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

Welcome, everyone, to Parade Technologies Limited 2024 Q4 Webcast Investor Conference. Investor Relations of Parade Technologies, Mr. Yo-Ming Chang, will present 2024 Q4 and fiscal year 2024 financial results first. [Operator Instructions] And after the presentation, there will be a question-and-answer session in English by CEO, Dr. Jack Zhao; and VP of Finance, Mr. Kuowei Wu. 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 2024 Q4 Webcast Investor Conference. Parade Technologies' fourth quarter 2024 consolidated revenue was USD 127.41 million, and the net income was USD 21.3 million. With both basic and fully diluted after-tax earnings per share were USD 0.27 and USD 0.27 respectively. These results compared to consolidated revenue USD 120.13 million and a net income of USD 20.06 million or USD 0.25 and USD and 0.25 per basic and a fully diluted share in the year ago quarter. In U.S. dollars, the fourth quarter revenue decreased 6.48% sequentially and was up 6.07% year-over-year. The gross profit in the fourth quarter of 2024 was USD 53.76 million, a decrease of 7.22% from the previous quarter and an increase of 3.57% compared to the same quarter of last year. For the fiscal year 2024, the consolidated revenue was USD 505.81 million, representing an increase of 14.63% from USD 441.25 million in the prior year. Gross profit was USD 214.94 million, and the operating income was USD 76.3 million. Net income was USD 80.6 million or USD 1.01 per basic share and USD 1.01 per fully diluted share. These results compared with net income of USD 64.97 million, or USD 0.82 per basic share and USD 0.82 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 2025. Revenue is between USD 121 million to USD 134 million. Gross margin is between 42% to 46%. Operating expense is between USD 32 million to USD 35 million. [Foreign Language] It is my presentation for the 2024 Q4 and the year 2024 financial results. Now I transfer to CEO, Dr. Jack Zhao, to answer your questions. Jason, you may begin.

Ladies and gentlemen, we will now begin our English question-and-answer session. [Operator Instructions] And our first question will be coming from Al Wang, HSBC.

Can you hear me?

Yes.

So my first question is, can you share the product mix for the fourth quarter? And then I have a follow-up question.

I think you meant the previous quarter, Q4 2024, right? So in the 2024, our DP product line is slightly higher than 35%. Our high-speed or PS product line is slightly lower than 50%. Our TC or soft driver product line, is about 15%, and our TT is lower than 5%.

Okay. My follow-up question is that what is the outlook for each of the product going into the next quarter?

I think in the Q1, we don't see the significant allocation difference, it will be similar. Among them, the high-speed or PS product may continue goes higher, but we still remain to see in the coming Q1, the end of result.

And next, we'll have Jamie Wey, KGI for questions.

Can you hear me?

Yes, please go ahead.

Yes. My first question is about the -- for this year, what's your view on the growth for this year, that you start with -- like above seasonality first quarter. And are you still confident that we can have like a double-digit growth for this year and why? That's my first question.

Yes. I think the -- our major notebook segment has been reported or forecasted by a few institutions, research institution, to have a single-digit increase in terms of unit in 2025. And we think that our business, and we just had guided our -- the Q1 result is similar to the last year Q4. And traditionally, Q1, because there's the Chinese New Year, and this year, we just passed, is a short quarter, so we consider it's pretty happy and Q1 could reach the similar level as the Q4 last year. In terms of 2025, we are pretty positive, and they are driven by the 2 things: one, as we said, the unit-wise notebook will continue growing in the single digit. And another thing is the high-end notebook segment, which driven by AI for inference, the calculation or computation, and we have our solution largely associated with those high-end segments for our high-speed product. And we hope we can continue to grow better than the industry unit growth. So that's our expectation at this moment.

And for -- do you mean that your high speed can grow higher than the DP product? And in that case, do you think that gross margin can improve further? Because things just recover slightly from the quarter? And how do you think about the gross margin in the future?

I think we operate in a way that our gross margin remains similar within our guidance. It has been a long time. The driving force really is because we have a high-speed product on -- those are -- the business increased quite well. And those certainly have better gross margin. However, on the other side, the panel industry and those are going through more the competition on the price, especially on the mature product line. So we added this together to take into consideration.

Okay. And my second question is about the ASIC product line that I think last call, you mentioned that you prepare 6-nanometer process, I think maybe for some further potential ethics service. Can you share some comments about that?

Yes. We are very strong on the high-speed segment. Our IPs, high-speed IPs regardless, we have PCIe, USB, and other high-speed, and we are moving to deep submicron, and we have our test chip on the 6-nanometer and so on and so forth. And we are working with the Tier 1 customer to discuss for the integration of ASIC-like solutions to facilitate for their big chip and type of thing. And our high-speed IP has its own unique value because it's proven and often take a lead. So that's one of the things. We are working with the Tier 1 customer. But those products may take a longer time to define, to develop, to move into the production. So that's one of the rationale we push towards.

Okay. So we probably will see this growth driver next year or from next year.

Yes, that's what I would hope. And I think we are moving along for the first opportunity already. And -- but I wouldn't think those -- the product will create revenue this year, more likely next year or year after.

Next one, Ethan [indiscernible], Morgan Stanley.

So my question is on your USB4 retimer. I'm just wondering if you could provide some updates on that and provide some -- also provide some color on competition, revenue range and growth rate.

Yes. Our USB4, we are doing quite well, and we had a successful year for the 2024 with significant growth rate. We continue to see a large design wins for many, many models. And not only the notebook as well as other segment for gaming, for gaming console and so on and so forth. Reasonable to say and on the non-Intel platform, we probably dominated on the USB4 retimer. And we expect that 2025, we continue to have a good growth based on the design win or MP status in our pocket. For us, it's more important as we continue that success to develop the USB4 end-to-end solution, which is not only have a USB4 retimer, now we will have USB4 hub, which will monitor and dock to use. We have a USB4 redriver for the same solution, which they don't need expensive USB4 retimer. So as we move on to the USB4.2, which we view much more important and really truly can replace other potential connector for something like HDMI and so on and so forth. So that's the way we look at it and we play along on this segment, and we hope we will continue to dominate in entire -- the end-to-end. So that's the -- it's a huge opportunity there. We are pretty happy on the current status that we have. Yes.

My second question is if you could share any color on AI PC demand that you see or if there's any industry trends that you can share with us?

We had the first one last year with Qualcomm platform on many, many models. And I think that's doing reasonably well as the first, the attempt for the AI-focused notebook. And we foresee. There are second one or more to come out much powerful, the AI notebook may target more on the inference with very high computation power on the top in terms of trillion operations per second, the tops. And we are happy in the customer select our USB4 retimer for their defect solutions. On those platforms, there are multiple USB4 ports there. We are working with them smoothly for development. And hopefully, those will bring the revenue in the second half of this year.

Next one, [indiscernible] Liu, UBS.

Yes. My first question would be regarding your first half outlook. How much of the above seasonal trend in first quarter is driven by your customers' gross orders due to their concerns on the tariffs? And looking into second quarter, what is your current initial expectation? Would you expect some orders get pulling from 2Q to third quarter and [indiscernible] to a subseasonal quarter next quarter?

Yes. I think it's a pretty dynamically change because of tariff, right? And on the CES, we had a meeting with OEM executive teams because many of us were in the CES. I had the opportunity to talk to the procurement, the senior management for the -- for notebook OEMs. And they had -- they acknowledged they had the sort of action to pull the -- pull in some notebook to the system build to the Q4 or maybe on Q1 as well to try to bid on the sale of tariffs coming. And so that's the -- having said that, and we are taking in to consider those efforts. But Q1 book is pretty; much already is on our book. So we'll provide the guidance, and we should be able to hit the guidance pretty well. On the Q2, we see our bookings for Q2 is a reasonably -- they're well, I would say. And so it's kind of wait to see because sooner or later, we should see the effect and the pulling effect. But at this moment, it's not been clear, those pulling effect become clear, because after pulling, you might have a slow season, but so far, we do not see it.

Okay. So it sounds like you are going to see some of the rush orders spill over into second quarter, and that gives you the confidence on the order visibility for second quarter at least at this stage, right?

Yes, I'm pretty clear about the Q1 and the Q2 booking coming also reasonable, I would think, at the booking rate as we count every day.

Okay. Yes. And my second question, and I will have a follow-up to the second question as well. I think just regarding the computation landscape, what is your view on the market share dynamics for your DP and also high-speed business for this year? And yes, I will have a quick follow-up on your expectation for full year growth this year because just based on what you are talking about in the first half that you are seeing above seasonal first quarter and also reasonable, well, for second quarter for your backlog, would you be expecting that you can grow your sales by double digits year-on-year this year?

In terms of your -- the first question, and we are doing quite well on the high speed in the PC segment. And I think our -- the market rate and the share rate in the PC on the high speed, it's quite high, I would think. To us, [indiscernible] is to maintain the high speed in the share rate. Another is expanded out to the devices, for example, the monitor dock, dongle, so as the automotive to use our PS product as well as the server side. So those are the things as we achieved very high market shares on the PS product, on the notebook or PC. So we have to expand out. That's one of the efforts we are doing, including we are, as previous, the guests asked for ASIC like product. And on the DP side, we all know the notebook panel manufacture a lot moved to the China, the BOE, CSOT, and so on and so forth. The competition, as we said, is pretty high. And it's a lot of competition is on the price side. For us, on those panel side, we are very concentrated on the so-called in-cell panel, which is integrated touch. And together -- and the good thing is -- as we were in the CES, and confirmed by many industry leaders, the notebook panel with attach rate with touch is increased very noticeably. And the reason being is the young generation, as they are coming to use the notebook, as they grew up, or use the smartphone has the touch on the panel. So they all come to ask notebook with the touch there. So that's a good news for us. We are pretty dominant on those -- the in-cell solutions, whether TED or tTED there. Recently, we have quite a few design wins. And hopefully, those wins will help us to defend us our market share and also the price side as well because the in-cell or integrated touch is a relatively complicated. It's not easy to adopt. And we do provide a solution which is cheaper than the -- towards the panel manufacturer is cheaper than the current on-cell solutions. And it's also much convenient for panel integration. So that's our strategy. Besides that, we also work on the high-end gaming segment, which require more -- the gaming sector, the panel needs the NVIDIA certification. So those are the segments we are working on, and we got all the gaming -- the NVIDIA gaming certification on the panel side. So those are the good news and we'll continue to compete, but we also recognize on the low media side, the competition on the low price is pretty severe on the market.

Yes. And then just a follow-up on your full year sales outlook. Could you just quantify...

As we said, I think we're hopefully what we see today is we will be better than the -- whatever the unit shipment grows for notebook and hopefully, we'll achieve the double-digit and those kind of goal. But I cannot say the -- yes, I think that's our hope.

Next one, Vivian Yang, Nomura.

Can you hear me?

Yes. Thank you.

My first question is a follow-up on a previous question. Just wondering, do you have a rough assumption about your high-end Tcon, for example, for what percentage of your shipment now is to be TED or tTED versus traditional solutions?

Now we are shipping over much more over 10 million there, and we think we'll continue. Those are the in-sale solutions, means tTED and TED. And we expect those will grow pretty fast. And because the price, those devices, our unit price is much higher than the traditional Tcon or soft driver. We will become quite noticeable percentage there. And let's see how good we can do this year, and we hope we can do reasonably well and moving forward. We heard the customer, those DHL customer likes the in-cell solution quite well.

Okay. And my second question is, maybe can you update about your redriver business for cable customers?

Yes, that's interesting. Our Seagate redriver are actively engaged with the cable customer, whether the USB4.2, whether go to the data center and the PCIe Gen 4, PCIe Gen 5, Gen 6, we're engaged with them pretty actively. And yes, we think that's one of the things, as we said, we would like to expand our high-speed device segment outside the notebook, that's the one of the direction we are pushing.

Next question, Anthony Liu, [indiscernible].

This is Anthony Liu from [indiscernible] and Consulting. And just first of all, Happy New Year, and wish you and Parade to have a successful year in '25.

Yes. Thank you very much. Happy Chinese New Year. Okay. Good.

Yes, Yes. So I have some following questions. So first of all, since previous question is talking about Tcon, price war is still sustained. But do you think is there any kind of maybe this Tcon product competition to be decelerating this year or next year? Because by our check, we just see like Taiwanese fabless such as Nova or other vendors, they are like the key vendors in this market? And do you think this kind of price war to be decelerate and to have our cost margin to be stable?

I think if we compete with those ones probably it will. But the really competitive on the lower end is the fabless company in China. And those are going to the price and to the fab, the -- which has much lower price, the wafer price. So it becomes a trend to maybe get worse before we get it better.

I see. So you think...

You're not competing. Nova or traditional one. You look at those people you don't even know where they come up.

I see. Okay.

Yes, on the low end, you see those kind of things. On the medium or high end, you don't, but the low end is the bottom, right?

This is very clear. And also talking about like the standard part of customers, since they are still planning some new RD products in this year and like market also expecting the edge AI to bear fruit in this year and maybe next year. And do we -- have we seen like the standard part customers, they're pulling any changes in this following -- in this like quarters or maybe months?

I think they're doing quite well. And especially on the low-end product, I mean relative to older product, it's doing relatively well. The newer device or associated with the expensive system are not doing the -- what we had expected. And -- but overall, they are doing well. And yes, we expect to continue doing well. And yes, they had that unique customer side to enjoy their device. And yes, that's the -- that's another different area.

I see. I have another question about the automotive side because since we have many projects in some western plants, and can you provide the automotive sales share in last year? And do we think in this year or next year, we can cut into more products such as our high-speed product to this automotive customers? And what do you think the automotive sales growth in this year and next year?

About automotive, we -- our high-speed product, which is our high-speed converter, high-speed retimer, USB device. Into the automotive multiple customers, the converter, retimer, we hare shipping few 100,000 a month, above a month, and we -- the USB box, which is our USB devices there and shipping to many different car makers, so we expect the 2025 probably is quite a good year for our automotive solution and our high-speed device. So as designed into first time to the ADAS system as our PCIe, PCIe redriver device to the ADAS system. And we expect some shipment in second half and more volume shipment with a major -- the car makers in the 2026 as well.

I see. It seems very promising comparing to your other conventional Tcon products. So talking about...

One of our strategy really is pushing our high-speed device, which had a pretty good successful rate or large market share in the notebook to the segment, for example, the automotive server, notebook, so on and so forth, to those areas, then overall, we achieve our growth. And that's one of our strategy and we push very hard on it. It included -- another include cable as we had been asked before, yes.

I see. My last question related to our high-speed products despite that I already asked a lot of questions. But talking about like the high-speed products is our main catalyst like in last year and also in this year. And do you have any sales share like targets in -- for the high-speed product line this year, maybe over 50% averagely a quarter? Or maybe what is the -- do you think the growth rate for high-speed product line in this year will higher than 2024?

That's what we hope. And that's what we hope will grow significantly, to push significantly on our high-speed product line. But I cannot say exactly the number or thing, but we have been pushed this for the analyst community, all know we are very forcefully to push to that segment.

Next one, Evelyn Yu, Goldman Sachs.

So first question, I wanted to touch base on your exposure to the server market. So firstly, I want to know what's our current revenue contribution from server or data center-related business?

Well, it's less than USD 10 million at this moment. Yes.

Okay. So I think we do agree that this area is a fast-growing segment going forward, driven mostly by AI and AI server. So how are we going to engage more or benefit from this mega trend? Do we still see that the -- do we still see a high opportunity in the redriver market that we can, I should say, reengage in this business?

So the -- on the data center strategy, we are -- where as we learn the market, you define the standard product, you have a risk of the competition and that market typical win-win, okay? And you have to be in the right time with the right product. And we actually start to thinking that using our high-speed IP to work with Tier 1 customer to develop ASIC-like solution for the Tier 1 customer, okay? That's the one way we are pushing that direction because our high-speed doing quite well. By doing this, you minimize the definition, the product definition issue. So that's the one area as previous analysts had asked, okay? That's the one thing. That slightly changed from our -- the previous -- further as we define the standard product, we go out to do our product rather than now we'll work with the Tier 1 customer to do this, okay. On the -- for server, we do design our PCIe redriver device to the server on the car, which is the ADAS system, okay? As I reported, we're already into it. So the first customer will start to ship in the later of 2025. And the second customer will be on the 2026. So that's our current solution. Of course, we said, on the cable side, we developed those cable -- work with cable side for the data center, and that's another way to look at it.

I want to follow up on the ASIC-like products. Can you elaborate more on like kind of product that we are talking about or what we are referring to?

It's not at this moment to talk about too much, but I'll just share with you our thinking, our direction is include those segments. We are telling the customer we're more than happy to do this, and we are start to work with the customer on those segments. And the customer is happy because we are doing the high speed relatively well and they trust us and they see the need for that.

Got it. So can we expect to see any initial progress in this year or maybe next year?

I don't think those product is a pretty big published. Anything with the revenue will be next year or year after.

Got it. For 2025, I want to -- also want to follow up on more specific comments on each product outlook. You're saying that -- so notebook will be up, unit-wise will be up single digits. And you're also positive on high-end notebook segment as well. But in terms of each product segment, can you elaborate more, especially for USB4 retimer, what the growth will be like? And can you also rank by product segment that, how are you expecting these different products, the growth to be like for this year?

We have many -- on the high-speed side, we have a USB4 or USB solutions. So we have HDMI solutions. We have display port solutions, and we have a PCIe solutions. And I'm actually happy to report our USB4 retirement alone already become a top revenue contributor in terms of device. The single device segment after a year, it's become our highest revenue contributor for our entire portfolio. So we continue to see the 2025, we will remain dominated on the segment and by the design win, by all the designs we are doing and on the non-Intel platform, right? So the [indiscernible] And then the good thing in it seems like a non-Intel platform in terms of unit shipment has grown pretty well. So we are happy to see that. And as we said previously, the very important thing is that we win the design with upcoming AI platform which many people had a good expectation that we'll be very successful in the second half this year.

Next one, Lucas Liu, KGI Securities.

Can you hear me?

Yes, go ahead.

My first question is regarding to the current progress of the company's USB products within the Intel ecosystem or the Intel camp?

We had said on the USB4 is a non-Intel platform. However, we do have the solution, as we said, end-to-end, which is our USB hub and USB4 redriver, USB4 hub. Those are the -- those 2 devices are not related to whether the Intel platform, not Intel platform. Only USB4 retimer are associated with, has a separation whether Intel or non-Intel. And Intel using their own and don't allow other people -- into their platform. And many OEMs want to use us to do the Intel platform and Intel just don't allow people to do it. That's the unfortunate situation there. And hopefully, the thing will change as we move to the USB4.2, which is 80 gigabit per second, and we have already have a device in the lab and working with the AP process guy or CPU guys now. So we continue to see USB4 or beyond will become the driving force for our business. And that's what we view.

Got it. And what's the company's long-term strategy for standards-plus no customers? And -- or what's the long-term growth drivers for the standards-plus customers? And another question is, how should we respond to the potential competition from Taiwanese and Korean competitors?

We have been working with the standards-plus customer for a long, long time, right? So the -- we work with them on many generation. We'll continue to work with them. That's the one thing. And we continue -- the strategy there is we have to go -- move to the very deep submicron process to certify their demand to the low power, so on and so forth. So yes, that's the one thing. And we continue to gain the business momentum over there. And we're also marketing our high-speed device to our customer. And as well, and we'll continue -- we'll see those high-speed device, and we have more room to grow in that place as well.

Got it. Very clear. And regarding to the OpEx ratio or maybe the OpEx in 2025, what's our outlook about OpEx ratio?

That -- probably need Kuowei. Kuowei could you respond to this question?

Yes. Thanks for the question. So for 2025, we're still projecting trying to maintain the growth rate probably within 5% on 2023 -- on 2024.

Next question, Jason Tsang, CLSA.

Can you hear me?

Yes.

My first question is in terms of your Tcon or DP business. Can you give us some outlook in terms of this business because you already mentioned a lot for your high-speed business. So for Tcon or DP, did you find the new catalysts or new drivers for this kind of business, such as probably higher market share or better content growth? Or can you have any opportunity to penetrate into the applications or devices in the future?

Yes. I had said on the Tcon, we -- our strategy is to go integration, which integration? The soft driver and the touch together to serve for notebook. Basically, your repetitioning system to go even higher integration to defend your position to make the leap gap with the low-end suppliers. So I think we are doing reasonably well. Some of the device already in MP, and I continue to see the customer interested for integrated solutions and because of it provide saving and provide a function. And on the hand, we are gaining penetrating into the Tcon gaming segment. All of our high-end Tcon already got the certification from the NVIDIA for the gaming segment. And those are the areas we push harder. We acknowledged previously had said that the low end of competition for the -- is pretty high in terms of price competition.

Got it. So with this kind of integrations, can you provide more value-add product to your clients? Is that -- can you -- can this kind of migration benefit your selling price or gross margins or market shares?

To us, first of all, the integration solution has a higher technology, which is not easy to penetrate, into to start with, right? And the second one is the -- our product content increased because up to today, the notebook touch is a discrete device, which we are not in. And so with the integrated or in-cell solution, we increase our content and the silicon content there. And because this one has the firmware, software associated with it, the sort of -- the customer, once you use it probably will use for longer time with you. And it's purely because there's a firmware software associated with it. So you can defend your solution longer, and that's the -- what our strategy is, and go with integration, go with a deep submicron and to protect your interest, your product line and your IPs.

Got it. Got it. And my second question is in terms of the USB. So can you provide your USB4 penetration rates for notebook for this year? And do you see any competition because I remember some of your competitors announced they want to move into this kind of new market. Yes. So I know you're the -- you can keep the leadership. So how do we look at this kind of competition for [indiscernible]?

Well, frankly speaking, on the USB4 retimer, we were not the first one. But previously, on the non-Intel platform had -- can do there, right? However, our performance, our -- the professional, the new win -- or our support win the customers. And I don't think you ever heard other can do any more on the competition side, and that would literally drive out that totally, right? So we'll continue to see other competitor claim, they have a device. The secret of this USB4 retimer is your firmware, is your ability to pass certification on multiple standard, say, you have to pass USB4, USB 3.2, you have passed the Thunderbolt, all of the standards. So it's pretty tedious, the work or expertise to do this. Frankly speaking, many our platform, which CPU guys heavily rely on us to make the system pass compliant test, CTS tests, that typically take multiple months. So once that passes, I'm not sure people will go back to do the thing with others. So that's the barrier for other people to come in. So we still think some of them may -- will come in. But hopefully, when they come in, we already moved to the generation USB4 to the 80 gigabit per second. I think in addition to this, we opt -- as we said, we provide end-to-end solution, which is our USB4 hub, USB redriver and multiple other devices together.

So wondering if you can provide your view on USB4 penetration for this year?

You mean the notebook itself?

Yes, yes.

Notebook itself, I think, is 30%, 40% or will be, on the high end of 30%, 40% or will be, and the continued work going up. And by the next year, you will see, USB4.2 to come for some notebook. And by 2027, you will get a very popular USB4.2, 80 gigabits per second.

Got it. Got it.

That standard is moving too high. That's a good thing for us. That's why we moved to the 12-nanometer, we'll move to the 6-nanometer just for drive those thing. And hopefully, by the time, Intel no longer wants to do this, and we can provide the more broad solution to our customer.

Happy New Year.

Next one, Mike Yang, Bank of America.

Yes. Happy New Year. I just have a question regarding your high-speed or PS business. Because if I look at the product mix in fourth quarter versus third quarter, the PS segment actually recorded a higher mix when compared with third quarter. But at the same time, the gross margin went slightly down versus third quarter. So my question would be that do you actually feel some pricing pressure in this segment? And then, is there any competition here and there across the PS segment?

Yes. I think you're correct. We grew. And there are 2 segments. One is, as you said, the PS. You see some -- on the lower segment, you see some price pressure. For example, the USB, all the USB-A solutions and the TI make very cheap price and to compete, right? So I think the industry, all know, those are the high -- very high volume, but the price is very low and the TI still wants to compete. That's kind of amazing to me. But overall the USB, the PI -- the PS product segment, the gross margin are healthy and are good. But that's another segment, if we look at it, as I said previously, the DP segment on the low end margin, lower side of competition, also very high on the price.

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

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Yes, yes. Very good.

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Okay. Thank you very much.

Thank you.

Thank you, gentlemen.