WIN Semiconductors Corp. (3105.TWO) Q3 FY2025 Earnings Call Transcript & Summary

Good morning, and good evening, ladies and gentlemen, no matter where you are. Welcome to WIN Semi's Results Webcast Conference for the third quarter of 2025. My name is Joe Chen, the 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 for Q3 and provide brief guidance for Q4 '25. 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 slide. 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 turn over the call to Mr. Steve Chen, the General Manager of WIN Semi.

Thank you, Joe, and welcome, everyone. WIN Semiconductors consolidated revenue for the third quarter of 2025 reached TWD 4.49 billion, representing a 19% increase quarter-on-quarter and a 3% increase year-on-year, slightly better than expected and making a return to both sequential and annual growth. The stand-alone gross margin for the quarter was 29.1%, up 6.2 percentage from the previous quarter, while the consolidated gross margin was -- sorry, 26.9%, up 8.4 percentage. This improvement was mainly driven by higher wafer output that capacity utilization from 45% to 60a%. A slightly more favorable product mix and a 0.6 percentage point contribution from the valuation gain on share of a China-based customer held by consolidated subsidiary. As a result, after 3 consecutive quarters of operating loss, we returned to profitable with an operating margin of 8.6%. Net income attributable to the parent company was TWD 1.07 billion translates to EPS of TWD 2.52. The third quarter is traditionally a strong season for U.S. flagship smartphone launches and customers buildup activity proceeded as trending. With the market expectation for stronger than expected sales, cellular PA shipment continued to grow following Q2, while Wi-Fi PA also sustained its momentum with 2 consecutive quarter of growth. The strongest sequential growth came from the Optical business, mainly because the smartphone 3D sensing ramp-up is concentrated in Q3. Even the Infrastructure business originally expected to remain flat from the previous quarter, post a double-digit growth. As a result, all product segments post sequential growth in Q3. As the year drove to a close, a review of the business performance show that the significant fluctuation in the smartphone market in recent years has been mainly from geopolitical factors. In China's low-end smartphone market, government subsides and price competition has accelerated the localization of the cellular PA supply chain. Fortunately, we continue to maintain performance advantage in the mid- to high-end Android and iOS market. The Wi-Fi business benefit from the transition to Wi-Fi 7 with key customers' market share rebounding sharply, resulting in annual Wi-Fi revenue significantly exceeding last year. Meanwhile, WIN has allocated more resources to the high-margin Infrastructure segment, leveraging our gallium arsenide and gallium nitride-based millimeter-wave expertise to deepen our presence in the high-frequency and high-power application. This effort has led to tangible results in low earth orbit, which is LEO, aerospace and AI data center and the optical driver ICs. With the revenue growth steadily, this year, Infrastructure revenue has already surpassed last year level and is now approaching that of the cellular PA, becoming a key pillar supporting both revenue and profitable. In the optical business, which has long relied on smartphone 3D sensing application. The impact of the customer multiple source strategy has led a gradually decline and has seen stabilized. Nevertheless, optical revenue has remained around the mid-teens percentage of the total revenue, thanks to growing contribution from the AI data center applications and the LiDAR use in automotive and robotic sensing, which are expected to become Win's third growth engine in the coming years. On the operations side, WIN has strictly controlled capital expenditure, managing the depreciation and optimize the asset utilization and maintained the positive operating cash flow with a visible improvement quarter-by-quarter. With the outlook of 2025 Q4, with the continuous pull in momentum for the newly launched smartphone, consolidated revenue is expected to grow in the low single digits and the consolidated margin is forecast to maintain in the high 20s level. Thank you. I will turn the call back to Joe.

Okay. Okay. It's my pleasure to present our financial results for the third quarter of 2025. Please refer our presentation slides. And from the very beginning of the slides, you may see the safe harbor notice. Please read it over and pay attention. And then in Page 3, we show you that our ESG achievement and several awards and then we updated to the most recent item by item. And now we start over from the Page 5. On Page 5, we discussed about the revenue, which is top line and margin. In Q3 '25, our consolidated revenue was TWD 4,488 million and Q-o-Q was up 19% and then Y-o-Y also up 3%. And as you guys probably know that the Q1 is our traditional high season for the new flagship smartphone launch from the U.S. brand. And we have several different customers who are also in this supply chain, including the cellular PA and Wi-Fi PA, 3D sensing, proximity sensor, et cetera. And then because of the high season in Q1, so we see most of the customer and most of the product, it's recorded Q-o-Q growth in this quarter. Even the Infrastructure originally, we expect in Q3, probably only flattish. But I think because of the strong AI data center demand and the -- some other the -- point-to-point demand. So the infra -- making the Infrastructure also grows for double digit. And the gross margin for Q3 we see significant improve, mainly driven by several factors. First of all, the capacity utilization increased to 60% from 45% last quarter. And secondly, the product mix are also slightly better and more favorable to the gross margin compared to the last quarter. And the third one, the share price increase of a listed Chinese customers, which is held by our consolidated subsidiary, which contributes our gross margin approximately around 0.6 percentage points. Therefore, the -- making the individual gross margin going up to 29.1%, which is from last -- from 22.9% last quarter. And consolidated gross margin also going up to 26.9% from 18.5% last quarter, which has increased about 8.4 percentage points. And also making the consolidated operating profit margin to 8.6% from negative 3.1% last quarter, which has improved about 11.7 percentage points. So because of the several factors, the -- as I explained it, so making no matter the gross margin, operating margin, it all have a significant improvement. And so therefore -- please flip to the Page 6. So therefore, the -- after the 3 consecutive quarter of business downturn and the operating loss, we returned to the growth momentum in Q3 and as the better of revenue and gross margin improvement with the stable of a -- with a stable operating expense. So net income attributable to the parent company become totaled around TWD 1,070 million in Q3 compared to a net loss in Q2. And also EPS for Q3 becomes TWD 2.25 compared to negative TWD 0.99 in Q2. And okay, then please flip to the Page 6 -- 7, I'm sorry. Page 7, talk about our product mix. Since the product mix is one of the major factor to making our gross margin improve. So you can take a look on the Q3's product mix. In the very beginning, you probably will find out, it looks very similar to the Q2. But actually, remember, the Q3 revenue Q-o-Q was up around 19%, which means even the Cellular, Wi-Fi, Infrastructure, it's all in the same range compared Q3 to Q2, then it means it is still actually all having around a double-digit growth. Don't mention that the others, which is majority is optical, improved from 13% to 16%. This is the most significant growth factor in our product mix Q-o-Q in Q3. If you ask me then what is the second largest growth, I will tell you that's Wi-Fi. Okay. And then the -- after the product mix, then we please flip to next page in Page 8. We discuss about the guidance for Q4. As Steve has mentioned that in his management comment and I'd just repeat again. We expect Q4 '25 consolidated revenue to increase about low single-digit Q-o-Q. And we also expect Q4 consolidated gross margin to be around the level of high 20s. And if you further would like to know about the full product mix, what it looks like in Q4, then I will tell you that I think most of the product mix, including Cellular, Wi-Fi, Infrastructure, Optical will be very similar to Q3. Maybe Cellular and the Infrastructure have the opportunity to be slightly up a little bit. Okay. Then the -- this is the guidance. Then the next page, we can -- we're going to discuss about our financial statement, including income statement and balance sheet. And we can quickly go through the Q3 income statement in -- on Page 10. The Q3 '25 -- okay. First of all, before we begin, I would like to remind everybody that all of the figures is under the unaudited basis. The actual results based on the CPA's report. The net revenue for Q3 is TWD 4,488 million and Q-o-Q was up 19% and Y-o-Y up 3%. The gross profit is TWD 1,205 million and the gross margin become 26.9% compared to last quarter, was up around 8.4 percentage points. Operating expense are very close to the level of last quarter. It was TWD 820 million. And therefore, the operating -- the OP ratio was 18% and operating income becomes TWD 385 million and then operating margin was 8.6%, which is compared to last quarter improved around 11.7 percentage points. The non-op item was -- is positive income around TWD 511 million. The detail will be discussed in Page 12. The income before income tax was TWD 897 million and income tax expense was TWD 213 million. So therefore, the net income was TWD 683 million. The net margin become 15.2%. And the profit attributable to the owner -- to the parent company is TWD 1,070 million. Therefore, the EPS becomes TWD 2.52. So the ROE, which is return on equity, was 11% and approximately utilization rate is 60%, up from 45% last quarter. And depreciation expense TWD 936 million. Q-o-Q was down around 10%. You can see the trend it's gradually quarter-on-quarter going down. And the CapEx is TWD 933 million. And so this is the Q3 income statement. And next page, we show you the accumulated Q1 to Q3 income statement. The net revenue was TWD 11.844 billion. The Y-o-Y was negative 14%. And the gross profit, TWD 2,502 million. The gross margin was 21.1%. The operating expense ratio is about 21%. So therefore, the operating income was TWD 50 million and operating margin around 0.4%. The non-op item was again about TWD 235 million. And the income before income tax was TWD 285 million and then the income tax expense, TWD 155 million. Therefore, the net income become TWD 1,070 million, net margin 1.1%. And accumulated 3 quarters, the net profit attributable to the parent company was TWD 665 million. So EPS for the first 3 quarters was TWD 1.57. And the return on equity was 2% for the first 3 quarters. The utilization rate average is 50% for the first 3 quarter, depreciation expense become TWD 380 million compared to the same period last year it went down around 11%. So it's approach, the end of the year. We make an estimation for the whole year to provide to the investor. We find out the whole year of '25 Y-o-Y probably, depreciation expense will be around between 13% to 14% lower than the 2024. The CapEx for the first 3 quarters was TWD 1,320 million. That's the income statement for the first 3 quarter. Okay. The -- then please flip to the next page, in Page 12, discuss about non-op item. Okay. The non-op item, the total was net around TWD 511 million major items, for example, like foreign exchange gain, TWD 189 million; financial costs, which is interest expense, TWD 181 million. And another major 2 items, for example, like the gain on disposal of property, plant and equipment was TWD 1,942 billion, which is, as you guys know that we sold our fab in the -- located on the Southern Taiwan Science Park or to the ASE. And this is the gain on disposal of the plant and the facility, which is only the shell, not mass production yet. And this is the gain on the disposal of the property. And another one is the impairment loss, which is TWD 1.642 million. This item, is -- as the company reported to the shareholders at the 2025 AGM, the company is implementing a downsizing of our [ funding ] business in China. And so this figure is the asset impairment by the CPA to reflect the current scale of the operation at several China [ funding ] facilities. Okay? And then please flip to the next page, Page 13. It's about -- discuss about the balance sheet. The balance sheet date as of September 30, '25, we still have the cash and cash equivalent around TWD 5.837 billion. And you see the total assets are TWD 57.828 billion, which is -- it went down from the TWD 61.132 billion last quarter. The major reason is because we sold the -- our facility in Southern Taiwan Science Park to ASE. So therefore, the net property and the plant equipment become TWD 21.738 billion. It went down from last quarter. And because of that, we also the -- we used the proceeds to pay out part of our the interest-bearing debt. Therefore, our total liability went down to TWD 7.867 billion sic [17.867 billion] from last quarter, TWD 23.8 billion. And also making the debt ratio went down to 31% from 39% last quarter. And the total equity was TWD 39.961 billion, which is significant -- also significant growth from last quarter and also reflected our book value per share going up from TWD 86.17 to TWD 93.12 in September 30. So finally, the key index, which is the current -- the debt ratio, I mentioned that is 31% and the current ratio also improved to 255%, which is making our financial status very healthy. Okay. That's pretty much what I have.

Okay. Then we now begin our Q&A section, and please submit your question in the input box on the webcast window right now. Okay. There is a question asking about the gross margin looks like for Q3, it's surprisingly better. And I think the major reason as we already explained it. It's because -- first of all, the utilization rate is much better than last quarter and also the product mix. And because if you take a look for the product mix, you can see that as we mentioned it under management comment, we kind of keep the market share of -- for the mid-end and high-end Android phone and also the iOS phone market. And because of that, without the low-end market, which is damage the gross margin or keep the better business on hand. And then on the same time, Infrastructure is having a better performance, which is high-margin business. And then also on the same time, Q3 is the -- exactly the high season for 3D sensing business, which is also enjoyed a better margin. So several reasons from the gross margin. I mean, our product mix and utilization rate, so therefore, the -- making the margin -- gross margin is a lot better than Q2. That's most of the reason is because of that. The finally the -- and the minor impact is because of the our China customers' stock price volatility held by our consolidated subsidiary contribute 0.6 percentage points, which is -- actually that is minor. The major reason still the product mix and the utilization rate are better.

Okay. Let me have explained more detail about the CapEx this quarter. Yes, I think due to the statement, we can see the Q1 and Q2, the CapEx is quite low. This quarter is up to almost TWD 1 billion. Yes -- I think yes, even we don't increase more capacity. But as we just mentioned for the management comment, actually, recent year, because of the smartphone market has some structural change. Actually, we put more resources to increasing more diversified revenue, such as the optical communication and other optical lasers product. And even we have more high frequency like LEO or GEO or kind of aero or defense, this kind of new applications. I think those all need some -- a little different new equipment compared to original gallium arsenide product for the PA especially for the Cellular. So it's mainly reflects some new investment for some new technology projects, yes. And I think for the 2025, the whole year, CapEx still can maintain our original forecasting around TWD 1 billion to TWD 2 billion, this kind of range for the CapEx whole year.

Okay. There is a question from investor asking about our depreciation expense and also the operating expense. It looks going forward to the good direction, and I would like to know more color about that. First of all, the reason the depreciation expense, you see that since the recent couple of quarters, the trend is gradually down -- going down is because since we stopped doing the major CapEx and also the -- most of the major CapEx was happened heavily -- major CapEx was happened in the past several years. It's gradually the depreciation and amortization is -- it's gradually the time -- the period to the end or going down by the schedule. So see, the depreciation no longer going down again -- going up again, sorry. And so the trend will keep going down for the following quarters. And operating expense, if you follow WIN Semi long enough, you probably see past for -- in the past for the long time, our operating expense guidance always give you some kind of percentage linked to our revenue. And -- but since of the -- in the past 2, 3 years downturn and then now we well control the operating expense, especially except the R&D, the rest of it, we all manage well. So in -- you can see that in the recent couple of quarters, it's all in a very small range around TWD 800 million -- between TWD 810 million and TWD 820 million, which -- this kind of range. And then hopefully, we will keep the same for the -- going forward. Okay, this is my -- our explanation.

Okay. I think we just -- I think all the market have read the news that the top 2 IBM companies, Skyworks and Qorvo just announced to be merge in the future. And due to this plan, they will be reducing a lot of operating cost. And I think it definitely will become a very big change for the whole gallium arsenide market. But for WIN Semi, we think that should provide WIN Semi a better chance in the future because of -- first, these 2 companies actually is WIN's existing customer since more than 10 years ago and is still keeping business with WIN Semi every year. And even with sometimes they maybe was one of our top 10 customers, yes. And like we see -- like we discussed in the previous conference, actually start from this year, actually, we -- or last year, actually, we already see these 2 company has more [indiscernible] engagement with WIN Semi. That means actually WIN Semi's technologies really can compete with the internal technology. And everybody knows WIN Semi is the foundry that still keeping a very big energy for the R&D developing and keeping to upgrade our technology [indiscernible] for the Cellular, Wi-Fi and even the infrastructure or the satellite aerospace. So I think after the merge, that company will cover all the microwave technology and frequency, and that's very the same like WIN Semi technology road map. So I think for now, actually, the project that collaborate with WIN Semi should -- we don't see any kind of change. And also in the future, I think because WIN Semi right now is the only foundry qualified for the Tier 1 iOS company. And those companies -- those business is still a lot of portion related to that. So if they want to become a fab-light company, I think definitely WIN Semi could have a better chance to have a better foundry business in the future. Thank you.

Okay. The time is 4:20 p.m. right now, and there is no further question in the slot. Now we are -- thank you. We're going to thank you for your participation, and then we'll finish the call. And then the -- thank you again for participating for the WIN Semi's conference. And there will be a webcast replay within hours. Please visit www.winfoundry.com under the Investor Relations section. You may now disconnect, and thank you again, and goodbye.