WIN Semiconductors Corp. (3105) Q4 FY2025 Earnings Call Transcript & Summary

Good morning and good evening, ladies and gentlemen, no matter where you are. Welcome to WIN Semi's result webcast conference for the fourth quarter of 2025. My name is Joe Tsen, Spokesman and Associate Vice President of Finance in WIN Semi. Joining me today call are Kyle Chen, our CEO; and Steve Chen, the General Manager of Corporate Administration. Today's call is organized into 3 sections. First of all, our CEO, Kyle, will comment on the company's results and provide brief guidance for the first quarter of 2026. Secondly, I will go through the operational analysis over the past 2 years and the financials in details. And General Manager, Steve Chen, will have the industry outlook to share with you. After that, we will open to the floor for Q&A. Please freely submit your questions 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. Kyle Chen, our CEO in WIN Semi.

Thank you, Joe, and hi, everyone, and welcome to join this call. For the fourth quarter of 2025, WIN Semi reported consolidated revenue of TWD 4.794 billion. It's up about 7% quarter-on-quarter and up 29% year-on-year, slightly exceeding the previous expectations. Individual gross margin for the quarter was 35.1%, improving by 6% from the previous quarter, which consolidated gross margin reached 31.8%. It's up about 4.9% sequentially. Capacity utilization still keep steady about 60%. It's consistent with our previous quarter. The improvement in this gross margin was primarily driven by a more favorable product mix with an additional contribution of approximately 0.5% from the relevant profit generated by a listed Chinese customer held by our consolidated subsidiary. As a result, consolidated operating margin reached 33.9% (sic) [ 13.9% ]. Net income attributable to the parent company for the fourth quarter was TWD 1.029 billion and EPS was TWD 4.43 (sic) [ TWD 2.43 ]. For the full year of 2025, accumulative revenue reached TWD 16.638 billion is about down 5% year-on-year. EPS was TWD 4. Okay. Now I will review the detail of the fourth quarter. For the fourth quarter, that's divided by the 4 major application segments. Firstly, is infrastructure. It still sustained a strong momentum from the previous quarter and remain a strong performing segment with continued revenue growth. Secondly, in terms of the Wi-Fi, as the peak season of the U.S.-based flagship smartphones came to the end and the router market demand remains soft. So Wi-Fi revenue declined slightly. Third one is the Cellular PA supported by better-than-expected end market sell-through and the recovery in demand from the Android smartphone PA customer. Cellular PA revenue remained flat. Last one is the Optical segment. Driven by a relatively later inventory build cycle for smartphone, 3D sensing application as well as engineering revenue from the project development of AI optical communication, demand momentum extended to this quarter. So in total, resulting in continuous growth in Optical revenue. So overall, although the full year 2025 revenue was slightly lower than previous year, WIN Semi's product mix have shifted meaningfully, the business focus has gradually moved away from the mature smartphone market toward aerospace, infrastructure and AI data center applications, which offer higher value-added content and greater technological complexity, close aligning with the core strength that we have been long investing in developing. Looking ahead to the 2026 this year and even further in the future, as AI-driven data growth accelerate and the basic economy expands both the demand for ultra-high bandwidth and low latency in AI optical communications and the need for broad coverage and high-speed transmission in low earth orbit, so-called LEO, satellite network rely heavily on superior material properties and the performance of the compound semiconductors. Our competitive advantage and strategy in compound semiconductor are built on many years proven mass-production experience as well as a long-standing co-developing partnership with a leading global customer, enable us to offer a comprehensive and differentiated portfolio for advanced process technologies. With a stable mass production management, we are also the only compound semiconductor foundry in this industry that provides a truly turnkey solution delivery integrated service from the upstream architectural structure design to downstream testing by leveraging and replicating the successful business model, especially -- sorry, established in the wireless micro communication. We are expanding this capability into high gross margin, including the AI optical communication, optical sensing and the rapid developing satellite sector. This integrated approach enables customers to shorten development cycles and accelerate time to market. In AI optical communication, we are currently engaged in joint development project with multiple optical communication customers, supporting our continuous revenue growth in the year ahead. Looking ahead for the first quarter this year 2026, due to this traditional low season, fewer working days and WIN's 3 fab is for the annual maintenance. So our forecast is the consolidated revenue is expected to decline by high single digit quarter-on-quarter with consolidated gross margin expected to be around mid-20s level. So now I turn the call back to Joe.

Okay. Let me go to the operational analysis and also the Q4 review. Thank you, Kyle. Welcome, everybody, and please turn the page to -- okay. From the very beginning, please read over the safe harbor notice. And then Page 3. Page 3 is our ESG achievement. We keep updating the ESG award, including DJSI and also Taipei Exchange listed the ranking. And now please flip to the Page 4 and Page 5. This is -- what we're going to share with you that in the past 2 years, the -- our operational review. And I think for business and the revenue review, I'm going to leave it to Steve later include in his report. And then I will focus on, first of all, the operation expense. On Page 5, as you can see that in the past 2 years, our OpEx has been kept at a stable level around TWD 800 million plus/minus even in the period, we may suffer some kind of downturn, but -- or even in the second half, we have a better utilization rate, but we intentionally to control the OpEx but we also allocated around 50% of the OpEx to R&D to put more resources into the new technology or new application for the future growth that we have to do. On the right-hand side, we're going to show you the operational cash flow and the CapEx. In the past 2 years, even in during the period of Q4 '24 to the Q2 '25 we suffered a loss. We having a downturn at that time, but we're still keeping our operational cash flow positive. And then even in the second half -- entering the second half of '25, we have a better utilization and better business, we still manage the operational cash flow very well. And then at the same time, we also managed the CapEx in the past 2 years also disposing the idle assets. And you can see that starting from the second half of '25, we have a little bit higher CapEx that the project-based CapEx that's for new demand and the new opportunity and to work with our partner and the customer. Okay. Please flip to the next page, Page 6. This page, on the left-hand side, we can see the depreciation expense trend. In the past 2 years, we intentionally to have control of the CapEx. So that CapEx, we have less pressure of depreciation expense. And even in the second half, you can see that we already -- the depreciation already passed the peak and the depreciation expense is going down significantly entering the 2025 and then also reducing the fixed cost burden on the same time. And especially the second half for the single quarter even below TWD 1 billion for each quarter. And we also improve the product mix and also the cash flow by lower the depreciation, amortization, et cetera. And we're still keeping the operational -- operating cash flow positive. And on the right-hand side, we're going to show you the utilization rate. See that in the past 2 years, quarter-by-quarter, we may suffer up and down. But the second half of '25, we're coming back to around 60% of the utilization rate and with the revenue ramp-up, the utilization also ramp-up. Can see we haven't reached the peak of the previous peak, which is in the second -- the Q2 of '24, but our gross margin is already exceed the level at that time. That's because we have a better product mix, together with the better utilization and then pushing the gross margin also become better. I think that we're doing a lot of things to moving the business to the high-margin business. Okay. Then we come back to the Q4. Please flip to Page 8. The Q4 '25, our consolidated revenue was TWD 4.794 billion. Q-o-Q was up 7% and Y-o-Y was up 29% and mainly driven by the high-margin product, for example, like infrastructure and optical electronics business. And then even though the smartphone, the Q4 is -- the inventory pool is entering in the -- almost, the end, but it looks like the new model flagship model of smartphone seems selling better than expected. So the decline for cellular and Wi-Fi is limited. At the same time, the Android cellular phone have a better performance. So that's making our gross margin improve. As we mentioned that the utilization maintained at 60% because of favorable product mix, the individual gross margin was 35.1%. And in addition, the relevant profit generated by our -- by the listed stock from the Chinese customer held by our consolidated subsidiary contribute 0.45 percentage points to our gross margin. So as a result, our consolidated gross margin at Q4 become 31.8% and operating profit margin was 13.9%, which each one was increased by -- Q-o-Q increased by 4.9 and 5.3 percentage points compared to Q3, which is -- those are better than our earlier expectations. And please flip to the Page 9, talk about the earnings. For the -- because of the gross margin improvement, also operating ratio stable. The net income attributable to the parent company reached around TWD 1,029 million for the Q4, and the whole year of 2025, it was TWD 1,694 million. The Q4 EPS was $2.43 and the whole year of 2025 was TWD 4. Okay. That's for the bottom line. And our -- please flip to the Page 10, I'll talk about our product mix in Q4. Our product mix -- okay, the Q4, as you can see that as our CEO mentioned that we are moving our product mix gradually to the more favorable to our gross margin and profit for a period of time. So you can see that Q4 very clear that the infrastructure increase the most and at the expense of Cellular PA and the Wi-Fi also going down at Q4. Another growth happened at optical electronic business. For optical business, because of 3D sensing went up later than other segment for the flagship smartphone. So there's still a good performance in Q4 and compared to last quarter. Okay. Then finally, we go to the guidance. I think Kyle has mentioned that, I am going to repeat again. For the Q1 '26 because of it's a traditional low season and also less working day, in addition, we have annual maintenance. So we expect the consolidated revenue going to decline high single digit Q-o-Q. And also Q1's gross margin, we expect will be around the level of mid-20s for the gross margin. And if we separate different segment of the product, we probably will see that except Cellular PA will continue -- will be growing in Q1. The rest of the infrastructure, Wi-Fi and optical electronics will be entering the low season and will not be higher than Q4. Okay. Then we can go through our financial statement. Okay. Please flip to the Page 13 for the -- those are the -- I have to remind everybody, this is unaudited basis. The actual results is based on the CPA's report. Okay, the revenue for Q4 was almost TWD 4.8 billion Q-o-Q, up 7% Y-o-Y, up 29%, and the gross margin was 31.8% compared to 26.9% in Q3. And operating ratio keeping the same at 18% as last quarter. So the operating margin become almost 14% compared to 8.6% last quarter, which is better. And the non-op item was gain around TWD 437 million. We have detailed in Page 15 for your reference. And then the income before income tax was almost TWD 1.1 billion and then the income tax expense was -- I'm sorry, TWD 142 million. Therefore, the net income become TWD 960 million. Q-o-Q was up 40% and net margin was 20% compared to Q3, Q3 was 15.2%. And then the net profit attributable to the parent company was at TWD 1,029 million. So therefore, the EPS was TWD 2.43. And return on equity is 10% and utilization, same as last quarter, 60%. Depreciation expense keep going down, become TWD 827 million. CapEx is TWD 372 million, also lower than last quarter. That's Q4. And please flip to the Page 14. Page 14, talk about the whole year of '25. The total revenue for 2025 was TWD 16,639 million. The Y-o-Y was down slightly around 5%. And gross margin for the whole year was 24.2%, was 1 percentage point higher than last year. And OpEx ratio equivalent to 20%. So operating margin become 4.3% and non-op items, TWD 672 million. The income before income tax was TWD 1,387 million. So therefore, the net income become TWD 1,090 million. Therefore, net margin was 6.5% compared to 1.9% last year. The net profit attributable to parent company was TWD 1,694 million. Therefore, the EPS become TWD 4 even. The return on equity for the 2025 whole year was 4.3%. The whole year's utilization equivalent to 50% depreciation expense was TWD 3,907 million, which is lower than last year. And CapEx, a little bit higher than last year was TWD 1,691 million. And normally, I will -- we will provide some kind of depreciation expense and the CapEx guidance for '26. Depreciation expense, we expect it will be going down around 10% to 20% at 2026. And the CapEx for the whole year 2026, we also expect probably will be TWD 2 billion plus and minus. Okay. Then please flip to the Page 15, talk about the non-op item. I think this is quite straightforward. The total non-op item was a gain on TWD 437 million, including the foreign exchange gain and the financial cost, which is income -- the interest expense. That's pretty straightforward. Okay. Then finally, the last page will be the balance sheet. I think the cash and cash equivalent was TWD 7,067 million and total assets was TWD 60,729 million and total liability was TWD 18,738 million and common stock remained the same. So total equity become almost TWD 42 billion compared to almost TWD 40 billion at September 30. Okay. Then therefore, the book value per share at December 30 was TWD 98 compared to the TWD 93.12 at September 30. And the key index, including current ratio is was 248%, not much different than the September 30. And that ratio was the same, exactly the same as last quarter, which is 31%. Okay. This is pretty much what I have. Okay. Thank you. And then I will hand over the call to Steve Chen, the General Manager of Corporate Administration.

Okay. Thanks, Joe, and good afternoon to everyone. Yes, I think we'll start on the overview for the 2025. We can see if we break down to our application. From 2025, we can see the Cellular was the biggest change from 2024. The revenue will drop around like 5%. But at the same time, our infrastructure level increasing about 5%. And then I think Wi-Fi and optical keep very like the same level, yes. So that's the whole picture about our revenue in 2025. And although we dropped maybe around like 5% of the total revenue, but because of the product mix was better in 2025, so actually, the margin for '25 is a little better than 2024. And next page, we can break down by our 4 application. We can see the Cellular actually dropped around like 20% year-on-year. I think that's mainly due to our refocusing on the high-end and premium model of the smartphone market. And the second one is Wi-Fi. I think thanks for the Wi-Fi 7 and Wi-Fi 6, the penetration rate of these 2 new spec is keeping higher and higher year-by-year. So it helped us our Wi-Fi application have a double-digit growth in this year. And then the next one, which is growing is our profitable infrastructure-related application. I think thanks to the very active -- activity new satellite launch and the contribution of the AI data center high-speed request to driven the gallium arsenide optical driver IC become more major position in this portion. So even though the base station, I think, is a little saturated at this moment, but we still can keep our infrastructure application grow around 5% year-by-year. And the next application we will review is the optical business. I think this segment, the 3D sensing is still taking around 60% of the revenue. And due to the new player was joining for the 3D sensing of our end customers. So definitely, we see double digits going down for this segment. But fortunately, we diversify this segment by those non-3D sensing business is become -- get some results. So right now, the optical business, the non-3D sensing taking around like 30% to 40% of our optical revenue, which we're keeping the product mix become better. And then we will look around the market outlook for these 4 segments. First, let's check with the cellular portion. I think the good news for this project is I think the 5G penetration rate is still keeping a little progress year-by-year. But I think this year, we also see that the risk is about the memory shortage. It maybe will impact the global trend about the handset and which we see from most of the market institutions, they also foresee this year, maybe the global TAM will drop around like 5%. But because WIN Semi is more focusing on the premium model, high-end model and even some mid-end model. So we can see the premium model should still keeping growth in this year, so which means, I think, the impact from the memory shortage should be less to Win Semi. And then -- the next one is a review about the Wi-Fi. And we can see in this page, I think the Wi-Fi 6 and Wi-Fi 7, like I said, still keeping penetrating the market. So the CAGR for these 2 spec, I think still will have more than double-digit growth year-by-year for the next few years. So that's also help WIN Semi to have a better demand year-by-year. So I think this year, we still keep optimistic for Wi-Fi application demand. And then we will go to the infrastructure related demand. First, I think base station because -- I think 5G base station infrastructure is already more mature. So what we see from market institution that will be facing around like a 2% drop by year. But I think for our diversification in this segment, actually, we will have such like optical GaAs driver for the data center, which -- because mainly driven because of the very high-speed 1.6T this kind of spec. And we see in this year, maybe because 1.6T, that will be -- become the main spec in this year for the end application. So we foresee this demand maybe will become double, even triple in this year. And the next one that will be our optical VCSEL sensing market. I think right now, this market is not only for the face ID. It still has -- more application will be used VCSEL sensing such as LiDAR used in car or in the cabin or even for some mobility device such as like lawn mover or even the other kind of different movers. And that also will bring some increasing for the demand in this year. And next, I think we are more focusing on the 2 key growth engine for the compound semiconductor in the future. I think first is the satellite. We can see from the chart, start from 2021 to 2025, it's already become the first wave of the LEO satellite launch and bring a very good volume for this market. And then I think from -- start from 2025 to the next 5 years, we already see the demand still will jump more than times again. And even we already see some markets such, some of -- most of the end satellite operators, they will submit more aggressive satellite launch plan to the NASA. And I think that all will bring a very good momentum in a few years. And for WIN Semi, actually, we are not -- for those of the satellite communication, our technology can be applied in different kind of ways. First is the satellite-to-satellite, this kind of communication. And then from the satellite to the gateway or from the UT. And even right now, we already see that more new project demand for the satellite to cellular phone, which we call is the direct cell. And because of those more and more dollar needed for the transportation, we can see the band from the satellite communication will expand from the original Ka, Ku band to E-band and even V-band. And even we see the new demand coming from the W band, which is higher than 100 gigahertz. And -- but fortunately, the WIN Semi is used always to invest a lot for the technology developing. So for those high-end frequency, we already have the technology well prepared and show to our customers and also have some NRE project with our customers such as nonmetal in gallium arsenide and gallium nitride. We use 0.1 micron technology for both material and can provide very superior performance to the customer for the satellite communication. And the next one, we will discussing about the AI portion. I think everybody knows after the AI data center become more popular from the market, the CAGR definitely will become very high, more than 30% and even more than 40% for the per line communications speed. And WIN Semi definitely will leverage our gallium arsenide wireless mass production experience and capacity and technology to this new market because of the advantage for WIN Semi to step into the optical market, definitely, we have a very wide global customer partnership with the Tier 1 customer. And actually, most of our Tier 1 customers, they somehow will have also covered the optical communication business. So it's more easy for WIN Semi to build the confidence with those Tier 1 customer. And then we will leverage the same kind of technology investment for the RF. So we will provide a very broad and advanced technology innovator for the VCSEL, CW laser, EML laser, even InP PIC. Those kind of different application to cover different kind of distance, which we can see on the Page 35. I think right now, our VCSEL and InP PIC is already mass production. And then right now, our CW laser and EML, that's still is in the ongoing qualification procedure. And the next page, we are showing, I think, for WIN Semi CW lasers road map. Right now, our 70-milliwatt and 100-milliwatt is all collaborate with our customers for the qualification process. And we also have NRE for our customer for the 200 and 400 milliwatt in the future. And as everybody know, WIN Semi provide a turnkey solution in the RF business. We not only produce -- provide wafer process to customers. And also we have a internal Epi process to support the advanced Epi structure technology to our customers. And we also will leverage this kind of business model to the optical business. And we see that maybe that will become an advantage to WIN Semi because for the optical process, the growth will become a very necessary process for the laser technology. So by leveraging WIN Semi's internal Epi capacity, definitely, we can provide a more complete turnkey solution to our customers. And also, everybody know, we have testing, AOI, that's for RF. And I think we also will leverage to the optical devices application. And the next page is definitely our biggest advantage is the 6-inch process capacity from the gallium arsenide to InP because of WIN Semi has the largest gallium arsenide capacity in the world and those 6-inch kind of process for WIN Semi is already running more than 25 years. And also, we start to -- our 6-inch InP HBT is also more than 3 to 5 years. So WIN Semi is still already have experience with transfer those kind of wafer size for the indium phosphide from 4-inch to 6-inch. And because we have a very huge capacity ready for those kind of compound wafer process, I think we -- in the future, WIN Semi can leverage our technology and experience for the 6-inch in gallium arsenide to the 6-inch indium phosphide capacity in the future. And that will provide a faster time to market and lower CapEx and lower entry barrier to our customers to convert from the 4-inch to 6-inch. And the next page, we will show that I think all the AI is associated not only for the data communication, but also the sensing application. So for the past 10 years, WIN Semi is already built a lot of sensing technology no matter for the LiDAR, for the AR or for the VR and even the autonomous vehicles. I think in the future, because of AI, those kind of WIN Semi technology can get a more better momentum in the future. So that's about our whole overview about 2026 and for the midterm kind of optical and satellite future demand.

[Operator Instructions] There is a question asking around Q4, the reason Q-o-Q decrease for Wi-Fi and Q-o-Q increase for infrastructure. I think we have mentioned that by our CEO earlier, I think because the U.S. flagship smartphone inventory pool has come to an end. And also at the same time, the router market demand Q4 kind of stopped. That's making the Wi-Fi PA revenue decline slightly, not too much. And that's the reason why. But another regarding the infrastructure, I think infrastructure turned into stronger since Q3 due to satellite business and also the optical driver in AI data center demand and also, aerospace also strong. That's the reason why.

I think for -- our slide mentioned there is a lot of demand -- future demand driven that will come from the satellite and AI related. I think like Joe and Kyle just saying, I think right now, the satellite, which is the aerospace, those kind of demand is already taking around 30% to 40% of our infrastructure applications revenue. And the AI-related technology last year is taking -- should be in the low single digits about our revenue. And this year, we think that should be up to mid-single, this kind of range.

Okay. There's a question asking about the depreciation and amortization and asking is that the 10% decline at 2025 especially second half. I think we have mentioned it earlier, we expect the whole year of 2026, the depreciation expense is going to reduce around 10% to 20% compared to the whole year of 2025, probably going down quarter-by-quarter. That's pretty much like that.

Okay. There's a lot of questions [ is all ] want to know a little better about our optical technology status. Yes, just to explain again. I think right now, like the slide we show, our VCSEL for data communication product is already in mass production. And also at the same time, for those kind of very long distance PIC laser, we also is already mass production, which is -- this is more than 10 kilometers. And for those demand between 100 meter to 10 kilometer, which is like the CW laser or EML laser, so these 2 kind of laser, we both already have a lot of customers have NRE with us and some of that maybe right now is still in NRE, but some of them will already step into the qualification schedule. And then that's for the transceiver side. And for the receiver side, I think our PD receiver technology is also already stepped into the qualification schedule. I hope we have good news to announce in the future.

Okay. The time is 5:32, I'm going to answer the last question asking about Q1. Okay. First of all, Q1's utilization rate we expect will be pretty much like Q4. And the reason why is although the revenue are going down around high single digit, but I think probably most of the growth will be happened at Cellular PA. The rest of the segment like infrastructure, optical and Wi-Fi will be going down. And because the Cellular PA is a shorter product cycle. So we expect the volume of the production probably pretty much the same as the last quarter. Then that's the reason why we also expect the utilization will be probably pretty much the same as last quarter. And then because of that, the product mix will be unfavorable to the gross margin for Q1. That's also the reason why we guide mid-20s of the gross margin for Q1. Okay. Now it's 5:34, the time right now. And thank you for your participation in WIN Semi's conference. There will be a webcast replay within hours. Please visit www.winfoundry.com under the Investor Relations section. You may now disconnect it. Thank you and goodbye.