Welcome to E Ink fourth quarter 2020 earnings conference call. Joining me today are Chairman Johnson Lee, CFO Lloyd Chen, and Finance Center Senior Director Patrick Zhang. Now, let me turn the call over to Lloyd.
Good day, everyone. Before we start, let's take a quick look at the safe harbor statement. All right, next page, please. All right, for 2021, the whole year, sales revenue was around TWD 19.65 billion. Operating profit TWD 3 billion. Net income TWD 5.15 billion. EPS TWD 4.53. As for the 2021 net income and EPS, was historically second best. It's also worthwhile to mention that operating income has been higher than growth income since 2020. Next page. For operating profit, it continues to grow due to the stronger demand from markets through e-reader, e-note, retail, logistic, and digital signage.
Next page. As for the ROE and ROA, these two indexes have been rising since 2017, as you can see from the screen. It was single digit and in 2021, it jumped to the double digits. The ROE was 15.4% and ROA was 10% respectively. Basically, it shows for the assets with the owner equity are basically a positively increasing trend of cash assets, of total assets, and further net asset value share. Next page. Next page. For cash flow, cash flow, even cash flow was decreased from TWD 13 billion to TWD 8.8 billion. Yes. We positively are converting cash to financial investments into CapEx of e-paper production line, of strong market demand.
The total financial assets plus cash, as you can see from the screen, was increased to around TWD 33.7 billion as of 2021 year-end. Next page. For the dividends, growing dividend, along with the company growth, as you can see from the screen, shows positive trend. Next page. In addition to those financial numbers I just explained, we continue to share with you the accomplishments that we've achieved on the third quarter last year. Apart from the continuous recognition of the TCSA, Taiwan Excellence in the Hsinchu Science Park Innovation Awards, we had quite achievement of ESG achievement.
Basically, 2021 S&P Global CSA, E Ink was ranked in the top 10% under the global electronics independent industry category, and which is also included in the 2021 S&P Global Sustainability Yearbook. Last but not least, we also participated branding Taiwan last year, and we were selected on the 2021 Taiwan top 40 brands. Next page. At the CES 2022, Philips owned by TPV company announced its the world's first dual screen display combining color LCD with easy on the eyes of our technology, ePaper. This and innovation of complementary products for both LCD and ePaper display.
This product also won the innovative product award at CES this year. There's also a crossover collaboration of the two, where BMW has adopted E Ink's new ePaper display technology in its new concept vehicle at CES. Combining our innovative ePaper with BMW's innovative design algorithm enables the exterior to change from black to white in a dynamic mode. This vehicle basically uses E Ink Prism technology that has been adopted by architects to program the color of building walls. That even expands the use of E Ink's ePaper display technology into vehicles. In addition to the personalization of car exteriors, a variable exterior also contributes to the efficiency of the vehicle.
By nature, the white exterior on hot days would reflect sunlight. Conversely, a black exterior on cold days would absorb the sunlight. This could reduce the amount of energy the vehicle uses for heating and cooling the interior, which is very much helpful for carbon reduction. Next page. In this one, it is the recognition with the excitement of the FTSE Russell, the leading global index provider. According to their green revenue data model of 99.93% of E Ink revenue in 2020 belongs to the green revenue. FTSE Russell's green revenue model basically is designed to measure the revenue exposure of public company engaged in the transition to the green economy. Next page.
For the following three pages, I would like to give you a few examples. The first example here is relevant to the reading devices. Under the assumption of five-year time period, compared with paper books, eReader provides 160,000 times less of CO2 emission. If we compare with TFT LCD tablets, ePaper readers can reduce CO2 emission by 50 times. Therefore, our eReader not only providing comfort reading, but also carbon reduction. Next one is in-store retail ESL tag. Once again, under the assumption of five-year time period, compared with the conventional paper tag, ESL produces 57,000 times less of CO2 emission.
Compared with TFT LCD tags, ESL produces 12,000 times less CO2 emission. The last example, but not least one, this is about this digital signage. An E Ink paper bus stop can be gradually seen in cities globally, including Taiwan. Solar powered bus stops are easy to be installed and make pretty much zero carbon emission. Meanwhile, E Ink paper digital signage is the first one in the world certified by the International Dark-Sky Association. Our product basically is a product with a less light pollution. We also run a very simple scenario analysis, assuming 64,000 bus stops in Taiwan is used for 5 years compared with TFT LCD signage. We produce 200,000 tons less CO2 emission.
The next one is also a very good example of running the ecological track. A Polish railway KD is running new low emission trains based on the electric and diesel traction. And even combine our colored ePaper to enable an ecological travel solution. It is also the world's first E Ink colored ePaper information board to replace the traditional printed poster in the train. Very luckily, the same display scheme is also available in Taiwan. I will share with you first. This page is relevant to the response to climate change. Last December, E Ink announced RE100 target by 2030, and net zero carbon emission by 2040. Basically, we endeavor to protect environment with the challenging target.
E Ink is the first to set such a progressive goal. As you can see from the screen, the lower right corner, we already signed off new initiatives such as TCFD of climate-related financial disclosure and SBTi science-based carbon reduction target commitment. Also, the climate declaration of the net zero carbon emissions. Even UN's Race to Zero carbon emission activities. In addition to the UN's sustainable development goal, SDG 13 for climate action. We also announced today that we officially joined RE100 global renewable energy initiative and plan to achieve RE100 target by end of this year. Expected to be the first display company in the world to hit RE100 by 2030. Next page.
I would like to share more with you about the Climate Pledge. The Climate Pledge was launched in 2019 by Amazon and Global Optimism joined 300 companies around the world to sign up. We are the first company in Taiwan and the first display company in the world to sign the Climate Pledge. Next page. I also would like to talk about RE100. A brief introduction of RE100. Basically, it's a global initiative led by the Climate Group and CDP jointly. The purpose is to bring together the most influential companies around the world which have committed to 100% use of the renewable energy.
Currently, 340 members in the world covering variety of industry to promote the use of the renewable energy. In order to achieve our RE100 target, basically, we're gonna go through different steps. For example, we will purchase RECs, renewable energy certificates, or PPA through the power purchase agreement. You know, and basically, all the sites across E Ink group definitely will also participate involved. It is expected to hit the RE10 by end of this year, as I mentioned earlier, and RE40 by 2025, and eventually reach RE100 in 2030. Next page. As I mentioned earlier, the color ePaper display being used in Berlin Railway, and we are glad to see them also in Taipei Metro as well.
The Gallery Plus has a better color gamut and contrast ratio, which is very much suitable for the digital signage of the information and also retail signage and further expand to build better smart city. The last one is we will be showcasing E Ink's latest and greatest innovation, technology and products at Touch Taiwan from 27th to 29th April. Come see us. See more colors. We endeavor to make services smarter. Thank you.
We are now in the Q&A section. Please press raise your hand icon on the sidebar if you would like to ask a question. When we take your question, please remember to unmute yourself. The first question is from Jerry Su. You may ask your question.
Yes, thanks for taking my question. Hi, Johnson and Lloyd. Also, Patrick.
Right. Hi, Jerry. How are you?
Yeah, hi. I'm doing okay. Thank you. The first question,
We missed you on the first call.
Sorry. Yeah. I was just wondering, can you give us some more, you know, update about your capacity expansion? I know you mentioned, I mean, in the past that you're adding 4 lines since late last year and then till end of this year. Just want to check what is the progress right now. When should we see some contribution? And, is that, you know, 1.3-1.5x addition in 2022 in terms of area, is that still valid? Thank you.
Thank you, Jerry, for your question. Yes, I think in terms of our capacity, like what we mentioned during the last financial conference call, is that we're gonna build out four additional lines of E Ink material lines in Hsinchu Science Park. At the same time, we're gonna build up a new building for further expansion. Our first line has been running now. The target was Q1 to get it ready so we can get into production. We're kind of lucky in a sense that in Q4 last year, we were doing pilot runs and then qualification with customers, and then that kind of extended to January timeframe. Now we're in that stage of ramping up our first new line.
At the same time, our two additional line has arrived at E Ink. We're tuning it. We should expect it to be in production maybe in next month for the first, you know, the second. The two lines, one of the two lines ready in next month and one after, in a month or so after that. The last line at end of the year. I believe we're in progress, and we should be able to meet the expectation of expanding our capacity by 1.3 times-1.5 times this year versus last year. The progress is good. Thank you.
Okay. Thank you. Just one follow-up on that, given this aggressive, well, you know, maybe for us looks aggressive capacity expansion, do you have any customer guarantees or prepayment that, you know, could protect your spending and also the investors' return?
Jerry, I think that's a great question. I mean, when we did that expansion, I think two years ago, we discussed with customers, and we got some guarantee from them. We didn't wanna bet just on one big customer, so we actually spread it out across our different partners. We did get some commitment. Now it looks like our capacity is really not enough in terms of the market demand. I think because, maybe because of inflation or the great resignation around the world that the demand for e-paper, for ESL remains very strong, actually stronger than we expected it.
At the same time, maybe because of inflation, some consumer products, you know, are not selling as well. I mean, the e-reader market, it's the cheapest entertainment in the market besides watching TV. You're already paying for that cable, but books is relatively cheap. We're seeing that demand growth from e-reader as well. The overall demand from our customers remain very, very strong. I mean, stronger than we expected it. Now the problem is. Do we have enough capacity to support that? Going back, the key is whether we can expand fast enough to fulfill our customer needs.
Okay. Thank you. I think recently we also saw that Walmart has announced some sort of a strategic alliance with SES-imagotag. I'm just wondering, you know, I think you keep mentioning that capacity that seems not enough, you know, even after the adding the four lines. You know, have you considered this Walmart upside when you made that decision to add these four lines? Or we should be thinking that, you know, additionally, you might need further expansion, you know, in 2023 or 2024.
Yeah. Jerry, another great question. We actually. When we expanded that four line, we did have some buffer for additional business. Just trying to maintain the current demand is quite tough on us. We didn't expect the news from SES-imagotag with Walmart to happen so soon. I mean, we've been working with our partners with you just mentioned, the W company. Walmart, there's two part. There's Walmart International and then Walmart U.S. We've been working with Walmart International for a couple years, and Walmart U.S. doing pilot sites, or our partners has been doing pilot sites with them. I mean, if that takes off, then E Ink would need a lot more capacity to fulfill that.
I mean, I think two years ago, you know, you saw in the news, Schwarz Group, the sixth largest retailer in the world, decide to install ESL across all its stores. Then right after that, Aldi, the ninth largest retailer in the world, decide to install ESL at the same time. Then this rush of installation in Europe, it's just crazy. I mean, the demand is strong. Now, as U.S. start taking off, then I think E Ink needs a lot more capacity to fulfill that.
Oh, okay. Okay. Thank you. Maybe a last question, you know, regarding this capacity matter. As you have expanded, like, you know, average output 1.4x this year, how are you gonna allocate? Or what have you decided on the allocation among ESL and also eReader? And how should we think about the revenue? You know, shouldn't that your revenue also grow, you know, at least by 140% year-over-year? Or how should we think about that? Yeah. Thank you.
Jerry, that's a tough question. I mean, I think last year we did say in our conference call that we're not gonna expand our module capacity. We're gonna be working with our partners, our module partners. We have eight module partners working with us. Even with the 1.4 or 1.3 or 1.5 times capacity on the material side, that doesn't translate to 1.3-1.5 sales revenue because selling material, the revenue is a lot smaller than selling modules. Yes, we do expect a revenue growth versus last year, but not at 140%. I'm sorry.
In terms of allocation, I think definitely we wanna support all our customers. You know, we do pick kind of our priority mostly on, you know, new technology, supporting new technology, key applications where we think there's a huge growth potential down the road. Yeah, sometimes we're looking at more of the long game. How do we become the company from E Ink? I mean, how do we become the next Intel, the next Arm, the next great component company or 3M, you know? 3M is a lot. You know, they do brands, they sell materials, but I mean, E Ink is more of a display and material company. How do we enlarge ePaper applications is our main focus.
I mean, short term is important, so definitely we need to continue to grow so we can return back to our investors and also take care of our employees. That's very important. But also investing in new technology, investing in R&D to actually further on the growth of our existing applications and also new applications. I think we're just on a cusp of the application we can go after. So yes, we're gonna grow versus last year, but it's not gonna be 140%. I'm sorry. But we're gonna invest in the future and play that long game. How do we become the company that people talked about?
Okay. Got it. Thank you.
Thank you, Jerry.
We will take the next question from Max. Max Fuller, you may proceed to your question.
Perfect. Thank you very much for taking my question. I think Jerry already asked that kind of, but could you maybe be a bit more clearer, like, on the capacity allocation? Because we talked a lot about, like, ESL and, like, that the demand is insane at the moment. Could you maybe give us an idea how you're estimating, like, the revenue split, like, shift from, like, consumer to maybe then, IoT? Furthermore, how you're projecting, like, the gross margin impact that might have on your business.
Yeah. I understand your question. We don't really break down in terms of how we're gonna allocate the capacity for IoT, for retail or for consumer products. We don't do that, I'm sorry. Because I mean, you know, currently we're the only place that people can come and buy ePaper, and that disclosing that will cause a lot of concerns on our side. Yeah, we're sorry. We can't share that.
Okay. I understand clearly that, like, the demand, especially in the ESL segment, is, like, very high at the moment and that you will try to serve, like, a lot of that demand with your current capacity expansion.
I mean, E Ink does make a fair amount of margins. Yes. We do wanna make sure that our customers, our partners also can profit from it. You know, selling materials versus selling display module in terms of gross margin, it's better to sell materials than selling display modules. As we stated in a couple of conference calls back, E Ink has decided not to really expand its module capacity, but to work with partners.
... to expand this market. We do believe that the gross margin will be better, not only because of higher material sales, but also because from a display module side, we're seeing a price drop from our suppliers on the TFTs and ICs. I think that's gonna help out our margin. Last year, we didn't really raise our price on our customer because we thought that we're still in that infancy stage of opening up this market, and it's not right to raise your sales price because now your suppliers raising your price. We kinda just suck up the price increase. Now I think it's getting more back to normal. It's not at that stage yet, but we're seeing that trend of material price down from our suppliers.
I think that will help out our margin as well.
Perfect. Thank you very much. That's super insightful. Maybe just one quick last question. As you mentioned the company earlier, like Schwarz Group, which you said is, like, one of the biggest retail companies. Could you maybe just give us an, like, idea, like how are you partnering at the moment? Because in a report by Third Bridge, I read that so far, only a couple of hundred stores have, like, ESL implemented so far. So could you maybe just give us an idea if this is like a super outdated number or if you have, like, supplied like a lot more ESL labels for them?
Oh, yeah. I mean, Schwarz Group, it's a pretty big retailer. I mean, it's the sixth largest in the world, so they have a lot of stores over Europe and U.S. I don't think they're in Asia, but I think they're mostly in Europe and in U.S. Yeah. I think they saw the benefit of using electronic shelf labels, using E Ink display, and how it can help them become more of a green company, less carbon emission while improving your efficiency and maintaining the look and feel of the store. I mean, it doesn't emit light, so you're not really bothered by it. They saw the beauty of that and saw the ROI, whether it makes sense or not. It makes sense. Once it makes sense, they test it.
They test it with a couple stores, expand it to maybe 10 or 20 stores, and they liked it. They've really just started expanding across their chains. I think that also prompted other retailers to take a serious look into ESLs. I think that has a rolling effect. I mean, it's a chain effect. We're seeing that boom in ESL in Europe, and I think that it's about to happen in U.S. We're seeing some retailers in U.S. are looking into installing electronic shelf labels in Canada, in Mexico. That's also happening in North America. I mean, Europe has always been the market for ESL, and I think Europeans being more environmental, more eco-friendly. I think it's just a natural choice.
Perfect. Thank you very much for taking the question.
Thank you.
Now, we would like to take next question from Takeshi Ogawa. You may ask your question.
Sure. Can you hear me?
Yes, I can hear you. Thank you.
Excellent. Great. Yeah, thanks very much. Thanks very much for your time. Just a couple questions about the ESLs. You mentioned about the existing clients as well as the potential clients. I mean, typically, you know, how long those ESL rollout project can actually take, so for them to roll out the ESL systems for their outlets?
Thank you. It's a great question again. It really depends on the retailer size and also number of stores and number of SKUs that's in the store. Typically on a smaller stores and maybe a 100-store chain, it can probably be done roughly in a year or so. If you really expand that to a lot bigger and thousands of stores and 10,000 SKUs, then that's gonna extend it in a couple years to get that done. Also it really depends on the labor situation at that country that's gonna be installed. You still need labor to install these price tags. Having that timed perfectly well, it's a science. It's really a science by our partner that can really do it well.
I see. It's gonna be actually quite short period of time. I mean, within the 2-3 years that you would expect those, you know, large retailers may actually roll out those ESL systems.
It really depends on the retailer. It's their call. I mean.
Sure.
We can facilitate it, but it's really their call.
I see. Typically, in terms of the replacement cycles for those, you know, ESL that you already installs, you know, how often do they replace the ESL, their, how should I put it? The display?
Right. I mean, I think 10 years ago when we started looking into this market, it was black and white E Ink display. Then we moved into 3-color E Ink display, black, white, and then red. Then we have another 3-color, black, white, and yellow. Then, you know, the latest launch, I think last year, was black, white, red, and yellow. From our past experience, during the black and white, when they wanna do that replacement, they basically replace the whole tag, move that into black, white and red or yellow. Now we're in this phase of 4-color situation. We believe that it will be the same. I mean, they're probably gonna replace the whole tag because the price point now is relatively cheap for their ROI.
Now, the old cycle was roughly, I think 3-5. Well, more like five-year replacement cycle.
Yeah.
Because the E Ink display has really improved, the semiconductor has really improved and also battery technology has really improved. That replacement cycle has actually extended a bit longer. Now we're talking maybe 7 years or 10 years or 9 years, depending on the user scenario. That replacement starts once they need to replenish. I mean, it's a good business because you get that replacement. I think that's subject to E Ink, whether we can continue to innovate enough that it makes sense for these retailers to say, "I want a new tag.
I'm not just gonna change out the battery and just reuse the old tag." I think it's important that E Ink continues to innovate, provide better ePaper technology, better color, lower power, you know, cheaper price so that it's a no-brainer to change a new tag.
Understood. It should be more driven by the upgrading instead of just a pure replenish.
Yeah. Well, yeah, I mean, because, I mean, there's a battery life issue on an ESL, right? It's roughly
Yes.
Currently that five-year timeframe. When the time is up, they might just wanna change a new tag instead of replacing that battery because it doesn't make a lot of sense. I mean, you have to open up the whole tag. There's a lot of labor costs. Maybe it's not worth it.
Yeah. Exactly.
You know, buying a new tag may be cheaper.
Sure.
You get better technology as well.
Yeah. Makes sense.
That's a replacement business, right? Currently we're still at 5% market penetration, and it's growing really fast. Once we hit that 20%, 30% market penetration rate, I believe it's gonna be a no-brainer for major retailers to look into installing all price tags.
Indeed. Yeah. Makes sense. Yeah. In terms of, I mean, it's very actually exciting to hear about your energy about like, you know, being Intel's or, you know, the 3M's in this field. Like, in terms of the R&D spending, obviously, which has been very aggressive that you've been spending on, how should we think about kind of your R&D spending going forward, given that you have very strong ambitions, being continuing to be dominant leaders in this field?
Right. Another great question. I mean, we've been spending roughly 17%-18% of our sales revenue on R&D.
Right.
As our sales revenue to increase, that ratio might fall a bit. We're still continuing to invest in R&D, actually put in more money into R&D. Whether that's still gonna be at 17% or 18% remains to be seen. There's a lot of applications we wanna go after. There's a lot of current application where we think the penetration rate is not high enough, so we gotta continue to invest in some more automated production processes or next generation product that's cheaper, better, lower power, better color, flexible. There's a lot of things that we need to do.
We're gonna continue to invest in R&D and make sure that we continue to lead the market, to show the market that E Ink can come out with really good technology to wow our customers.
Okay. When you think about, you know, which area that you're gonna invest within R&D, is it fair to assume that you continue to be more focusing on the raw materials? I mean, upstreams part of the business instead of kind of modules and those more application side. I'm asking these questions because, you know, if you diversify the applications, then you may want to actually spend more on a kind of application development instead of materials which you have a lot of leverage on.
Well, that's a great question. That's something we need to really think about. I mean, it's something we talk internally as well. We do invest a lot of money into material side, but also on the module side, we look into innovations as well.
I think last year we announced our first On-Cell Touch, meaning we integrate the touch onto the top layer of the surface. Now, is there more we can do in terms of the display module, where we can make the module cost even lower so that the market penetration rate will be higher? Yes, there's something we can work on. You're right. We're gonna invest a lot of money into the material side, but it doesn't mean that we're not looking into innovation on the module side. I think the key here is the work we do, does it help us open up markets? Does it help us grow this market? I think that's the key.
I see. Okay. Sorry. Just finally, in terms of the applications that you are most excited about after e-reader and ESLs, which application that you're most excited about?
Well, I think there's a couple of applications we're looking at. One is on the educational side. Can we replace textbook in schools? I know in Japan there's a talk about having one computer or giving out computer for students. But I think at that time, I think that was last year, our technology wasn't ready yet. You know, you need color, you need low power, it needs to be at right price point and, you know, it gotta be healthy on your eyes. You can't hurt the eyes. And you need to be able to play video. So we're working on improving all these aspects. How do we become a display technology that can replace textbook or even digital note-taking device? That's one part we're working hard on trying to get to.
So we work with brands in Japan like Wacom, which provides one of the best writing experiences, and also Microsoft, which has an MPP protocol that also do pen input. How do you create that right user experience? How do you create that price point that's low enough that you can penetrate the educational market around the globe? We're very lucky that we have a couple partners that we work with. Like in Japan, we work with Fujitsu, which is a major player in education. In China, it's Huawei and Lenovo, they're major player there. You know, in U.S., it's HP, Dell, Apple, you know, Microsoft. Those are the key player. Maybe in Taiwan is Acer, Asus, but we're not into Acer and Asus yet.
We haven't got into their supply chain or HP or Dell. But we're working hard. I mean, to find the right experience, the right display technology where we can get into their supply chain, work with them, how do we penetrate that market? We're very lucky. I mean, in China, we're working with Huawei, Lenovo, and hopefully we'll see some progress there. That's on the educational side. Also digital signage. I think digital signage is a big part. I mean, it's a natural match, right? We're low power, energy efficient, somewhat readable. You know, that's the market that's very interesting for us. How do we penetrate that? People are talking about carbon emission. I mean, just Lloyd mentioned, right? If E Ink combined with the solar power, it creates zero emission.
I mean, what digital device creates zero emission? I mean, E Ink with the solar power, that's zero emission.
I think those are markets that we really need to work harder to get more market share and to really, you know, win that market. Also into architectural products. I mean, you saw the BMW at CES, right?
Yeah.
They have a car that can change color and then become more of an energy efficient car. It, you know, lowers your temperature, you know, so you don't have to jack up your air con. I mean, those are markets that E Ink should also play a big role in. Also logistic tags, right? People are talking about how do you recycle these packages? Those are individual items, so that volume is gonna be bigger than ESL or retail. That's another very interesting market. I mean, there is a lot of interesting markets E Ink is looking at, but we really need to pick our battle carefully, so we don't overextend ourselves, still provide the right ROI for our investors.
At the same time, we can position ourselves that when the market is there, we can capture it.
Sure. Well, sounds very exciting. Thank you so much.
Thank you.
We will take next question from Brittany Zen. You may ask your question.
Great. Thank you so much for this update and, congratulations. I'm very fascinated to know more about your original comment about how to expand the e-paper application in the long term and through investing in R&D. I guess in a way, because we want to expand adoption, but so pricing needs to be competitive and low. But what's your view on keeping your ROE and the incremental return on capital in the same uptrend if we keep prices relatively flat now? Where you see, I guess, we drive the differentiating factor or have pricing power in the long term.
Brittany, that's another great question. I mean, it's really conflicting, right? If you drop your price, your ROE goes down, everything goes down. One of the key factor is, can the volume goes up? If the volume goes up, and your cost structure improves even better. Now, then you can be able to sell at a lower price point, and that will help open up more markets. So yeah. I think we're basically I mean, the first step we need to do is chase out all the low-hanging fruits, right? The market that can afford higher price point. Let's get those market first and then move our way down. Just like when we were doing ESL, I think 10 years ago, I remember that, you know, our company was like, "What?
ESL, those prices are low versus what you sell as an e-reader." If you look at now, looking back, you know, 10 years ago, it might not make a lot of sense, but today it makes a lot of sense. So yeah, we see there's a lot of room for improvement on our cost structure, on our E Ink technology performances that we can work at and to become even more competitive. I do believe that if we can get into a bigger scale, bigger volume, our sourcing power will increase, which will further drive a lower cost. That becomes a very positive cycle that we get into. I think we're at that stage now. We just gotta continue working on this.
The key is actually from the business side, whether we understand customers' pain point. How do we enter that market? What is our go-to market strategy? What problems are we solving for our customer? I think those are key points that we've got to continue to get better at.
Great. Can I ask, because incrementally, it almost sounds like this is a tipping point of where you can really scale and with this capacity add, which side of the business are you, I guess, seeing greater demand, let's just say, for this year and then let's talk about long term?
Yeah. I mean, we're seeing growth from all our business units. That's very good. I mean, I don't think the problem is demand. Recently, the focus is not really on the demand side, but how do we launch new technology that can further and, you know, solidify our position in these markets and become even more competitive? Also, how do we get enough capacity to fulfill these demand? I think that has been really our focus at this moment. I mean, the demand has been very strong. Then how do we continue to innovate and provide a more competitive or better technology and have enough capacity to support that? That's key for us right now.
Okay. Let's say if you're to bet on a horse between the reader versus the ESL side, which one's gonna win?
Yeah, I mean, to us, I mean, e-reader, that's where we started at, right? Then we're finally seeing growth last year. That's on the right momentum. We're just on the cusp of launching color. I think we just launched Kaleido and then Kaleido Plus as a second generation. We're gonna be launching more color technology in Touch Taiwan. That's in April. Yeah, please join us if you can. We're gonna be at SID in May to show off our latest and greatest. That's on the color e-reader side. Also we're seeing that explosion in the note-taking device, either for office use or even for education. That's also just converting from black and white to color, so we're seeing that growth.
It's really a small niche at this moment, and we're just seeing that growth rate from there. ESL, I think it's just on the right momentum, so that's growing by itself. We're launching more color, like Gallery Plus, like, Lloyd just talked about in the slides. That further cements our position in that space and also helps us get into signage business that really needs better color. There's a lot of IoT applications. People are starting to hear about E Ink and how it can help them, and they're reaching out to us, how we can work together to further grow those IoT markets. I think we're on the right track, right momentum, but we still got to deliver more capacity. How do we expand?
I mean, currently, we have offices in U.S., Japan, Korea, Taiwan, and China, but we don't have offices in Europe. I think that's the next step we need to look at. How do we expand into Europe? I mean, Europe, Europeans love E Ink. I mean, they love using our products. I think they're the first to use us in the digital bus stop signs and also ESL. I mean, that's an untapped market that we haven't put a lot of effort into. That's something we need to work on as well.
Great. Is that a this year plan or when would that be?
Well, we're looking into it. We've been planning on because, you know, the COVID situation is not the best, so we kinda just delay that. Yeah, we'll get there.
Great. Please indulge me. I'm curious to know more about, I guess, the trajectory, because last year was such a fantastic growth. Do you think this year we can even top that?
I look forward to it. I don't know. I mean, it's hard to say. From a demand side, yes, you know, demand is very strong. Then it goes down into what application do we give the first priority to, which will affect the revenue side. Overall, we believe we're continuing to grow.
Okay. The BMW or the auto application, when would you expect that to really come into production?
Yeah. I mean, I get asked that question a lot. I mean, people are just fascinated by that BMW concept. Really, I mean, we have shown that technology in San Diego in one of the parking lots. It has a color-changing skin on the building, so that it actually changes color. I guess because BMW launched it, people are starting to talk about that. We're getting a lot of inquiry on that. Again, that goes down to priorities and also capacity allocation issues. We're working on a lot of things. It's hard to-
You should call it Model Chameleon, and then you'll have some hashtags.
Yeah. I mean, you know, like, that same concept, right, it could apply to your building or your table or even, you know, consumer electronic skins. There's a lot of application that can go with it. We call that Prism. That's our Prism product line. Yeah, and we're very grateful to BMW willing to show off such amazing car and such environmental usage. Yeah, we'll see.
Fantastic. You made me a very happy shareholder, so thank you very much.
Thank you. We hope to make you even more happy.
Thank you.
Thank you.
We will take next question from Jerry Su.
Yeah, thanks. Taking the question again. Just want to quickly follow up, you know, on the fourth quarter. Can you just explain a little bit about, you know, why the 4Q's operating expense has been a little bit higher than the past several quarters' average? How should we think about that operating expense into this year, you know, considering you have mentioned that higher spending in R&D, et cetera?
Jerry, that's a good question. I think last year, we booked a lot of bonuses, stock options for our folks, you know, because we had a second-best and historical high. I mean, we gotta reward our employees. At the same time, we were building up our new line of E Ink materials, and we need to hire people in advance, and we need to train them. That kind of really affected the cost side. Looking forward, if we continue to grow, we still need to reward our people. I mean, you know, we gotta take care of the investors. At the same time, we gotta take care of E Ink employees. It really depends on how well we can do this year moving forward.
That's the way we see it. Does that answer your question, Jerry?
No. Okay. Got it. Then, maybe just to ask a little bit about, you know, what has been impacting you in February and perhaps March because of the pandemic in Hong Kong and China. I'm just wondering, are you know, seeing some improvement or relief on logistics side? You know, how should we think about, you know, this into the second quarter or maybe beginning, you know, of the year? Is there anything that you should do or you have to do to make that logistics more smoother? Thank you.
Jerry, that's a good question. The way that E Ink books revenue is that we ship the product until customer receives it, then we book the revenue. During February, some of our products were stuck at the customs, and they couldn't really get back to their customers because it's under quarantine. You know, China was under quarantine or trying to get become COVID-free. There wasn't a lot of people to support that, and it was delayed until this month, right? We couldn't book that in February. Yes, we do see some impact to that because of logistic and all the COVID policy by China. Hopefully improve, but you never know. I mean, that's not something we can control.
I mean, we talk about E Ink not wanting to expand the module, but instead of working with our customer. We need to work with our customers to expand or our partner to expand their module facility outside of China, so that we won't be hit with another situation like what happened in February. That's gonna take us at least a year or two to make it realistic to be able in production. That's something we need to work at. It's crazy. We just gotta deal with it. I mean, in the short term, you just gotta look at different ports to get your products into China because that's where a lot of manufacturing is done.
We're seeing also people are moving into to Vietnam, moving to Mexico, moving to different places in Southeast Asia. We'll see. The situation in Southeast Asia is not the best, especially last year, right? I mean, last year, Vietnam was shut down. We just got to build a lot of, how you say it, safety policies or dual sourcing in place so that if something happens, we'll be less impacted by it.
Okay. Got it. Thank you. Maybe the last question on the color technology side. I think on the e-reader you have several iteration of the Kaleido, now I think it's Kaleido Plus. I think you also have this ACEP technology. Can you talk a little about, you know, how is this ACEP, you know, proliferating into the color e-readers? When should we see, you know, some of your customers have started to, you know, adopt that?
Well, Jerry, I think at Touch Taiwan, we're gonna be showing I think three color technology besides the Gallery Plus we announced. Hopefully you can be there and then see in person because it's hard to talk about display technology. You gotta see it to feel it, right? We really don't talk about how customers gonna use our technology. I just think that we need to build great technology so our customer will be happy, and they can launch great products and win more market share or get more revenue for them. That's just part of the game. Please visit us at Touch Taiwan. We're showing off three new color technology in Touch Taiwan and also in SID U.S. It's about the same time.
One is in April and one is in May. We're gonna be showing those new technology. Hopefully you'll like it.
Okay. Thank you. Looking forward to that.
All right. Thank you. Thank you, Jerry.
Due to the limit of time, I will now turn over to Lloyd for final considerations.
Hi. Thank you for your participation, and let's talk soon next quarter. Thank you.