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

Welcome, everyone, to Parade Technologies Limited 2022 First Quarter Webcast Investor Conference. Investor Relations of Parade Technologies, Mr. Yo-Ming Chang, will present 2022 first quarter financial results first. [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 2022 Q1 Webcast Investor Conference. Parade Technologies first quarter 2022 consolidated revenue was USD 210.72 million, and the net income was USD 59.19 million. Its both basic and the fully diluted after-tax earnings per share were USD 0.75 and USD 0.73, respectively. These results compared to consolidated revenue USD 153.11 million and a net income of USD 36.44 million or USD 0.46 and USD 0.45 per basic and fully diluted share in the year ago quarter. In U.S. dollars, the first quarter revenue increased 8.48% sequentially and was up 37.63% year-over-year. The gross profit in the first quarter of 2022 was USD 100.78 million, an increase of 7.23% from the previous quarter, and an increase of 46.06% compared to the same quarter of last year. Based on the current business outlook, Parade is providing the following guidance for the second quarter of 2022: revenue is between USD 212 million to USD 232 million; gross margin is between 44.5% to 48.5%; operating expense is between USD 35 million to USD 38 million. [Foreign Language] It is my presentation for the 2022 Q1 financial results. Now I transfer to CEO Dr. Ji Zhao, to answer your questions. Ji Zhao, you may begin.

Yes. Thank you, Yo-Ming. [Operator Instructions] And our first question is coming from Aaron Jeng, Nomura Securities.

Congratulations on the good results. I have the following questions. Number one, yes, in the last conference call, I think Chairman [indiscernible] have give us quite a few guidance and forward-looking guidance for the full year, and the type of positive outlook for the long-term gross margin. So I just wonder whether it's now the same view for long-term gross margin outlook? And that's my first question.

Yes, thank you for the question. I think that we have not changed our view for long-term gross margin. And I think, as we are [ trenched ] into the high-profile margin area, for example, the server, automotive area and as well as we are into a much higher speed products. And we think the gross margin should maintain or better than the current one.

Okay. That's very good to know. And I think a question that a lot of investors will also be asking is, could you comment on the demand outlook across your product lines, including notebook, including display side?

Okay. Thank you. I think the -- since the last conference call, the world has been changed by kind of events. One is really the Ukraine war, and the second is a U.S. -- world has been experienced a high inflation rate, and the third is the Shanghai lockdown. And those events made demand uncertain. However, for our own business, because of our strength of our technology and because our -- the market share gaining the momentum remain continued. So we are pretty positive for our business, and to be more specific, I think people reported, and we experienced some of them on the low-end Chromebook-related panel side, of the weakness on the display side. However, we experienced pretty strong demand on our high-speed side related to the USB 3.1 adoption on the broad market and the HDMI adopt -- 2.0 adoption on the broader market -- and actually I meant HDMI 2.1 -- and we believe our high-speed product line continue winning the market share from our competitors. And I think the -- because of our competitor either still remains a shortage or their product line does not satisfy customers. So we continue to see our high-speed product line gain market share and continue with the good demand and -- so overall, we think the business looks pretty promising at this moment.

My final question is that over the last 1 month, I think there was noise from The Street saying that your major customer is going to do the timing controller internally or integrating part of the feature into their core CPU. Just wonder how you look at this dynamic and kind of like to know whether this is logical or not?

I don't know how to comment on this thing. And because it's kind of pretty ridiculous to integrate a Tcon into the CPU, because there's a -- panel is a subsystem of or individual component for a system. And I cannot imagine how would people to put a CPU into the Tcon -- or Tcon into the CPU, right? And imagine how many lines from the Tcon has to [ move ] from the motherboard into the panel. So it doesn't make much sense to me at all. And the only thing I would say, we work with our customers closely, but not only develop the new product line for them has been many, many years. And I think we have a pretty long-term forecast from them as well for the secured capacity and so on and so forth. And I don't know how that rumor came out. I don't know how -- what is the space or whether make any sense. So other -- it's kind of strange to me and kind of ridiculous to me.

Okay. Thank you for the explanation. I will head back to queue.

And next question is coming from Jerry Su, Credit Suisse.

I think I just wanted to follow up firstly on the -- your comment around the gross margin. I think, as we see the wafer foundry continue to increase your pricing, is Parade able to pass through those ASP on to your customers for both display solution and also the high speed IC? And at the same time, are you facing any pricing pressure because of the demand slowdown? And that's the first question.

I think we [ having ] behavior very consistently to our customers as we report we will pass our manufacturing cost increase to the customer. And through the last 2 or 3 years, our gross margin pretty -- under the that kind of guidance, and I will continue to do -- to pass the manufacturing cost increase to share with our customer. Our customer understand the current environment and reality. And however, we did not do or wouldn't do in that kind of situation, we gouge the price, add the gross margin. Those things we won't do, because we think the customer, the relationship is a long-term relationship. And even now, customers appreciate us. And I think we're doing that as we shared with the investment community. Yes, we have passed our manufacturing cost increase to our customers, to our system customer. We communicate with them, they understand.

Okay. And then in terms of pricing, are you facing pricing pressure for your display solution or high-speed?

So far, I think we are -- we're probably very modest, and as we are always. I don't see the pressure there. I don't even know what we are talking about. It might be somebody made a huge price increase and now people push them and whether or not one of those products at all.

Okay. I think that's very clear. And then, the second question is -- next question is on the PC demand. I think Jack mentioned a little bit about the demand slowdown from Chromebook, but I think investors are still pretty concerned outside of the Chromebook consumer or commercial demand into the second half of this year or 2023 can also be impacted by these demand [indiscernible]. For Parade, how are you positioned to ride through this headwind? Are you able to continue to gain share or through on the TAM increasing? Can you comment a little bit on that?

Yes, yes, yes. We -- our customers typically use our solutions for their commercial, the gaming type of notebook on the high-end side. We did participate, back to a year ago, on the Chromebook side. And however, Chromebook is using the eDP 1.2 is not using the traditional media/video solution, it's not paired together, right? So those are the tactic that push the market. The strategic push the market as we are now, it's most of our Tcons appear with our CP source driver or our integrated solution, the TED solutions, those are typically used for commercial gaming platform. And I think because of our strong key composition and a strong high-speed position on the display side, especially for gaming. And we'll continue to gain quite a lot of market share. And I think people probably noticed, and we are gaining quite a lot of market share under this thing. Moving forward, I think for 2023 or beyond, we think where our advanced solution will allow us to continue preview on those high-end markets. And we see people more demand our solutions, because even on the source driver connection with the Tcon, when the gaming platform the speed becomes crucial, with our SIPI standard there, so as our integrated solutions. So we are pretty comfortable for coming years on the continue to growth, continue to gain market share in those areas.

Okay. Maybe, lastly, I think I want to check with you or others to the -- for this year, how should we think about the gross margin compared with 2021? And also, can you also provide some full year guidance for the operating expense ratio and also the tax rate?

As I explained with the previous question was, we are continue, we'll maintain or accrue our gross margin side. And I don't see the reason why we change, or probably different will be in our guidance. And the last 2 questions, probably I would like to have Judy to answer that. Judy?

Yes. Yes. Regarding the OpEx, operating expense, we would like to keep the operating expense, from the absolute dollars point of view, we expect to increase. Because we continue hiring talented employees to join the team. From the percentage point of view, it all depends on the revenue, and then we do expect the revenue will grow. So the percentage, we will say our goal is to maintain between 12.5% to 13% for the R&D -- to the revenue. And overall, the operating expense, we do expect to maintain within 20%, that's our goal. And for the tax, the income tax, there is a lot of development in the tax area lately. So we -- I think maintain a 10% plus/minus will be considered reasonable.

Okay. So for OpEx, like OpEx to sales, Judy, you mentioned less than 20%, right, within 20%?

This is what we would like to see. I would say that a 20% -- let me take a quick look -- I would say, around 20%-plus.

Okay. Got it. Understood. And then for Jack, just last year, the gross margin was...

About 25%, I mean, 24%, 25%.

OpEx for sale?

Yes.

Okay. And then, for the gross margin, [indiscernible] with Jack, last year, the gross margin was 47.7%. So you're pretty comfortable that your margin position can still be at least similar or even with upside?

I would think that the -- I cannot say exactly number. I would think that in the ballpark, those kind of range there.

Okay. Very clear. Thank you. I'll get back in the queue.

And next, we'll have Jimmy Huang of KGI for questions.

Congratulations for your first quarter results. And since that the second quarter, you still have quite solid guidance. And I have 2 questions to follow up. The first one is, I noticed that inventory level. For your inventory levels, the asset portfolio is around 50%, 5-0 percent, Y-o-Y compared with same time last year. And I wonder if you can provide details, what kind of product that you are preparing or something, because market has a lot of noise, right? So do we need to worry about higher inventory? And also, like you say, from conference room -- conference last time, that a lot of things happening. Do you still see or do you [indiscernible] we have a better second quarter -- second half versus first half? That is my first question.

On the inventory side of it. And if you compare last year, our revenue grew probably over 30%. And last year, this time, almost very, very low inventory -- and we just didn't put a lot of customer shipments, right? So it was very bad. And -- yes. The situation now is getting better on the inventory side. We are monitor our inventory very carefully and we don't want to overrun our own inventory. And the good things in our DC distributor inventory are very low. And we are comfortable with our own inventory. And separately, we monitor our inventory very carefully, as I said. So we don't have too much concern there, but we try to monitor our own inventory carefully. But it's very difficult -- or it's not rational compared to last year at this time on the inventory. Last year at this time, our inventory is very low, and the customer is chasing us like crazy. That was last year. And with the current revenue growth compared with last year. So yes, our inventory is getting better, but I don't worry that much. And the second question I believe you had -- was -- second half. I think we don't have a reason. I understand that the markets recently have a lot of doubts, has a lot of concerns. And I don't think we have any doubt that the normal seasonality for PC, which is second half better than the first half, might still remain. That's what we think. And so we understand in the current situation there is a lot of [indiscernible] our business, which as I point out, you have Ukraine war, you have a Shanghai shutdown, you have a high inflation rate there. But even under the today, the situation, and we think we're still positive for the second half.

And I have a second question from -- to follow-up on Aaron's question. I think you asked about whether your major customer will integrate into -- I mean, Tcon into their CPU. And I wonder if there's another possibility that it design its own Tcon or maybe the second source emerge that could possibly replace Parade someday?

Okay. I had explained the CPU integration already, right? And I think I already indirectly answered your second question as well. We have a long-term capacity forecast in place, so -- which is a quite long term. And I don't think whatever you heard the people on the rumor to be true, right? So yes, that's the only thing [indiscernible] on the fact of the matter what so we know and what do we understand and what are the products we are developing. And beyond that, I don't know how to explain this. Okay.

When you say capacity, if you mean the R&D capacity or foundry capacity, or what do you mean?

If your customers work with you, they will provide you a long-term forecast, right? And not only customers see a customer provide you long-term forecast, even provide long-term capacity forecast. You have to answer those questions. Okay. So those are the things. That's what do we really [ base it on ].

I don't have any more questions. Thank you, Jack.

Yes. I think -- I hope I answered the question okay.

Yes. Thank you very much.

Thank you. And next question is coming from Carol Juan of HSBC.

Congrats on the results. My first question is a very quick one. Just one, could you provide your product mix for the first quarter? Yes, that is my first question.

Yes. Thank you. Our DP line is slightly below 40%. Our PS is about 30%. Our TC is slightly below 30%. Our TT is below 5%.

Okay. That's pretty clear. So my follow-up question is that it seems that we have higher high-speed interface IC contribution this quarter. And just wondering, do you expect the segment to see the strongest scores in this year compared to your other product lines? And also, when do you think -- expect to see more USB4 or Alder Lake-related revenue in this year? And is there a better chance to see higher growth from the AMD solution instead of Intel's?

Yes. Yes, I think -- as I previously answered, we see recently a lot of the high-speed growth for these few quarters. And really associated with Alder Lake, which adopted the higher speed on the USB 3.1, HDMI 2.0, so on and so forth. And actually, [indiscernible] and from our competitor, and we are shipping, very busy shipping our parts. And we are still shortage for the capacity on the 55 and 40-nanometer to associate with for those high-speed and the parts. And I guess, people might be strange, people thinking the capacity not -- should be available. But in fact, we are still shortage out of 55 and 40 for those high-speed parts related. And we are start to MP for USB4 the -- with timer and with the AMD platform and with our -- the customer, and actually, we are going multiple models, quite many. And we continue ramping up the USB4 retimer. And many people probably know, USB4 is not a previous [ USB-C ]. USB4 included some of the USB 3.1, USB 3.2, and it's a 20 gigabit per second. It's a huge challenge for -- because of the speed for board layout and so on and so forth. We did spend a greater effort to help customers work with our platform provider, like AMD, to make the system pass the CTS test, and it's a pretty complicated process. And yes, it's a lot of effort. And we are starting working with other platforms, for example, Qualcomm, for example, the other platform and -- to expand our coverage. And yes, we are pretty positive next year the USB4 retimer will become important revenue stream for us, because just a lot of model will continue to adopt the USB4. And the ASP price is typically higher than our USB 3.1 and so on and so forth, so it's much higher there. So we are pretty positive for USB4, the retimer and the market. And USB-C will have continued more devices coming up, include developing USB5 retimer and 80 gigabits per second. We're already doing this with our platform customers. So yes, those areas, it will grow our business. It will increase our coverage. And I think in the timeline right now, those are very, very helpful for ourselves.

Okay. Pretty clear. Just a quick follow-up on the OpEx ratio you just did. I think Judy just mentioned that operating expense ratio in this year is around like 24% to 25%, but I looked -- okay. Sorry.

Go ahead. Go ahead. Sorry.

Just wanted you to double check, is the number -- is right? Because...

Yes, I just doublechecked the number. We should correct that. [ That ] number should be within 20%.

You mean 20%? Okay.

Yes, 20%-minus.

Okay. Okay. Got it. Pretty clear. Okay. I have no question. Thank you.

And next, we'll have Daniel Yen from Morgan Stanley for questions.

My first question is regarding the share gain momentum from Parade. I think nowadays, I think a lot of investors, they -- when they saw the situation in China, they were concerned about the near-term slowdown and maybe there could be some hiccup in the short term. However, I think I want to check with Jack, from your opinion, how do you think about the share gain versus the market slowdown? Because apparently, I think Parade's outlook is much stronger than the peers. And some of your U.S. peers even guided down 2Q while you are guiding up, your revenue can still grow 5% quarter-for-quarter at the midpoint. So I want to just check with you, how should we think about Parade's share gain momentum? Yes. So that would be my first question. And I wonder if it is more company-specific? Because overall, we do see there's a market slowdown, especially on notebook side, but Parade can outperform. Is it because of the share gain or any other reasons we should think about why Parade can outperform the peers?

Yes. I think a good question. And we read those -- the research reports, as many investor read, and people, [ all kinds ], talking about a unit of notebook might reduce. And I think we address, look at a different side of it. I think that the strength, as previously answered, this time it came from -- particular for ourselves, is our high-speed device, gained market share. And because of adopt the higher speed, the unit ASP prices, increased. Because you used to doing the 5 gigabit per second, now, doing the 10 gigabit per sec, or doing the 20 gigabit per second, right? And so those are the essential for the reason we got a higher, right? So that's the -- I think probably, that's what do we think the -- what do we see. And in the high-speed area, and we see our competitor either does not have a bandwidth to dealing with those customers, for example, our competitor in Texas. And I don't think they really deal with both the market, and leaving us to gain market share. And we also have the competitor from China and the customer really don't like their parts and busy change into our part on the USB 10 gigabit per second side. And -- so that's why we still kind of want to have more [ width ] capacity to support a customer on the high-speed side. So that's -- I think as much as I understand what the current situation is.

I see. So apart from the high-speed interface, how do you think about the share gain in your Tcon and your driver IC businesses?

Yes. I explained before as well, the Tcon, the driver business is -- we used to -- does not bundle that many Tcon with our source driver. As our source driver technology become mature, the bundle rate is getting higher, and also the traditional mini-LED type of eDP, eDP 1.2 things are pretty much gone or much less, is all go to the higher sort of solution, which typically bought our own source driver there. That's really the -- help our source driver, the shipment. And that's pretty obvious, you could see it, especially in some of the segment of, for example the gaming, and you have 5 or 6 devices with your Tcon there.

I see. So following up this question on the spec migration, timing controller, how do you think about the eDP 1.5? How soon this will migrate and how will this impact your overall content or ASP and also your competitiveness going forward?

I think eDP 1.5 is helping us for the certain high-end spec. And that -- we already provide those kind of solutions to the customer. And really more important is we see the high refresh rate, high dynamic range for customers to adopt, especially for the gaming segment, and with very high refresh rates. Those are the high end is really helpful, and our solution is shining in this place, those place. And our integrated solutions gave me a lot of traction to continue shipping more volume there.

I see. So maybe, just one last question from me. Could you also give us some update on your PCI Gen 4 retimer? How is the momentum recently with your clients? And how -- what's the progress for your PCI Gen 5 retimer in terms of R&D development?

The PCI Gen 4 retimer and I will continue with the customer and recently we even our 4 channel or even went into the sort of desktop workstation there. And we have other customer -- major customers still negotiate with us on the certain things, and we expect it may have more volume to come. And so we are pretty promising -- pretty positive for the PCI Gen 4. And that's one of the areas I explained with more those adoption, our gross margin arguably should getting better. And the PCI Gen 5, the development, it has some impact by -- because of a Shanghai shutdown, because of our back-end layout team got impacted, but we have progress good enough. We are pretty much -- soon, we'll get this device out, and hopefully by 2 or 3 months later, we'll get into our customer hands.

I see. That's all my questions. I'll be back in the queue.

And next question is coming from Martina Huang of Fubon.

I only have a follow-up question. Could you give us some more ideas on our progress of high-speed in mobile phone and the auto market?

Yes. We have our redriver, 10-gigabit redriver for design to the -- for mobile purpose. And I think we see our customer already shipping with the tablet, with the smartphone shipment. And again, it's the -- I don't think the volume as we would like to -- would continue to see those volumes continue picking up. And then because we are -- our linear redriver, 10 gigabits, our major platform and whether the [ Kompanio ] with MediaTek, those are the referred to our -- the redriver there for higher-end customer to use, right. At automotive, yes, we are continue winning our PS device changing to the automotive, and hopefully and by end of the year, we have -- can report a pretty major win there. And we start to see the automotive will carry our PS parts on the market and more and more. And it's getting very interesting whether the Type-C, whether we have a PS part to -- converter parts to support head display. And yes, that's one of our focus, and we are very exciting to doing this. And yes, it's one of the most exciting areas in this space are the high-speed device changing to the automotive, because we have a large product portfolio can be designed to -- for automotive. If you go to our website, you will find we are designated automotive device IC there. Those are qualified for automotive use, and we see more people interested in this category ask us the more and more questions, and we see the people demand those parts, we will qualify those parts become automotive purpose.

Thank you. That's all my questions.

Thank you. And ladies and gentlemen, we will now move on to the Chinese question-and-answer session. [Foreign Language]

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[Foreign Language] critical components, not necessarily the PC, to every system may need to go to the hub. Now we've been developing for a while [Foreign Language]

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[Foreign Language] demand a larger computing power [Foreign Language] high dynamic range [Foreign Language] multiple display, the PS parts pretty significant -- provide a significant value in the solution there. [Foreign Language]

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[Foreign Language] different solution to address that application.

Okay. [Foreign Language]

[Foreign Language] working for a few years already with the customer.

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[Foreign Language] Now, so far, further to OEMs. [Foreign Language] work with the OEM to come up with cost-effective solution to address and provide a long-term solutions. [Foreign Language] good device for automotive applications.

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[Foreign Language] go down to a more traditional or more conventional systems. [Foreign Language]

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Okay. Okay. [Foreign Language]

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[Foreign Language] we'll put a lot of investment into [Foreign Language]

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Okay. Okay.

[Foreign Language] open for everybody. [Foreign Language]

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[Foreign Language] We thank you for all your questions. That concludes our conference for today. Thank you for your participation in Parade Technologies 2022 First Quarter Webcast Investor Conference. You may now disconnect. Goodbye.

Thank you, everybody.

Thank you, guys.

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