieve the retimer performance. And that's what we found out, especially our silicon germanium performance achieve the power, the performance, and the surprise good on that. So let's see how that goes. But we provide both to the customer. And we do think moving forward, the cable solution might become very critical to the data center. And that's probably, as you noticed, for the data center architecture change. And within R.O.C., you probably need many, many high-speed cable. And those cable probably all needs sort of the signal condition there to make that happen.
Those cable retimers become very convenient.
Thank you, very clear. My next question is that can you share with us your USB4 penetration estimates for this year and next year and how much of the content value is expected per PC for the USB4 product? Thank you.
As we said in the previous conference calls that our USB4 retimer in our adopter market, we are doing very well with pretty high market shares. In the upcoming AI PC or AI notebook from systems based on the San Diego application processor, we are the source for providing those retimers. So USB4 retimer made a pretty significant contribution to our revenue strength. We expect it will continue to be significant from this year to next year as well. Yeah, I think the option rate will increase. For each notebook, it depends on how many ports will be USB4. Recently, Microsoft set up a rule there for, I think, a notebook for 2025 or 2026. Once one port is USB4, and the rest of the ports has to be the USB4. That will increase adoption of using USB4 retimer.
So one notebook could have a two or could have a three. For the count, our count may increase. For the AI PC, what we observed in the coming system will be introduced, hopefully, next month. We see it's common that there are two USB4 in each notebook. So we should demand two retimer chips there.
Okay. Thank you so much, Jack and Yo-Ming, for taking my question. And I'll be back to the questions. Thank you.
Thank you. Next one, L1 of HSBC. Go ahead, please.
Hi, Jack and Yo-Ming. This is L from HSBC. Thank you for taking my question. My first question is regarding the second quarter guidance. You said the revenue comparing to the first quarter is flat. I would kindly ask which product line is under pressure and the margin outlook for each product line. Thank you.
Yeah. On Q2, Q2 typical for PC is a weak quarter. Now, we got pretty much the flat surface revenue. However, more recently, what we observed, the customer trace appeal are very short, which means the PC PO, you have to deliver within three or four weeks or sometimes two weeks. So we observe quite many those kind of appeals. And so if you ask me this week or last week, I would be more encouraged to see a lot of those short lead time appeals. And having said that, and in terms of overall the market situation, I would think the DP were doing good because we have our standard-plus customer, the introduction new systems, and demand will go up. The panel guy, general panel guy, may sort of not that optimistic. The PS guy, on the high-speed part, is more stable. Demand is quite healthy.
That's what we see.
Thank you. My second question is regarding expectation on revenue contribution from AMOLED T-Con this year. Which kind of product do you see fast adoption? What's the trend of AMOLED's T-Con penetration rate in notebook in this year and next year? Thank you.
I would think the notebook this year should be very small, right? The iPad will be introduced really similar to what the price the iPad will be. And it seems to me the current iPad market is very sensitive to the price as we observed. And whenever the lower price, you can see a lot. When the price goes to the thousands, yeah, it's become a I don't know how much the issues, right? So it's really subject to the price. And that's like notebook or anything else as well. It's really depending on the price. And I hope our standard-plus customer can sell more, and we can benefit from it. And we remain to see. And we have a big hope, hopefully, the AMOLED can do better and can have exciting sales. And that's what we hope because the T-Con, with the support of AMOLED, the price is high.
So we certainly would like to see the more sales, especially unit sales. But it's very much subject to the price. In the current market, the economic environment seems the price has become more sensitive to the market.
Very clear. Thank you. I'll get back to the queue. Thank you. Next question, Vivian Yuan, Nomura. Go ahead, please.
Hi, Jack. Hi, Yo-Ming. Thanks for taking my question. I think you kind of mentioned some retimer and redriver use in AI server. Can you elaborate the usage? Can you elaborate more about the redriver use in cable? And when should we use retimer, and when should we use redrivers in the system?
Cable is probably very hard to use the retimer because retimer power is so high. We need the heat sink there. The cable is not allowing you to put a heat sink. So it becomes kind of desirable to have a retimer as pure the cable application. We do have a few design wins on the PCIe Gen 5 and cables. It's interesting to see how the people doing this. The retimer tends to be used on the system who don't know the other side that we'll end up with because they have to leave a good margin to can work with whatever the chip to put onto the PCI slots because they don't know what's next. The typical need to put a big margin there. That's more towards the server with switch and so on and so forth.
Yeah, previously, of course, the graphics card, they put some retimer on the graphics card. But I'm not sure future they will do that as well. We do see interest for those the graphics card to graphics card link. And also kind of service to help to make a link. And whether redriver or retimer that will never make it work, that would be great. So because Intel had a preference to add it to the retimer, and early system adoption used quite a lot of retimer there. And data show as we go, there seems the redriver performance is getting pretty good. And let's see how the system customer to view how to take advantage of redriver. But I don't talk about the typical redriver way on the CMOS base, the redriver we're talking about Silicon Germanium and high-powered of those redrivers.
The process is very different versus what we traditionally talk about retimers, those are CMOS-based.
Sure. Thank you. Just as a follow-up, I think previously, you've guided that maybe an annual revenue for PCIe Gen 4 retimer would be maybe less than $10 million. Is there any expectation for this year's revenue from this product line?
We probably will report retimer redriver added together as a category for the data center. I think that probably is a good goal to achieve. We do see a little bit of acceleration there. Hopefully, the investment community asks a lot. We put a lot of focus on that segment. Hopefully, yeah, we'll be able to believe that. Let's wait to see. I think that $10 million is a good goal to achieve. But like I said, we will consider the retimer redriver for the data center as one category. We probably cannot separate them because customer might pick and choose. Especially for Parade, we may have a retimer redriver be compatible and those kind of thing. They can easily choose which one to use.
Sure. Thank you. My second question is about gross margin. I think you talked about this in inventory write-out check. I would like to ask how much is the impact on gross margin? And also, if removing the impact from inventory write-out, what's our gross margin outlook for this year?
I don't have a detailed number. I think you probably have to talk to Yo-Ming and talk to our financial guy. But I do know since Q3 of 2022, every quarter, we evaluate the aging profile to break down the aging parts. But however, those aging parts are not saying got a scrap. Those parts are not got a scrap. And sometimes, those aging parts, we still sell it and it becomes zero cost. So it's a little bit kind of convoluted in some way. And sometimes, high margins help you. And you might appear to be selling those off parts in the one quarter, right? So particularly just Q2 or Q1. And I don't remember. I do know we'll return some off and impact our margin. In detail, you probably have to talk to Yo-Ming.
I would like to emphasize one more time, those for the return of inventory in one quarter might be bad. Maybe later on other quarters, it will be helpful because you happen to sell those return off parts.
Sure. Thank you, Jack. I will talk to the queue.
Thank you. Next one, Lucas Liu, KGI Securities. Go ahead, please.
Hi, Jack and Yo-Ming. Thanks for taking my question. The first question is regarding to the first quarter product mix. Can you give us the updates for the first quarter product mix? Thank you.
Okay. Thank you. The DP product line was below 40%. PS product line was above 40%. The TC, our source driver, is above 15%. The TT was below 5%.
Okay. Thank you. Very helpful. And my next question is regarding to the PS product line. And so for the 2024 PC and MD shipment outlook, and what's the company's thoughts? And the penetration rate for the USB4 this year and maybe next year?
I didn't catch your first question. I thought your second question was USB4, the market share, right? What's the first question?
Yeah. So my first question is regarding to the 2024 PC and MD shipment outlook. Yeah. And the next question is for the USB4 penetration rate this year and maybe next year.
Okay. I think we are using the model the 2024 versus 2023 have a little bit above 5% unit increase, okay? And that's the current model we use. And in terms of the USB4 retimer penetration, and I think now, if you consider both Intel platform and the AMD platform and others, you would think probably 40%-50%, 40% probably. And maybe next year, we'll go even higher to eventually, we'll go almost all will be USB4. And next year or year after, you will have USB4.2, the 80 Gbps will show up. And we have reported before that we already have USB4.2, 80 Gbps test chip. And it's functional. And we are testing with our customers. So even USB4, the current one is 40 Gbps. The USB4.2 will move to the 80 Gbps.
So now, it's start to getting, I think, less than 30%-40% upper range. And then we'll move up more. Then we'll move up to the speed of rate to the 4.2. So that's what we view. And that market itself are pretty healthy. We'll continue to go a speed higher with adoption rate increase.
Okay. My follow-up is in addition to AMD and Qualcomm's platform, what's the current progress for penetrating into the Intel platform for Parade?
That's a good question. We have been working with our OEM customer, trying to persuade Intel to open the door for the second source for their retimer. So Tier- 1 customer pushed pretty hard. And so far, we have not seen Intel open up the door yet. Hopefully, it will happen. And because it's kind of strange, why would they care that small retimer chip for Intel such big companies? But that's the current situation. I know we work with OEM. And OEM is pushing very hard to try to have a second source for the Intel retimers. If they succeeded, we will be the candidate. I'm pretty much sure.
Sure. Very clear. And my last question is the strategy in the PCIe business, especially in the server sector. It seems that these competitors have licensed third-party IPs for product development. And so I'm curious about the strategy and outlook for Parade's PCIe-related business. Thank you.
We knew our competitor most likely to license the high-speed IPs from Synopsys and peers. Parade has been historically; we would like to develop our own IP to understand well for this particular market, right? So we continue to develop those things to strengthen our IP and the technology roadmap. I think we are pretty strong. We're not looking at 64 Gbps. We have an eye looking for 128 Gbps. We believe, as competition powers or demands more competition, our interface, especially PCIe, will continue going up to higher speeds. So you own your own IP, and you have your own strength to be capable to develop those high-speed devices, become very unique or become very high value to deliver to our investors. Having said that, we are very much open our mind to do both.
As we said, the Silicon Germanium-based, the high-performance BiCMOS device happens to be very successful. Actually, performance-wise, it looks awesome. And that's what we say. And we continue to develop. And we are doing the 64 Gbps for the retimer at the same time doing the redriver.
Thanks, Jack. That's very helpful. And I'll be back in the queue.
Thank you.
Next one, Mike Young. Bank of America. Go ahead, please.
Hi. Thank you, Jack and Yo-Ming, for taking my questions. I have a question regarding to the gross margin of actually, you mentioned that first quarter, we are suffering from some competition in the low-end market for the panel solutions. So I'm just wondering, have your second quarter gross margin guidance reflected the lingering or ongoing impact coming from this? And also, what about the inventory issue regarding to any kind of valuation and/or loss feeding into the second quarter guidance for gross margin? That's my question.
Yeah. Good question. I think we are feeding into. Because Q1 caught us a shock, and we already feed into all the factors and into our Q2. Hopefully, Q2 is continuing going. Hopefully, we will reach our goal. Yeah, it is the sort of panel on the low-end side, the competition. We do develop our own sort of strength to integrate solution for TD and TED. And our prior to report, our TD solution and the TED solution got a lot of market traction, not only because it's pretty developed. Really, we provide value to our customer. Those TD or TED device, we'll provide much lower power and much narrower borders or lower bezels. More importantly, customer or panel customer start to figure out actually decrease the cost. So we see more and more customer like to entertain our TD solution.
We all believe by doing those kind of thing, we can differentiate with a low-end T-Con source driver provider and provide our unique value to panel customers.
Thanks for your answer, Jack. That's very clear. And I just want to have a follow-up also on the gross margin. So beyond second quarter, how should we think about the long-term trend? I mean, if you look back at the history, most of the time, you meet your guidance. And then it's price stable. And if there is continuous strength by the PS segment, then gross margin should be also better. And then as you mentioned, you have a TD, TED to fend off the competition. And so probably, the upside is still there for the gross margin trend in that case.
That's what we try to achieve. That's our direction to fine-tune our gross margin and why we continue to maintain our market share there. Yeah, that's our direction.
Okay. That's very clear. Thank you, Jack. I'll go back in the queue. Thank you.
Thank you. Next one, Jason Zhen, CLSA. Go ahead, please.
Hello. Thank you. Thanks for taking my questions. Just wonder, how do we look at the gross momentum in second half this year? Because it's just like the gross margins stayed at similar levels since Q4 last year to Q2 this year. So which drivers or which catalysts are considered as gross drivers or catalysts to sustain your momentum in second half this year? Thank you.
Yeah. But for people who are familiar with the PC market, we also know the seasonality for the second half will be stronger for the first half. So the seasonality will play a bigger role there. The second thread, we had high hope for the OEM and ODM had high hope for the upcoming AI notebook introduction. And yeah, we're surprised to see the forecast for that segment continue going up. And however, the notebook has not been in the market yet. So we're really excited, especially for second half. The AI notebook will help us to drive the revenue up because that typical AI notebook, not only we have a retimer there, and we also, for many systems, also have our eDP to HDMI converter there. So it's quite a lot of money there. So that's the second one. We had hope and can sell well.
Once it's introduced, everybody from the ODM to OEM are working very hard and trying to make the introduction very successful. So then the next one is really driven by the AMOLED and the T-Con. If our standard-plus customer can do well, sell those market well, so we're very excited as well. So we do see a few of the driving force for our second half. But let's see how to materialize this.
Got it. You mean in second half, some of the seasonality will drive end demand to boost our shipments. And the second one is we do expect some of the spec migrations or the new product will, yeah, turn up in.
Yeah. New category product, right? So particularly the AI notebook becomes a new thing for the customer, particularly the pen notebook or the chip-based performance. AI performance is very, very good. And let's see how the market acceptance for those type of AI machine. And I think I'm not sure the community here says a lot. The people start to have a new name called a hybrid AI. And that's different from the, what do we say, the AI typical-based, the cloud-based AI. And with those AI notebook AI function, and you will see a lot of the AI will directly modeling in the notebook itself. You don't need to connect to the cloud to perform those achieve those performance. That's pretty exciting, which really is the AI to the large population to base on what is the impact of AI to the real society.
Let's see how that goes. I don't know the OEM and OEMI. I'm very excited for waiting for those products into the market.
Yes. Honestly. Thank you. So next question is in terms of your competition. Because it's just like Realtek announced that their USB4 retimer will also ramp up in second half. And you mentioned that for USB4 retimer, you got meaningful market shares. So I know we are dominating this kind of new market. So how do we look at these new competitors in the future?
Yeah. You are saying that Realtek is new to us. And I think people in the retimer market for USB4 all think that's a simple one. But in fact, it's a really tough one. Even for you to do a sort of certification or the qualification test because USB4 carries many, many different specs because it carries Thunderbolt, carries the DisplayPort, carries USB 3.1, 3.2. Each one of them, you have to do the certification test. To run through a certification test will take at least two weeks for each model. I'm not sure companies like AMD or San Diego company will have enough engineering time really to qualify new vendors because people are very busy. And what we are looking for, the battle, is not a current generation anymore. And what we are looking for, the battle, is USB4 v2 80 gig.
And so it's very strange to continue to introduce the USB4, the current one. I thought that would be way too late. And we have a second generation already in production now. And people talking about just trying to be new to introduce that market. Once they qualify, it takes a year to qualify. They already start to move to the USB4.2 .
Got it. So my last question is in terms of your auto business. I think in the past, you mentioned that you do see the potential market for auto connections segment. So how do we look at this kind of growth momentum in this year? What kind of market conditions right now? So I wonder if you can give us more color on it. Thank you.
Yeah. We're successful with our converter chip into the Silicon Valley electric vehicle. And we have two chips there. One is the DP retimer. Another is the converter chip. And we had second generation converter chip to support their display side and successfully qualify to their assistant. And I think the newer chip adoption rate in that particular company is pretty much high. So that's exciting. And that converter chip, in fact, is being used in the China EV guys. And so we do see our automotive solution get more adoption. Another interesting experience and design with many, many car OEMs is what they call the USB box. And each car has several USB box there and while for the charging. Now, everybody wants to send the display data or the USB data through that USB box. We are the USB provider and so as the display provider.
So our solution has been we have many design opportunities working with them and sort of give us standard there. And those ones will generate revenue starting from next year. And there are just too many people doing this. And I've lost track which one is which now. So it's too many people doing those USB boxes now.
Yes. Thank you, Chairman. I have no more questions now. Back to you. Thank you.
Thank you.
Ladies and gentlemen, there appears to be no further English questions at this point. We will now begin our Chinese question and answer session.