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

Welcome, everyone, to Parade Technologies Limited 2021 First Quarter Webcast Investor Conference. Investor Relations of Parade Technologies, Mr. Yo-Ming Chang, will present 2021 first quarter financial results first. [Operator Instructions] After the presentation, there will be a question and answer session in English by CEO, Dr. Jack Zhao; and CFO, Ms. Judy Wang. And we also will remain last 15 minutes for the attendees who would like to ask questions in Chinese. [Operator Instructions] [Foreign Language]. And 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 2021 Q1 Webcast Investor Conference. Parade Technologies' first quarter 2021 consolidated revenue was USD 153.11 million and the net income was USD 36.44 million. It's both basic and fully diluted after-tax earnings per share were USD 0.46 and USD 0.45, respectively. These results compared to consolidated revenue USD 98.36 million and a net income of USD 20.69 million or USD 0.27 and a USD 0.26 per basic and fully diluted share in the year ago quarter. In U.S. dollars, the first quarter revenue increased 3.25% sequentially and it was up 55.66% year-over-year. The gross profit in the first quarter of 2021 was USD 69 million, an increase of 6.87% from the previous quarter and an increase of 57.17% compared to the same quarter of last year. Based on the current business outlook, Parade is providing their following guidance for the second quarter of 2021. Revenue is between USD 152.5 million to USD 167.5 million. Gross margin is between 42.5% to 45.5%. Operating expense is between USD 29.5 million to USD 30.5 million. [Foreign Language] It is my presentation for the 2021 Q1 financial results. Now I transfer to CEO, Dr. Jack Zhao, to answer your questions. Jason, you may begin.

[Operator Instructions] And our first question is coming from Jerry Su of Crédit Suisse.

Dr. Zhao, my first question is regarding the announcement we have today about the -- some of the wafer capacity of agreement you entered with a leading foundry. Can you comment a little bit on that? What kind of a product was this agreement can you secure? Is that for 12-inch high-speed or quality PCIe? And then just one thing, this -- what do you think about the pricing trend on the reverse side into the second half of the year? And how would that impact your margin?

Okay. Good afternoon, everybody. And I think the first question relate to what we just announced of who we established a letter of intent with our -- one of leading foundries for long-term -- secure long-term capacity. Yes. The -- our leading process now is more towards 28-nanometer type of thing, and we -- as I -- many people know, and shortage is a big issue to the semiconductor, the industry or fabrics company. With this letter of intent and we secure our long-term supply and for our growth in many years to come. And we are excited about this one. And it's a part of sort of a guarantee for our own customer and -- for our future growth, it's a commitment to our own customer. And many people know, our customer or our Tier 1 -- worldwide Tier 1 customers. So that's become very important to us to show our customer that. And we will have a stable and long-term supply available in -- for leading technology nodes. And the second question was on the manufacturing cost increase, whether that will impact our gross margin. And as the people or -- and as you probably know and then many -- our suppliers, whether the wafer supplier or back-end supply, because of a shortage, because of a strong demand, are raising price or increase that -- so that our manufacturing cost also increase. And we are pretty sensible, and we tend to adjust the -- our product price according to what are the foundry adjustment. And so that we could have a stable gross margin to run the companies. And that's -- we intend to, and we understand and we also need to match market price as the -- our competitor and -- to raise the price. So we need to match the market price as well. So that's the kind of measure we are doing to -- and to look at the current market and to provide stable and quality supplies to our customers.

Okay. And then the second question, is more related high-speed business. Can you give us an update on your progress on the PCIe 4? And also, I think one of your customer also launched a tablet with USB4. Can you also talk a little bit about your outlook in the USB4 market?

Yes. So we're growing our high-speed product very fast, and I think that our number shows that. And we are progressing well on the PCIe Gen 4 retimer for the server market. And as we reported previously, we're shipping the mass production with a few of Tier 1 customers. And we continue to -- through the rigid qualification with the few of the biggest data center customers. And we think the -- and soon, we were shipping a lot more the PCIe Gen 4 retimers. In terms of USB4, and we think as we reported, we view the USB4 will become a critical dominant device as the USB4 is so diverse, so vital. And also the speed that goes to -- the bandwidth goes to 40 gigabit per second, which can serve for many applications. And we have been developed USB4 retimer and work with the industry leader to develop a USB4 retimer. And as soon as we are working on the devices such as the USB4 or soundboard retimer -- the hub. And as a result of the acquisition of the Fresco Logic. So as we are looking forward for USB5 or the USB5, the standard, which also require a retimer and that will supply bandwidth 80 gigabit per second. So we think that the ration of high-speed and for us is a -- keep building up our strength to serve for our customer and deliver quality growth and the revenues.

And next we'll have Carol Juan of HSBC for questions.

Congrats on the great results. My first question is like could you provide a revenue mix in the first quarter? And I'm just wondering, your gross margin in the first quarter was better than your guidance. And could you elaborate more the reason? And why also you raise your gross margin guidance for the second quarter?

Okay. And I think the first question on the spreads between our product line in the Q1. In the Q1, our EP product line has the percentages have flattened more than 40%. Our peers in the high-speed product line, including Fresco Logics, is slightly lower than 40%. Our TC or force driver is close to 15%, our TT or TrueTouch is about 5%. And the second question was related to the -- our gross margin in Q1. And yes, and we have been advised to the investment community and the gross margin for Parade in the long term will be trend high. That's really related to the strength of our product and also the mix of our product line. For example, the -- in the Q1, we ship more high-speed products than others. And within this 3 product line, and we have a better mix of our Tcon device, which ship quite lot the Tcon or bundled device into the gaming platform. And the gaming platform is a high-end platform tend to result in the better gross margin. So as we are shipping quite a lot of TT device or integrated TT device. And besides our -- in the present customer, with the new Tcon and also carries better -- slightly better gross margin because the -- we no longer -- or we have purchased less, fewer the DRAM around with it.

Got it. It's very clear. And my follow-up question is just on -- do you have the visibility for the second half of this year, especially a product like such as mini-LED contribution? And also, could you provide more details or contribution like new product, such as PCIe piece and also mini-LED or USB4 contribution in maybe second half or in longer term?

Okay. Thank you. Yes. The first one on the visibility on the second half, I think the -- like our -- the industry -- and I think the second half, the demand is still pretty strong. And we kind of feel we have no reason to think the normal seasonality, which the second half is better than the first half will be changed. So that's the -- answer to your first question, we still feel second half will be stronger than the first half. In terms of mini-LED display, and we're glad to see our customer announce their new tablet, which powered by the -- our device. And with this, the tablet, and we have one more device in the -- such display systems. We got -- we -- because it has only been -- or has not been sell in the market, it's supposed to -- will be very soon on the Apple service. And we think we have a good market, the acceptance, and we believe the -- such parts carries the excellence in the display maybe -- could be and the customer acceptance could be better. So then if the unit ships are better, we probably will go along with it. And so we look forward to -- for the strong sales. Having said that, the -- we probably point out that we're growing our -- the general market a lot more faster than the others, right? So we are growing very fast. And in terms of PCIe retimer and we think -- because it was last year almost low and so if we turn to percentage, it will be quite significant growth in 2021. And as we said, because our revenue grows pretty quickly, the PCIe Gen 4 retimer is more important is better margin is of revenue number itself, and I think that that remains true even though we may see pretty strong PCIe retimer, the shipment. In terms of USB4.0 retimer, I would think the revenue will be towards end of Q4 or maybe the -- early next year because their system introduction and it takes time and in top of test with the CPU and the GPU takes time. That's what we think the USB retimer, the largest skill deployment were later for Q4 and earlier towards the 2022. And we kind of anticipate 2022 will be good for us because -- one of reasons the USB4 retimer and hub become a dominated factor in the theme of 2022.

And the next question is coming from Daniel Yen of Morgan Stanley.

My first question, still regarding your product mix and then your margin. Firstly, could you share with us, regarding your second quarter revenue guidance in terms of product lines, how would you rank the sequential growth among your 4 product lines? So that would be my first questions.

I would think the DP will be pull ahead and -- in terms of -- sequentially. And I think the high speed probably will be increased as well. And our -- the PC or force driver probably increase more as the number still -- relatively compared with others still low. So that's what we'd feel, and definitely, TT will be -- will increase in the force driver probably in the dollar term might increase more as the -- our number is still relatively small. And the TS will continue increase, and -- as we kind of multiple quarter tiers is growing.

Sorry, can I clarify? So for TC will increase the most. Is that correct?

Yes, the -- yes. In the percentage-wise, it will increase the most, I would say. Yes.

Okay. And all others are quite similar from your point of view?

It's depending on your dollar term or unit term. So you compare with dollar term or you compared with unit term, right? And if it's a unit term, I would think the most of them would increase. In the dollar terms, there are some of parts carry higher dollars and the probably -- you will see the percentage increase in a more significant.

I see. Yes. So following up with this, can I ask when -- so your first quarter gross margin is better than your guidance. And when we think about your second quarter, have your guidance embedded any assumption of the pricing hike? Or that's purely based on the product mix change?

Of course, the guidance -- and take care for both of your operation, the manufacturing increase, so as what we know for the price adjustment, right? So yes, they are both sides of there. Then plus the product mix, there are 3 components there. And Q2 and as we -- you might observe that we already raised our guidance, the band and the -- to slightly higher than the -- previously. And of course, that also take care of what do we view, what do we see? The -- our product, we create the gross margin. And in general, as I guided the investor, it may take a little bit longer time. But our product itself has a strength to achieve better gross margin as we are into the area, which have a more -- the gross margin and whether we are in the display side or the high payment market. And for example, the gaming, for example, the higher the notebook and also we into the server market, we into the automotive market. And those are the -- carry the margin better than we used to.

I see. Can I just follow up with one slide? Just a tiny one. Historically, you used to have lower margin for your driver IC, your TC and your TT business. So going forward, are we seeing the gross margin for these 2 products approaching the corporate level?

The driver you have to distinguish which kind of driver we point to the newer driver, which has -- is a high-speed characteristic to support the gaming platform for the future, if we start to sell those TSD, which supports touch and all have a better gross margin and towards to our cooperate gross margin. The traditional one, the older one, which has more competitor there, carries a lower margin. And then gradually probably even lower side is the margin will improve, as our competitors keep raising the price and we tried to match the market and -- match the market, otherwise, we have become somebody and other people will come to us and we don't have such high capacity to support a customer, right? So we're to match the market trend. But mainly is our high-speed force driver carries more gross margin. In terms of TT, I think the TT, the TrueTouch is slightly lower than our corporate margin, but it's getting approached to our corporate margin.

I see. And that's very clear. So second question is still regarding your capacity and also your inventory on hand. I noticed that by 1Q, your inventory increased to TWD 1.7 billion. This should be the historical high for your inventory level. So I would like to ask, Jack, in your opinion, do you feel comfortable that you can have enough inventory to support your growth for this year? And does this inventory preparation also has some indication with your agreement with one of your foundry vendor in Taiwan. And what's mainly behind this inventory? What kind of products are you preparing for your future growth?

Okay. Right. A good question. I think the inventory -- first of all, inventory are related to our -- the revenue number and I think of our revenue grows quite better. So the inventory has to moving up to match that. And in the time like right now, you have inventory is good thing. Okay. So particularly end of Q1 towards Q2, the inventory we carry is we foresee the major launch of one of our customers and I think that you probably all know and they have a major launch. And so we prepared those inventory for that manner, and that's one of our major reason there, and we foresee the customer is coming up so you will quickly see us in the Q2, those numbers as we're shipping more parts to panel vendor and those numbers gradually reduced. However, to us, we carry some inventory and to support our customer is very important in the time line right now. In terms of our manufacturing capability in this year, I think we all built our capability to support our significant growth in 2021. So we try to -- with the strong -- the capacity to support our customers. Even we build up strong capacity and we still continue to see -- we are not able to meet every customer demand, as we shared, we along the way since last year, we have been -- cut a few deals to expanding our capacity. And that we hope and actually now we see some results that whatever we did in the last year start to have a result to show we are able to support our growth -- or our significant growth in 2021. And as you see, we are continuing making deal to secure the capacity as evidence of our -- today's announcement with LOI. I think those are the things established cornerstone for us to further growth in the year come.

[Operator Instructions] And the next question is coming from Jimmy Huang of KGI.

Congratulation for your results. And I would like to ask a follow-up for 2 questions. The first one is the gross margin that you hyped your guidance range by almost 1%. But your first quarter already hit the higher end of this range. So I wonder if we can still see improvements for this gross margin sequentially because for first quarter, you just start your PCIe Gen 4 was a very little amount. But if you increase the shipments, maybe we can expect that the gross margin can keep improving? That is my first question.

Okay. I think we are very serious about our gross margin, and I think we had said that we are expected in long term where gross margin will trend high. But I would guide people foresee sequentially every quarter, we are going up. But towards -- as we -- later of this year or next year, and we have more confidence with our advanced product offers and we should see the gross margin continue increase. That's the -- that's as much as we can share with the investment community. And the gross margin has a -- depends on a lot of mix, and so it has a lot of dynamic there. It's a bit hard to predict and the -- exactly where it would be. And -- but as we said, we are looking at our product strength, or -- look at our product offers and where our product goes to, to say long term, we should see those kind of trends. But I'm not really -- I will to tend to -- our guidance is the most important one for the investment community.

I see. Yes. Fair enough. And also the second question is that on mini-LED, that's one of -- I mean, your standard-plus customers already launched one mini-LED models. And I think the premium -- the price premium that cause many to pay USD 100. I'm wondering how do you think of the performance industry aspect. How do you think the performance and how do you think -- or how do you see the initial feedback of this kind of product? Do you see mini-LED will continue to proliferate into different models? Or how does that compare with AMOLED? Because people also talk about AMOLED development on tablet or even notebook.

Okay. Yes. Very good question. I think that we know the mini-LED demonstrate outstanding, the strict quality. And we think the mini-LED-based tablet should carry very good value for customers to appreciate. So let's see there -- the next month how is it go. So we are very exciting, and people are anticipated to see strong growth. I think the mini-LED in terms of display quality compares to AMOLED, it's a little bit different, right? So -- and just -- by the way, we also develop AMOLED solution with a Tier 1 -- core Tier 1 vendors. And you may see whether you said a tablet or notebook, I think that carrier, if you pay attention to that carrier customer, we have a major announcement as well on the Apple for their systems. That's all on AMOLED-based. So we also developed such a solution. But in terms of mini-LED and AMOLED, both developed deliver high quality for the appreciation. However, when you go down to the current accuracy, which a lot of professionals may really want to look into this and mini-LED continue to deliver precision current accuracy, and that's very critical. Besides that, the mini-LED deliver the consistency around the lifetime for its brightness. So that, that's different thing. I think mini-LED is more towards the profession commercial, and AMOLED might be very useful and might be very easy to accept it by the more consumer type of applications. And so we played along with both sides. Yes. Don't get us wrong, we played both sides for advanced solutions. Now this is why we are so exciting for our display solution that we cover all the angles and with advanced product, which carries a high margin.

And the next question is coming from Martina Huang of Fubon.

I have a follow-up question on first quarter premise. I think of the peers' product sales contribution increase and even grows to Tcon business. Could you give us more details what the growth drivers are TS products in first quarter?

Yes. I think your observation is correct. Our high-speed device is the -- in terms of dollar term, is getting close to our TP product line because the percentage is getting closer. And our TS product line, actually, the serve for large customer base with a notebook whether the PC, the desktop, all-in-one, tablet, dongle stack, TV, and we are also designing to the automotive and actually we -- actually probably is already on the market, and the automotive cost carries our device as well. So it's very broad application. And in the particular and the past Q1, and I think a lot of shipment are associated with the strength of our Chromebook and the strength of notebook, and I think that's the key driver for the particular Q1. But the -- our high-speed product it's very broad. And as I have the strength there, and there's so many design and -- at the same time, and we expect the -- our high-speed product lines will continue to grow the witness of strength there, which towards more high speed as we discussed the PCIe retimer and the USB4 retimer and hub and so on and so forth. So we are very excited and anticipate that we have the much -- have a good growth in years to come.

And my second question is regarding auto market. Could you give us more details on our long-term development of auto product lines?

Yes. We have a few of them and -- into the automotive, I had said we have the PS product, high-speed product and has multiple into the automotive. And those are the existing product, which just qualified for auto purpose, right? And we have a touch device also qualified for automotive, and we see more strength in our customer and a more -- have a high interest to push us into the automotive displays, as we are the truly expert for the displays in terms of quality, in terms of innovation. So we see more customer and automotive customer start to know, pay and want to talk to us, and wants to work with us together to develop more innovative and more advanced product. And we do feel the automotive is another exponential growth point for the display for the -- our high-speed product.

[Operator Instructions] And we have Mike Yang from Bank of America.

Can you hear me?

Yes, go ahead.

Congratulations on the good results, Jack, Judy and Yo-Ming. I would like to further clarify Jerry's question on the agreement regarding to the foundry. I was hearing that you say the node or process used is up to advanced node, including 28 and 22-nanometer. Is that correct?

I would think -- I think more 28 and made more advanced nodes and -- as well. But because it's a relatively long term, the long term, the agreement, and -- yes, I think mainly the 28-nanometer type of thing. Yes.

Okay. So is this due to potential sustained supply shortage in this node? Or mainly due to your product migration into that node?

We made our -- sharpen our pencil to get our calculation. Even though this year, we have a certain shortage, and we would like to get a more 28-nanometer capacity to supply our customer, and frankly, we allocated the capacity to our major customer and -- to better satisfy their needs. And as we all grew and -- we clearly see we are missing the capacity. And that's the rationale of behind why would we reach agreement for this deal. And I think it's very important that -- for us and for our customer, and for our major customer and our capacity become so important as to make our confidence, our customer to use our product.

Okay. So is it possible to share with us which segments will use more of this node?

I think the Tcon high-speed device and mainly the -- our advanced Tcon device, and all our high-speed device and our high-speed device to the well-used -- and for example, next year, we have a one-off device and will become more major use for that node.

Okay. Got it. And the next question I would like to follow up with you the spec migration, including PCIe Generation 5 retimer, and eDP 2.0. Could you update us with the company status in terms of product development simply and outlook for the demand from customers?

I think the USB5, we are -- the PTIe Gen5, we are starting to get per second retimer. We have been developing for a while, and I think we will be -- tip out soon. In terms of eDP 2.0, I think we are -- similar product already covered the speed side, and we are still waiting for send of the rectifier and certifier and those kind of things, but itself, we are already ready. And again, we are the high-speed company, and we see the technology and the service technology with our people and so we have an advantage to develop the -- those eDP solutions with our known or proven the service technology, so that's how we are. And we always moved our speed product, high-speed device ahead of the eDP side of it.

Okay. And maybe my last question is regarding your industry trend. Including the push of Apple silicon by Apple and [indiscernible] by Intel. Could you share with us the view regarding to Parade's outlook and what's the impact to the company?

What is your question, you had was the CPU is Intel provider, the [indiscernible] and Apple provide [indiscernible], I'm not that clear what was the question?

The migration or the introduction of [indiscernible] by Intel.

I think that Intel now is paid by their home and there are other platforms which, for example, AMD home-based and for example, Apple itself, and they cannot -- they may not use the Intel solutions, right? So we look at this one actually as a more positive. It used to be that Intel can do their own everything to set up a system. Now their CPU player become more diversified. And I think that we can work with multiple parties for our solutions. In fact, that become one of example now is USB4 or [indiscernible] retimer, and we are working with multiple CPU suppliers and -- for our solution.

And there appears to be no further English questions at this point. We will now begin our Chinese question-and-answer session. [Foreign Language]

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Okay. Thank you, everybody.

[Foreign Language] Bye-bye.