Parade Technologies, Ltd. (4966) Earnings Call Transcript & Summary

Welcome, everyone, to Parade Technologies 2020 Fourth Quarter Webcast Investors Conference. Investor Relations of Parade Technologies, Mr. Yo-Ming Chang, will present 2020 fourth quarter and fiscal year of 2020 financial results first. [Operator Instructions] After the presentation, there will be a question-and-answer session in English by Dr. Ji Zhao, the CEO of Parade Technologies; and CFO, Ms. Judy Wang. And we also will reserve the last 15 minutes for the attendees who would like to ask questions in Chinese. [Operator Instructions] [Foreign Language] Now I would like to introduce Mr. Yo-Ming Chang, Investor Relations of Parade Technologies. Mr. Chang, you may begin. [Foreign Language]

Thanks, Wang Chi. Welcome, everyone, to Parade Technologies 2020 Q4 Webcast Investor Conference. Parade Technologies fourth quarter 2020 consolidated revenue was USD 148.29 million, and the net income was USD 33.29 million. Both basic and fully diluted after-tax earnings per share were USD 0.42 and USD 0.41, respectively. These results compared to consolidated revenue of USD 96.18 million and a net income of USD 20.72 million or USD 0.27 and USD 0.26 per basic and fully diluted share in the year ago quarter. In U.S. dollars, the fourth quarter revenue decreased 1.24% sequentially and was up 54.18% year-over-year. The gross profit in the fourth quarter of 2020 was USD 64.56 million, a decrease of 2.29% from the previous quarter and an increase of 52.76% compared to the same quarter of last year. For the fiscal year 2020, the consolidated revenue was USD 518.34 million, representing an increase of 25.67% compared from USD 382.05 million in the prior year. Gross profit was USD 228.34 million, and operating income was USD 125.03 million. Net income was USD 118.95 million or USD 1.52 per basic share and USD 1.48 per fully diluted share. These results compared with net income of USD 78.74 million or USD 1.02 per basic share and USD 0.99 per fully diluted share in the prior year. Based on the current business outlook, Parade is providing the following guidance for the first quarter of 2021. Revenue is between USD 139 million to USD 153 million. Gross margin is between 41.5% to 44.5%. Operating expense is between USD 28 million to USD 29 million. [Foreign Language] It is my presentation for the 2020 Q4 and year 2020 financial results. Now I transfer to CEO, Dr. Ji Zhao, to answer your questions. Wang Chi, you may begin.

[Operator Instructions] The first one to ask questions, Daniel Yen from Morgan Stanley.

Thanks for the update on the business. So my first question is regarding the supply chain management and also your inventory level. So just looking at your inventory days, I think you are on track to bring back your inventory days to 50 to 55 days, as Jack mentioned last time during the earnings call. And at the same time, your first quarter guidance, I think, is above the normal seasonality. And so I would like to ask, what's your view on the overall foundry or back-end supply sufficiency rate right now? And also, what's your own supply? Because overall, it looks like your inventory level is healthier than your peers. And regarding this, what's your view on your channel inventory? And so that would be my first question.

Okay. Thanks. I think the first question is regarding our sufficient supply. And I think everybody knows semiconductor industry or fabrics company is facing severe challenges of the capacity in -- both in back-end and wafer level. I think that's a good observation, that we have healthy inventory when we exited 2020 that we are pretty happy with the level we have. And moving to the Q1, the -- it still remain a big challenge for many of us, and Parade also faced a challenging quarter sufficient of capacity. I think we -- having said that, we are comfortable or we are working very hard to protect our customer and try to gain capacity and to work with our manufacturing partners for many ways to support our customers. And as we monitor our distribution channel and frequently, so far, we think their level is in check for the -- in terms of inventory. However, for some parts or for some particular nodes, we are working very hard and also struggle to gain more capacity. But in general, I think it's a challenge, but we are managing through this. And we have been running the level in terms of revenue from the Q3, Q4 and around $148 million, $150 million level in Q1 as we have forecasted and has been less seasonality since the -- I think traditionally, PC or consumer industry in the Q1 were below season. And so that reflects the demand on PC, our products remain robust, and we are very busy to deliver the parts to our customer. And so it's kind of -- as we said at the supply side, in some ways, is a constraint on us and -- as well. But we are working very hard to work with our manufacturing partner to address the issues. And it is a challenged time. However, we manage through that.

So just a follow-up, I remember 3 months ago during the last earnings call, you mentioned that the PC will still follow seasonality in the first quarter. So basically, we do see that there is some upside on the PC demand going into the first quarter. And how long this could sustain from your point of view? Or what's your visibility right now for your -- general, your PC-related products throughout 2021?

Okay. It was our thought process that the -- during the last call that with work at home brought up a spike or demand of PC and personal computing devices. That's why the -- because students and also the -- has to work at home for office, so demand went up a lot. That was the previous thought process, and we think that probably the spike. And coming to the Q1, we -- as I said, we remain to see the demand is pretty high and robust. And we kind of have a good visibility to, like, a few quarters at least. And we are in the situation that we are sort of behind the demand, and it's come to surprise us as well that Q1 and Q2 and -- continue like -- the PO continue coming. As we -- like many analysts and as we are -- we look at the market research report, we talk to our OEM customers and our ODMs. And many of them give us a pretty robust demand or good kind of scenario in 2021. So we are pretty positive on the 2021, and we think that overall demand for PC, for the tablet, for the display side remain healthy. And that's part of the reason, and now we see many shortages in terms of capacity. And at this moment, we have not seen anything kind of -- see the weakness or -- and in some cases, we always had back mind thinking and, yes, just like what you said that how long would the strong demand will last. But so far, we have not seen any weakness. And we are working very hard to meet those robust demand and work with our manufacturing partner to be more efficient to deliver to the -- to our customer. In some cases, we have to pick, choose and to put a priority there for the customer who are important to our business to go first and those kind of things. So it's a very challenging time. And to meet the customer demand, so far, we have not seen any weakness in our business.

I see. That's very clear. My second question goes back to your financials. In 4Q, could you give us a breakdown of your product by the 4 product lines? And going to 1Q, how would you rank the sequential growth among these 4 products?

Okay. So our DisplayPort or DP is slightly lower than 50%. Our PS product line or high-speed product line include the Fresco Logic acquisition, is a little bit lower than 40%. And our TC or source driver is above 10%. And our touch product is lower than 10%. And moving to Q1, and I would think that the product under each product line remain pretty strong. And maybe some of them goes a little bit lower, and some of them goes high. In particular, I would think that our source driver line will remain kind of strong, our PS high-speed product line and with our new product ramping up and also kind of go higher. And -- but overall, I wouldn't think there are so much difference because if you look at our guidance, it will remain a similar level on the Q1 to the Q4 or maybe a few percentage difference but largely similar. So it's very different, very hard to really distinguish which way to go or particular difference. But underneath that, we do think the panel, the PC is to continue high demand and our high-speed product line continue with high demand. And I think the PS line, because we have a new product introduction and there, and -- yes, that's the current scenario, I would think.

Just to clarify, when you say your CP and PS will be still in high demand in 1Q, does this mean that sequentially, the absolute contribution in terms of revenue will be higher in 1Q versus 4Q for these 2 products?

Largely, that will be similar. I just get my impression. I did not really go into the -- there's no significant difference. But maybe the TC and the PS remain pretty healthy in the Q1. That's what my impression was. But in general, it is similar to the Q4.

Next one to ask questions, Jerry Su from Crédit Suisse.

Jack, I just want to ask you about what is your view or outlook for your -- toward business this year. I think among all these different product lines, which one you are seeing more stronger strength for the full year 2021. And also, how should we think about your margin? I think although that Q1, the guidance was pretty much similar in the same range. But how should we think about going forward, will the margin further increase because of the mix change or you might see some headwinds because of the higher wafer cost?

Okay. Thanks. I think the 2021, we remain positive as we -- the previous quarter conference call was, and now we'll remain positive. And in fact, at this moment, we see pretty strong demand. And as I answered the previous question is how would we -- can meet the demand with our supply, and that remain quite challenged. Having said that, and I would think in the 2021, our TC product, our source driver on the sales strategy worked very well because we gained market share. And with our general Tcon device in the gaming segment, in the high premium, the notebook segment as well as in our integrated TED solutions, I would think that TC and the -- coupling with our DisplayPort/Tcon device together, will remain a good growth engine. Our PS product line and coupling with our -- the newly introduced PCIe Gen 4 retimer device in 2021, will have a good revenue contribution. And in nature, our PS product line, we acquired the Fresco Logic business, and we will introduce integrated solution in the 2021. And hopefully, the TS product line will have a good growth in 2021 as well, so I mean more visible growth compared with the other lines. And I think that's what we view, and that's 2 key -- the important thing for us. And that's what we think. But if we look at it, when we talk about the bundled sales solution, when we have a source driver growth, our Tcon device will, along with the source driver, grow together, right? So that's what we can think and we feel. And in fact, if we -- kind of towards more positive side versus the 3 months ago when we started planning for 2021 because at this moment, we see it remain very robust and strong.

Okay. And then a follow-up question on the PS line. As you mentioned, you have PCIe 4 and also the new product coming from Fresco. On the PCIe 4 side, can you give us some more updates about the competitive landscape? Especially, I think previously, you're targeting a 30% market share. But I think right now, it doesn't seem it's like too much progress at your competitors. So how should we think about your growth -- your market share for the PCIe 4 retimer this year? And what kind of contribution should we be expecting?

I think the one thing I would like to report since the last quarter, we reported we have -- went to the mass production with one of the Tier 1 customer on the server. And we continue in the Q recently, and we won significantly with Tier 1 their data center, the solution would be listed as [ AVL ], the key supplier for -- after very intensive verification and testing. And so we are very happy. And we see the -- recently PO get a buoying. And so we see the PCIe Gen 4 start to pick up the steam going to the -- with the server or data center. And we have more engagement and more design wins. And since those are the new business to us, and so that will be a good contribution. And in the 2021, in terms of the competition, I think that probably there's one start-up, Astera Labs and -- competing with us. And other than that, I've not seen that serious competition there. And in some cases, we are the preferred vendor with the OEM customers and that we are happy on the current position. And so the market itself is -- for PCIe Gen 4 is continue developing, right? So that's the one thing. On the PS side, I would think that another positive side is the general demand notebook is on our more newer device, actually my 2.0 retimer, actually my 2.1 retimer. And the USB, the 3.2 and also the Fresco Logic, the hub parts and the speed that goes up and our solution and a move on the more high-grade parts in those areas, in fact, the competition is even lower, would become unique in those high-speed area. And so we are happy to stay with it. And so all this, 2021, we see a lot of much high-speed demand on our part. So that's kind of scenario we are in. So that's why I would say we're pretty positive on the PS part, the high-speed part. Coupling with the Fresco Logic together, we have more integrated solutions will come out. And hopefully, the -- so far, we present to the OEM customer, people are pretty happy.

Okay. Then as you mentioned, there's only one start-up company, Astera Labs, in the -- potentially competing with you. So should we think that you'll have majority share for the PCIe 4 this year?

I think we have a reasonable share, and we are pretty happy on the position. I don't -- it's a market still growing up. It's hard to, in some way, to capture the -- precisely the number of devices there.

Okay. Got it. Then last question on the Fresco. I think previously, when you acquired the company, you have mentioned about some opportunities on USB 4. Can you give us an update on your progress there? And what's your difference with some of the other companies being mentioned by the press, by supplying some like USB host? What is your view on the potential opportunities there?

So we -- the theme we acquired Fresco Logic, as I present before as really was we are targeting to the USB 4 segment and -- or USB 5 continue, right? We -- the product we are working on is -- we already have a USB 4 retimer 20 gigabit per second in our lab. And we think the market will continue demand the USB4 hub type of device. And those hub device needs to have DP hub, multi-stream hub plus the USB hub together. And that is where the Fresco Logic could make a big contribution. And when you go to the USB 4 or moving to the USB 5, the device become really complicated. And there are the other opportunity along the way and with it. And so you have been mentioned the USB host controller device, and Fresco Logic had experience before. They did a USB host controller and had some success and will continue, in fact, shipping USB host controller in a pretty big volume now. However, USB host controller, as it was -- and in long run, in our view, it likely will be integrated to the main CPU. The evidence was the retail data that -- and, in fact, would license the Fresco Logic to IP that. Of course, the -- recently, the application process is a lot -- we're doing the application process and moving away from the traditional Intel type of things. But I think when the market kind of mature, it remain the theme that it could be integrated into the application process. And the question you had to ask us whether we will do, and in some specific scenario to the specific application, and if we see a good business, we will do it. And -- but we won't kind of do the thing, [ repeating ] for people in the notebook and knowing many years later, it could be integrated. That was the Fresco Logic previous status, right? So -- but if we have that specific application for some specific -- with volume, we will do those kind of host controller. And in fact, we have a technology ready to do it, and that actually is not that challenging for us or for Fresco Logic team. But whatever we do, we have to make sure it makes sense in terms of business.

Okay. So if this get -- really get integrated, what kind of solution or product can Parade offer for USB 4 then?

I would think that we are doing the retimer, right, as we have been doing the retimer for a long, long time. And for 20 gigabit per second, I think a retimer must-have, and we're doing the hub, right, the hub. And the hub also is one of a must-have device. And there are many integrated solution we can think about. If -- say, for example, we are planning for the hub device, and it appeared to be on USB 4, it appeared to be kind of very complicated, you can include it. All of the things that are -- become a very center device for many things. So that's what we see and whether we think the stand-alone business can survive.

Next one to ask a question, [ Warren Cho ] from Prudential.

Can you hear me?

Yes.

Okay. Only one -- or only 2 short questions. First question is that why did you buy back your share last month? Can you share us how do you think about that?

Why do we buy back our shares?

Yes.

That was the question?

Yes.

Oh, okay. So the year-over-year, we have program to buy the shares for, overall, our employee and management and sort of incentive program. And we -- that's the sort of purpose. So we have been doing this for -- practice this for several years. And that's what we report to the Taiwan SEC as well, right? When you submit, you have to say what's the purpose.

Okay. And the second question is that do you refer -- when you increase your product price -- because last conference, you said you have a good portfolio -- product portfolio. So you can -- you will not increase your product price. But at this moment, wafer price is going up and factory price, testing price is also going up. So will you refer your cost of goods sold to your customer?

Yes. Thank you. I think probably we have to -- previously, also Jerry also kind of asked me a similar question, but I didn't get a chance to answer it. And I think what you had said is correct that because of a shortage, because of the demand high, and the semiconductor industry see the trend that the cost, whether wafer, whether packaging, the price increase. And we experienced that, and we are paying more to secure, to serve our customers and that kind of -- and protect our customers. And accordingly, we are communicated with our customers and special OEM customer to let them know the market situation. And most OEM or our customers understood what's going on there. And so we are doing some adjustments here and there and to make sure we are -- our gross margin, the guidance or projection and just adjust that to meet our projection. Of course, the gross margin is highly subject to the product mix, right? It's just like we have a few quarters. It's a product mix difference may have a gross margin difference. Whatever the increase of the manufacturing cost, we also do adjustment on our product price to reach our corporate gross margin and to meet our guidance to the investors. And so now guidance are important, and I think we intend to keep those guidance along the way into the -- for long term. And that's -- we have been doing that, and it's critical for us, our business. And yes, that's one of the reasons.

Now we're having Martina Huang from Fubon.

I have a follow-up question. How could we estimate USB 4 addressable market? Do you see any competition on USB 4 retimers?

We -- I think that Intel also developed their own USB retimer, right? That's the first one. And -- however, the customer demand the solution outside Intel. And there are other, for example, AMD platform, Qualcomm platform and more different application process. So USB retimer, after the Intel, we have not experienced an credible USB retimer solution at this moment. And maybe somebody hiding somewhere, I don't -- we don't know, and it's possible. That's what we -- at this moment, what we see.

So how could we estimate USB 4 addressable market especially for USB 4 retimers?

I think by it alone, it's difficult to assess the -- for single device what is the market size. I do recommend the investor community to look at high-speed or PS product as one of the product portfolio. And those products tend to be multi-customer, multi-application and usage as a whole as to estimate what is the growth and what is the market size instead of the single device. And it's pretty difficult to estimate, I would think. But in terms of high-speed device as a group, and that probably has been established. I think arguably, we are the -- we have been the pioneer for that market segment as we move along from many years ago. And now the market, pretty good size there.

I have another follow-up question. Could you give us some update on mini LED?

Okay. I think mini LED is a very good technology, and I think it's very soon. You already seen in the reporting and there are monitor there and demonstrate very superior the display technology. And hopefully, there will be more general market and with high volume with mini LED display coming in the 2021. And we are happy to associate with mini LED technology development, and device or -- are in the -- or close to the production, the mass production, the status. Mini LED depend on the end customer ability or depend on the application. And in some ways, it could be expensive solution, right? And we are sort of supporting our customer to develop more generic mini LED devices to support those kind of applications. However, as I said, it's pretty expensive. And we do develop a device targeted to the high end or even the automotive application for mini LED and also for high-end maybe display technologies. And for more general market, I would think the people who are on the CPU or application process side need to have its own algorithm to -- coming to do something. And otherwise, the device, just to rely on us to do it is pretty expensive, right? So that's what we see. But we're happy to see the end customer and users, and we're soon to enjoy mini LED, the display and the quality and those kind of things, yes.

Next, we have Carol Juan from HSBC.

I just have 2 quick questions. The first one is that I noticed the gross margin was slightly down quarter-on-quarter. Was that majorly due to mix? And as you have many high-speed products rolling out on the way, so are you expecting to see an obvious gross margin improvement by end of this year?

Thank you. I think the gross margin, the kind of reduction in the Q4 is mainly because of product mix. And during the Q4, we do have a newer device from -- the newer device, it's a device shipping in high volume from Fresco Logic and with a pretty big volume there. And that particular product has a lower margin with our -- compared with our corporate margin. And I think moving to the Q1, we don't see or we don't anticipate a big change on the gross margin and maybe up or maybe kind of -- we think that bend up and down depending on mix. And on a systematic issue on the cost side, the increase, manifesting cost increase, we do adjust price to content. So that's what the guidance I give to the investment community. And yes, the particular Q4 has a little bit gross margin difference. And I think that's due to product mix and one-off product we shipped a lot. And that was from the Fresco Logic. And I think the overall year, you should not model the gross margin will have too much change versus 2020.

Okay. And my other question is that, could you elaborate more on what kind of function you add into the USB 4 products and what's the edge between Parade and the other competitors?

On the USB 4 product, on the retimer side, actually, in fact, we end up quite using there. And I think the distinguished difference is the speed because now you're at 20 gigabit per second. And the 2 design, 20 gigabit per second is significant technology, right? And we also support a [ sound bar ], right, [ sound bar ]. We also support a [ sound bar ]. And those are the 2 key things. And in terms of hub, and it's pretty -- we add our multi-stream on the display side and -- on the DisplayPort side. And there's quite a lot of -- we also support PCIe there, and it's quite complicated feature there, yes.

Ladies and gentlemen, we thank you for your questions in English. And we will begin our question-and-answer session in Chinese. [Foreign Language] United Investment [Foreign Language]

[Foreign Language] quick follow-up on the wafer supply side again [Foreign Language]

[Foreign Language] investment community [Foreign Language] wafer price [Foreign Language] foundry continue [Foreign Language] wafer price [Foreign Language] understand that [Foreign Language] that long term, the semiconductor [Foreign Language] 2020 and 2021 [Foreign Language] pretty strange against long trend [Foreign Language] wafer price [Foreign Language] upside. They're used to, every year, upside. I think that open mind, those are good thing for -- means the foundry may able to invest more [Foreign Language] customer [Foreign Language] adjustment to the product price, I mean to me, that [Foreign Language] gross margin [Foreign Language] customer understandable. Now [Foreign Language] adjustment [Foreign Language] continue adjustment [Foreign Language] to meet our gross margin goal [Foreign Language]

[Foreign Language] the other one please [Foreign Language] PCIe [Foreign Language]

[Foreign Language] PCIe Gen 4 [Foreign Language] 2021 [Foreign Language] slightly go up with [Foreign Language] unit shipment size going up [Foreign Language] investment community [Foreign Language] measuring the size of the business [Foreign Language] in terms of percentage [Foreign Language] PCIe Gen 4, the gross margin is significantly higher than [Foreign Language] operating margin [Foreign Language] significant.

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[Foreign Language] supply constraint [Foreign Language]

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