WIN Semiconductors Corp. (3105.TWO) Q2 FY2025 Earnings Call Transcript & Summary

Good morning and evening, ladies and gentlemen, no matter where you are, welcome to WIN Semi's Result Webcast Conference for the second quarter of 2025. My name is Joe Tsen, Spokesman and Associate Vice President of Finance in WIN Semi. Joining me on today's call is Steve Chen, the General Manager of Corporate Administration. Today's call is organized into 3 sections. First of all, Steve will comment on the company's results and provide free guidance for the third quarter 2025. Secondly, I will go through the financials in detail. After that, we will open to the floor for Q&A. Please freely submit your question in the input box on the webcast window throughout the conference. Before we begin, I would like to draw your attention to the safe harbor notice on Page 1 of the presentation slides. Please note that this presentation contains forward-looking statements. These statements are based on our current expectations. Actual results may differ materially from our expectations and the company undertakes no obligation to update these forward-looking statements going forward. Now let me hand over the call to Mr. Steve Chen, the General Manager of WIN Semi, and he will provide an overview of WIN Semi's business highlights and operational analysis over the past 2 years and followed by the comment on our second quarter results and the third quarter outlook. Steve, please?

Thank you Joe, and welcome, everyone. Please turn to the slide Page 5. On this side, we can consolidate, I think, for the past 2 years, yes, we faced a lot of market structure change. For example, like the smartphone had a retail balance decreasing. And because of the trade war and the service, looks like right now, what we see is most impact is our selling application. For this application, we can see because regulation to ship to China, actually, that's rising up China government for the aviation kind of supply chain demand. And because of that and also because of the smartphone has some decline in the past 2 years, we can see actually for the past 2 years, our revenue from the sales of PA actually was decreasing and that's mainly because of the structure and also we see China has some low-end demand already to the localization supplier. Yes. But fortunately, I think for right now, I think the situation is more stable and WIN Semi is taking major share for the high-end demand in China, and we also have other and enjoy and IO. They'll keep those shares for the supply chain. So I think right now, that will be restructured, but the revenue will become more back to the normal seasonality quarter-by-quarter because of -- we still major share in China for the high end and also other Android and IRA platform. . And second, we can see for the WiFi. I think Qualify is still doing well for the past 2 years. It's mainly because of the WiFi server was the adoption was everything and because of the new high-frequency bank adopting WiFi is really [indiscernible] wins WiFi PA application sales revenue growth. So I think compared to a few years ago, the WiFi segment actually doing well for the past 2 years. And the next one, I think, is the most of a segment that's not impact because the trade war or the geopolitical, that's our infrastructure demand. here, I think the infrastructure demand, including like the aerospace and even base station or some very special front station or radar, this kind of application. I think for the past 2 years, is keeping steady growth year-by-year. And right now, we -- for example, like in Q2, we already see our revenue represent from infrastructure is really close to our revenue side of the PA. Yes. And then the others that were mainly because it contributed by our 3D sensing and other optical demand. Yes. And for the payments, I think first is it's definitely facing some structure change because of the [indiscernible] end customer, bringing the new player into this market in the past 2 years. So the revenue [indiscernible] for the 3D sensing was decreasing by the past 2 years. But fortunately, we already see -- we have some progress both those 3D sensing optical things such like AI-related application, optical thinking for like LiDAR or data center? And gradually increased in this period yes. So right now, the percentage for 3D sensing was dropped to around like 40% to 60% to our total optical revenue compared 2 years ago, it may be taking around 80% to 90%, yes. So I think for the past 2 years, we are making another effort and making more diversified for each fraction. I think right now, bring to us is order mix in the future. And then we go to the Page 6. I think in this side, we can see because of the demand was changing for the past 2 years. So we start to control and well management of our operating expense. So right now, we can see no major [indiscernible] is going up around. Right now, our OpEx was keeping a range around like TWD 800 million in NT kind of range. But although we have controlled our operating expense, but we're still keeping our R&D percentage is around like 40% to 50% in the expense. So that we're keeping us still have a very good activity for the new technology developing and that also will bring us the better customer demand in the future. And also because of control order CapEx, we can see the operating cash flow is keeping positive for the past few quarters yes. So I think right now, it's in has a well control about the cabin and also the experience to making the cash flow become more passive, yes. And then the next page, we can see that our [indiscernible] ratio and also the depreciation trend, yes. Because of the demand was changed. So we start to control our capacity also will bring a better depreciation trend for us because I think right now, from 2024, the depreciation gradually start to decrease quarter-by-quarter. And even this quarter, we see that a more significant decrease quarter-by-quarter. And we suppose that will continue for several quarters. And also because of that, so right now, the utilization grade is become a little less impact for the gross margin. For example, like this quarter, the utilization rate is still just around like 45%. But we already keeping our margin individual margin is better than 20% for the Q1 and Q2. That also show items greater recovery from the earnings pressure for the externalization and depreciation. And then I think last all some previous summary for the past 2 years, what WIN Semi is going to -- to minimize the impact of the market supply demand. And then let's come back to the second quarter's results coming. For the second quarter of 2025, WIN Semi reports consolidated revenue of TWD 370 million, up to 5.7% quarter-on-quarter and down 23.8% year-on-year. The variance between reported revenue and the earlier guidance was primarily attributable to the significant free attrition to the NT dollar against the USD dollar. In USD per the second quarter revenue increased by approximately 16% quarter-on-quarter, in line with previous guidance. Gross margin for the quarter was adversely impacted by currency maturation and [indiscernible] product mix. In addition, share price volatility of the China customer held by our consolidated subsidiary also negatively impact consolidated gross margin by negative 0.4 percentage points. Nevertheless, we increased wafer output [indiscernible] improved to 45% during the quarter, listing the company's individual gross margin from 21.9% in the first quarter to 22.9% in the second quarter. Consolidated gross margin also improved from 16.7% in the previous quarter to 19.5%. With the consolidated operating margin reached minus 3.1% after following exchange goals of TWD 246 million and other nonoperating item, net-net attributes to the parent company who are TWD 421 million with an EPS of NT dollar, net minus TWD 0.99 for the quarter, of course, to all product segments in the second quarter. demand for cellular and WiFi PA proved noticeably compared to the previous quarter, driven by the inventory build ahead for the U.S. smartphone launch in the third quarter, and particularly the increasing adoption of WiFi 7 saw strong volume from the WiFi [indiscernible] customers also making WiFi is the first growing product segment in the quarter. In optics segment and from [indiscernible] also sold a other optic similarly supported by the inventory [indiscernible] ahead to the new smartphone launch in the third quarter. Shipment of the non-3D sensing optical chip remains started as well, while the [indiscernible] segment has regional expected to remain flat quarter-on-quarter. Both optical and infrastructure experience finally the green share decline due to a [indiscernible] of currency exchange movements. As we enter the second half of the year, concerns over potentially [indiscernible] service from the [indiscernible] resisted. However, our business activity with customers remain firmly on track. This year, we are seeing a growth in number of new customers and new projects across the key areas such as lower orbit [indiscernible] AI-driven data transmission and also aerospace applications. These customers consistently choose WIN Semi's first choice, thanks to our advanced technology and the long-standing record of manufacturing excellence. At the same time, more customers are initialing engineering, [indiscernible] for next generation and even future generation products, including a number of new product introduction project in the field of optics. These developments continue to progress steadily affected by the short-term market duration or external uncertainty and the integration, device regifacturing even has more expression with us outsourcing opportunities in order to mitigate the risk. Moving ahead to the third quarter of 2025. Momentum across all product segments is better than in the past weeks -- years. Following the -- and right now, the consolidated revenue is expected to increase approximately mid-teens quarter-on-quarter, with the consolidated gross margin expected to reach around the low teen level. I will turn the call back to Joe. Thank you.

Okay. Thanks, Steve. Okay. It's my pleasure to present our financial results for the second quarter of 2025. we are starting from. Starting from the Page 9, the first page, Page 9, talk about what's discussed about revenue and the margin trend. And the second quarter '25 consolidated revenue was TWD 3,780 million and Q-o-Q was up 5.7% and Y-o-Y was down 23.8%. And the difference between this number in the earlier guidance was primarily attributable to the significant appreciation of the new Taiwan dollar against U.S. dollar. And actually, if -- in U.S. dollar terms, we actually in line with our guidance, which is approximately growth about 16% Q-o-Q. And for the gross margin in Q2, if -- it was impacted by the significant appreciation of the new Taiwan dollar and also [indiscernible] less favorable product mix. And in addition, the share price volatility of a listed Chinese customer held by our subsidiary, also negative impact the gross margin approximately around negative 0.4 percentage points. Those are negative factor, which negatively impacts to our gross margin. However, there is some positive impact, which is the utilization was increased in our wafer foundry, our fab and so therefore, the utilization rate increased to 45% from 35% last quarter. And therefore, the Q2 individual gross margin increased to 22.9%, which is one percentage point increase, and the consolidated gross margin also increased about 1.8 percentage points to become 18.5% of the gross margin, the consolidated gross margin. And also, the consolidated operating margin improved around 3 percentage points to negative 3.1% in the -- compared to last quarter. Okay. This is about our revenue and the margin. And then please flip to the next point -- next page, Page 10. And the non-op items, including the FX loss and also the interest expense and other non-op item. Because of that, our Q2 2025 net loss attributable to the parent company was TWD 421 million. And compared to last quarter, net profit attributable to the parent company was TWD 16 million. And therefore, the EPS for Q2 but negative TWD 0.99 and the accumulated first half was negative TWD 0.96 EPS for the first half. And please flip to the next page, Page 11, we discuss about the product mix. And as Steve have mentioned it earlier in the -- in our slides. And we are -- the -- we are making the product mix to be favorable to our gross margin in the past 2 years. And as you can see that recent -- the recent 2 quarters, including Q1 and Q2. And we -- our infrastructure percentage is in line with our cellular PA percentage. It's a lot different from in the past. The 2 years ago, even longer term, our cellular PA used to be around 40-something to 50% of our total revenue and infrastructure are less than 20%. But now the product mix is more healthier to our gross margin for the -- since 2025. And the WiFi business contributed most of the growth for the second quarter, the percentage is up to between 15% and 20%, which is higher than last quarter. And so for the -- actually cellular PA also grows in Q-o-Q. And infrastructure actually for the actual result for U.S. dollar ton or either the shipment for infrastructure or optical is slightly better than Q1, but because of the new Taiwan dollar appreciation, so it's become slightly lower than last quarter. And the optical also become an that become the 13% from 17% last quarter. So this is a product mix. And please flip the page to Page 12, talk about our guidance for Q3. And I think Steve has mentioned that I'm going to repeat again. We expect Q3 -- I'm sorry, I have to correct that Q3 '25, it's not '24, I'm sorry about that. We expect Q3 '25 consolidated revenue to increase -- yes, to increase mid-teens Q-o-Q. And we also expect Q3 '25 consolidated gross margin to be around the level of low [ 20 ]. And we're expecting all of the product segments in -- will be bottomed out from the first half and the in Q3, all of the products will be positive growth no matter the cellular WiFi infrastructure and optical. And then we're also expecting the best performance for Q-o-Q growth will be optical because of the U.S. smartphone new product launch. And then secondly, it will be WiFi and also the value also doing very well. Okay. Then please flip to then we can quickly go through the financial statements starting from Page 14. Our consolidated the income statement, for Q2 '25. I still have to remind you guys that all of the numbers is all by its unaudited phases the actual results based on the CPA's report thereafter. The net revenue was TWD 3,780 million and Q-o-Q was up 6% and Y-o-Y was down 24%. And the gross profit was TWD 698 million and the gross margin was 18.5% improved about 1.8 percentage points. The operating expense TWD 817 million, is very similar to last quarter. And the operating expense ratio is around 22%. And therefore, the operating loss for Q2 was TWD 119 million, and the operating margin was negative 3.1%, which has improved about 3 percentage points. The non-op item, there is a loss of TWD 432 million and will be -- the detail will be in Page 16. The loss before the income tax was TWD 551 million. And then the net loss was TWD 490 million. So therefore, the net margin was negative 13%. And loss attributable to the parent company was TWD 421 million and the EPS was negative TWD 0.99. And return on equity was negative 5% and approximately utilization rate it improved about 10 percentage points from 35% to 45% this quarter and the same period of last year was 5%. The depreciation expense was -- it's TWD 138 million, which is lower than last quarter or even a year ago. And then the car tax is TWD 205 million is also lower than the same period of last year. Okay. Then we finished the Q2 result and now the first half income statement. The first half of '25, the net revenue was TWD 356 million and Y-o-Y was down around 22%. And the gross margin for the first half is 17.6%. And then operating loss was TWD 336 million. And then therefore, the operating margin was negative 4.6%. The net loss was TWD 554 million. So the net margin was a negative 7.5%. The loss attributable to the parent company for the first half was TWD 405 million. In the accumulative the first half EPS was negative TWD 0.96. The return on equity for the first half, was negative 2%. Yes. Approximately, utilization for the first half was 40% in the same period of last year was 60%. Depreciation expense TWD 2,144 million, which is lower than the same period last year. So that the CapEx TWD 2,296 million, which is even lower than the same period last year. Okay. This is the first half of income statement and then flip to Page 16. The -- this is -- to show you the non-op item for '25 non-op item loss around TWD 432 million, majorly coming from the foreign exchange loss and the financial cost, which is interest expense. And then the rest of it was around -- is the something for the financial assets fair value to the profit and loss, something like that. In the first half, the non-op item was negative. A loss of [ 276 ] in total. Okay. Then the final page, in Page 17, which is the balance sheet at June 30. The cash and cash equivalent was TWD 5,460 million and the total assets was TWD 61,132 billion, and the total liability was TWD 23,800 billion and the common stock remains the same. And therefore, the total equity was TWD 37,332 billion. The book value per share has increased from TWD 85.68 last quarter, quarter end to June 30, TWD 86.17. The P index, including the current ratio is 227% and debt ratio was 39% is all in healthy label. So okay, this is my part. And now we begin the Q&A. Please submit your question in the input box on the webcast window now. Thank you.

Okay. There is a question asking about the strong demand in AI, how should we take a look about the incremental revenue potential in WIN Semi's infrastructure segment and then compared to other infrastructure products. And actually, we've been talking -- we didn't share with the investors our optical business. We have non-3D sensing business, which is have a penetration and adoption is related to AI. We spent a lot of time in the first earnings call earlier this year, and then we shared with investors about the -- because of AI, we certainly have many of the opportunity in the optical transceiver, for example, no matter the laser dial, the module later on the Tx and all the photo detector, which is India, APC on the Rx. I think those are the our opportunity and then also a lot of project engagements right now with our customers. But for those, the most of the contribution will be reflected in the optical segment, yes, but it doesn't mean that there won't be any kind of revenue contribution to the Infrastructure segment because we do have -- we do classify optical driver revenue in infrastructure because use our MMIC, which is pHEMT technology for the no matter the 100-gig 200 gigabyte, and we have a very good U.S. customer who are also in this territory and then doing very well. And then because the technology-wise, we classify them into infrastructure. For the rest of the AI related, we will classify that into the optical business. And then most of those optical revenue is an or NPI-related revenue at this stage. And so for the small volume of mass production that we have several engagement project with a major, a couple of Tier 1 customers right now, okay? This is pretty much it. Thank you.

Okay. This question I want to discuss about all application segment picture in 2025. I think like we already closed for the Q1 and Q2. We already see that the cellular in fine WiFi or the results. And for Q3, I think right now, we can give the better picture about Q3 look like the cellular and WiFi that will all increasing because of the smartphone new model launch and also optical is available for that also. And so I think for the Q3, we can see the whole segment was increasing and optical will become the biggest growing segment because of the shipment is always more [indiscernible] second half. And cellular WiFi have pretty good growth because of the new model launch. And the infrastructure, I think also has some growth but maybe not much because that's a more slightly segment of those compared to the other 3. Yes. Thank you.

Okay. There's a question further asking about the depreciation expense trend in '25 and 2026, even the 2026. And I think we already share with you guys that in the past 2 years, things we reached the peak of the depreciation expense than 2 years ago and then chip going down gradually and then even more significant reason for the recent quarter. And then we expect that will be further going down for the next couple of quarters unless in the next couple of years, there is any kind of momentum to make the decision to do a significant CapEx otherwise I think for the existing utilization and the capacity, we should -- we don't need any further CapEx and then the depreciation expense will go down further. I think that's pretty much that. Thank you. So your to-- I'm sorry. I'm sorry, I got that. There is -- there is a question from the investor asking about the revenue trend for the next couple of quarters or even the rest of the year. And then I think we already see the trend up since Q2 than Q3. And actually, for example, the Q2, the momentum or the growth rate should be even better, but because of the foreign exchange issue and then it looks more moderate. And then I think Q3, we also see probably the same train and we see a stronger trend for the second half than the first half. So I think that's -- we believe that especially the second half starting from Q3 is a new -- a smartphone new model launched. And then we have a very good customer in the supply chain, and they -- most of them benefit from that and also reflecting in our revenue and then right now and then probably also the rest of the year. Okay. Thank you. Okay. There is a question asking about the outlook for LEO satellite, which is lower software satellite. And then actually, I can say that the most popular topic in our Chinese earnings call, I mean, 1 hour ago. And about via satellite, I think we are in the supply chain, the things many years ago. And then in the very beginning, we are in the satellite between satellite and satellite and then we provide excellent technology for the connectivity between the cable line and which is PA or LNA. And then therefore, later on, we also in the supply chain, we have a customer penetrate into the application between satellite and the gateway. And the -- I think this year, we see even more penetration, the customer needs the solution to for the -- other than the regional Ku-band and Ka-band, which is around 17 to 19 gigahertz or 20-something to 30 gigahertz frequency band, the -- even more, they need the E-band, which is 70 to 80 something gigahertz or V-band is brand new to the -- between the 70-something or 40-something gigahertz. And so we develop our -- provide our advanced technology, which is the kiln nitride to the 0.12 micron getting kiln nitride solution for the Ka-band and then the 0.1 micron pHEMT technology for the E-band or W-band. And then for the V-band, we also provided a 28volt 0.12-micron kiln nitride technology and then to support the customer, even combined bumping technology. And so the -- it's this kind of application has been mass production starting from this year. And then the new application is direct to handset of direct to sale, which is connect satellite to cellular phone. And then it will be equipped on the satellite instead of cellular phone for this kind of application. I think we already have some contribution we provide a solution to the customer and then we have the contribution starting from this year. This is a very interesting application and the -- I think we're starting from -- between satellite and then satellite gateway and then -- or vice versa. And then now, we also provide a solution between satellite and cellular phones. That is a very good opportunity and good contribution to our infrastructure base. Thank you Okay.

There is a question is more related to our future maybe the IDM opportunity discussion. I think, yes, because like I say at the beginning of the due to the smartphone global market was -- has rechanged and also China right now because of some regulation, they are more want to have the localization supply chain is not only impact we say means knowing China smartphone cellular share, but also impact those IDM companies for the China market. So I think right now, definitely the more uncertainty for running the fab. So -- and I think we all know when has more complete techno cover all devices. And also, we're still keeping -- put a lot of resources to developing the new next-generation technology. I think though -- and also, we have maybe the biggest wafer output capacity, where I think those all attract those IDM companies to discuss with WIN Semi try to leverage our capacity and technology to help them to lower the uncertainty in the future. Yes. So I think once those IDM companies try to outsourcing, the demand to making their uncertainty become lower. I think WIN Semi always become the first one to talk with. Thank you.

Okay. No, it's time, 5:30 afternoon. And then also, there are no further questions. Thank you for your participation in WIN Semi's conference, and then there will be a webcast replay within ours. Please visit www.winfoundry.com under the Investor Relations section. Thank you again, and you may now disconnect. Goodbye.