Himax Technologies (NASDAQ:HIMX) Q1 2020 Earnings Call

0:00 Hello, ladies and gentlemen, and welcome to the Himex Technology, Inc. First Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require any assistance during the conference, please press star-zero on your touch-tone phone. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host. Ms. Miley Bergman from MZ Group. Welcome, everyone, to HIMAC's first quarter 2020 earnings call. Joining us from the company are Mr. Jordan Wu, President and Chief Executive Officer, and Ms. Jackie Chang, Chief Financial Officer.

0:47 After the company's prepared remarks, we have allocated time for questions and a Q&A session. If you have not received a copy of today's results, please email hymax at mdgroup.us or access the press release on financial portals or download a copy from Hymax's website at www.hymax.com.tw Before we begin the formal remarks, I'd like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth, are forward-looking statements that involve a number of risks and uncertainties that could cause actual events or results to differ materially from those described in this conference call. Factors that could cause actual events or results to differ materially from those described in this conference call include, but are not limited to, general business and economic conditions, the state of the semiconductor industry, market acceptance and competitiveness of the driver and non-driver products developed by HIMAS, demand for end-use application products, The Uncertainty of Continued Success in Technology Innovations, as well as other operational and market challenges and other risks described from time to time in the company's SEC filing, including those risks identified in the section entitled Risk Factors in its Form 20F for the year ended December 31, 2019, filed with the SEC in March 2020. Except for the company's full year of 2019

2:20 financials, which were provided in the company's 20F and filed with the SEC on March 25, 2020, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and external audits by an independent auditor to which we subject our annual consolidated financial statements. and may vary materially from the audited consolidated financial information from the same period. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. I will now turn the call over to Ms.

3:07 Jackie Chang. The floor is yours. Thank you, Mari, and thank you, everybody, for joining us. On today's call, we will first review the HIMAX consolidated financial performance for the first quarter, followed by the second quarter of 2020 outlook. Jordan will then give an update on the status of our business, after which we will take questions. We will review our financials on both IFRS and non-IFRS basis. The non-IFRS financials exclude share-based compensation and acquisition-related charges. In light of the prevailing uncertainties clouding the global financial markets, we decided to pre-announce preliminary key financial results for the first quarter on April 3, 2020, with revenues met guidance, while gross margin and EPS both exceeded the guidance issued on February 13, 2020.

4:04 Today, our reported results for revenues, gross margin, and EPS were all in line with the pre-announced results. For the first quarter, we recorded net revenues of $184.6 million, an increase of 5.5% sequentially, and an increase of 13% compared to the same period last year. Historically, the first quarter has seasonally been the bottom of the year in terms of sales due to the Lunar New Year holidays, opened down by more than 10% sequentially. The coronavirus outbreak has prompted more than half of the and Zeng Li. The management of logistics, including worldwide customs operations in various ports and the supply chain were impacted significantly during this period of time.

5:03 Despite these dramatic high winds, we were able to deliver strong financial results in the first quarter, specifically when double-digit revenue The 5.5% sequential increase of revenue was at the mid-range of our guidance of an increase of between 1% to 10% quarter over quarter. Growth margin was 22.7%, exceeding the prior guidance of an increase of 1% to 2% from the 20.6% delivered in the previous quarter. A more favorable product mix among small display products Improved WO factory utilization and higher than expected engineering fees from new project engagements and hence the growth margin for the first quarter IFRS profit per dilute ADS was 1.9 cents exceeding our guidance of minus 0.5 cents to 1.8 cents Improved growth margin and lower than expected operating expenses contributed to the more positive earnings 5S Plus diluted ADS was 2.2 cents, exceeding our guidance of minus 0.2 cents to 2.1 cents.

6:24 Revenue from large display drivers was $61.4 million, up 6% sequentially and down 12.3% year-over-year. The sequential growth was driven by Chinese panel customers ramping of new LCD FAPs, as well as the building of inventories in anticipation of growing demand and higher panel prices in 2020. The revenue was, however, lower than the level of the same quarter last year when the production outputs of panel makers reached the peak. Since then, they have cut back their production each quarter to address overall weakness TV demand and industry-wide capacity oversupply. Large panel driver ICs accounted for 33.2% of total revenue for the quarter compared to 33.1% in the fourth quarter of 2019 and 42.9% a year ago. Revenue for small and medium-sized display drivers was 87.5 million, up 7.9% sequentially and 29.5% year-over-year.

7:30 The segment accounted for 47.4% of total sales for the quarter, compared to 46.4% in the fourth quarter of 2019 and 41.4% a year ago. The sequential sales growth was driven primarily by a surge in tablet sales, offset by a decrease in smartphone TPDI and automotive sales. The strong year-over-year growth was attributed by both tablet and automotive sales. Sales into smartphones were down 7.6% sequentially, but up 6.3% year-over-year. The sequential decline was caused mainly by lower TPDI instruments, reflecting certain customers' delays into the second quarter for their new product launches with our TPDI solutions.

8:28 The coronavirus outbreak caused serious disruptions in customers' engineering work after the Lunar New Year holidays. leading to delay in new product verification and launch timetables. The first quarter sales of traditional DDICs declined by 5.7% sequentially but increased 13.5% from last year. Display drivers and PDDI for tablet and other consumer products were up 51.7% sequentially and doubled year over year. This was mainly due to customers' strong demand from newly launched tablets using TPDI as well as surging needs for online education and home working. We should emphasize that tablet TPDI was one of the main growth drivers for Q1 and will represent a significant growth opportunity for our business through the rest of 2020.

9:27 While we only started mass shipment of in-cell TPDI for tablet this quarter, He already represented around 5% of our total revenues in the first quarter. Jordan will elaborate on this later. Our drive IC revenue for the automotive application was down 9.7% sequentially. It was up 6.2% from the same period last year. Revenue from our non-driver businesses were $35.7 million, down 26% sequentially, but up 38.7% year over year. Non-driver products accounted for 19.4% of total revenues as compared to 20.5% in the fourth quarter of 2019 and 15.7% a year ago. Growth margin for the first quarter was 22.7%, up 210 basis points sequentially and 10 basis points from the same period last year. Growth margin outperformed our guidance of an increase of 1% to 2% compared to the 20.6% of the fourth quarter of 2019.

10:40 A more favorable product mix among small and medium-sized display driver products improved WOSF utilization and higher engineering fees from project engagements were the factors behind the sequential growth. Increased shipment of WHO product to an anchor customer led to higher capacity utilization of our WHO FAPs and therefore better growth margin compared to the same period last year. Our IFRS operating expenses were $37.3 million in the first quarter, down 0.4% from the preceding quarter and down 7.4% from a year ago. The year-over-year decrease was the result of decreased salary and R&D expenses.

11:28 Non-IFRS operating expenses for the first quarter were $36.7 million, down 25% from the previous quarter and down 7.8% from the same quarter in 2019. IFRS operating margin for the first quarter was 2.5%, up from minus 0.8% in the prior quarter and Minus 2.1% in the same period last year. The sequential and year-over-year improvements were primarily a result of higher sales, better gross margin and lower operating expenses. First quarter non-IFRS operating profit was $5.3 million, or 2.9% of sales, up from non-IFRS operating loss of $0.7 million. or minus 0.4% of sales last quarter and minus 1.8% for the same period last year.

12:26 Both sequential and year-over-year improvement were for the same reasons stated above. IFRS profit for the first quarter was 3.3 million or 1.9 cents per dilute ADS compared to profit of 1 million or 0.6 cents per dilute ADS in the previous quarter. and loss of 2.3 million or minus 1.3 cents per diluted ADS a year ago. FIS earnings per diluted ADS exceeded prior guidance of a per diluted ADS of around minus 0.5 to 1.8 cents. The better-than-expected earnings were due to improved gross margin and lower operating expenses. The sequential and year-over-year increase were a result of higher sales, better growth margin, and lower operating expenses.

13:22 First quarter non-IFRS profit was $3.8 million or $0.02 per diluted ADS compared to non-IFRS profit of $1.5 million or $0.09 per diluted ADS last quarter and non-IFRS loss of $2 million or minus $0.01 per diluted ADS for the same period last year. Non-IFRS earnings per diluted ADS exceeded prior guidance of around minus 0.2 to 2.1 cents. Turning to the balance sheet, we had $126.6 million of cash, cash equivalents, and other financial assets as of end of March 2020, compared to $108.2 million at the same time last year and $112.1 million a quarter ago.

14:15 We deliver an operating cash inflow of $10.6 million during the first quarter. The higher cash balance from the last quarter was mainly due to additional unsecured borrowings of $10.6 million during the quarter. On top of the cash position, restricted cash was $164 million at the end of the quarter, the same as the preceding quarter and a year ago. The restricted cash is mainly used to guarantee the secure short-term borrowing for the same amount. We had $67.9 million of unsecured short-term loan at the end of Q1 compared to the $57.3 million a quarter ago and $14 million at the same time last year.

15:03 Our inventories as March 31, 2020 were $148.4 million. Little changed from 143.8 million last quarter, but down from 189.3 million a year ago. Accounts receivables at the end of March 2020 were 186.7 million, up from 164.9 million last quarter and 176.2 million a year ago. Day sales outstanding was 92 days at the end of the quarter, as compared to 97 days a year ago. at 90 days at the end of last quarter. As highlighted in the last few earnings calls, in response to capacity shortage at Foundry and certain packaging material, we had to keep the inventory level higher than usual in 2018. Given the unfavorable market conditions and easing of Foundry capacity in 2019, we have started to control our inventory level since the first quarter of 2019.

16:06 We believe inventory has reached a healthy level by now, but given the prevailing market condition, we will monitor our inventory carefully. Net cash inflow from operating activities for the first quarter was 10.6 million, as compared to an outflow of 22.1 million for the same period last year, and an inflow of 23.4 million last quarter. First quarter capital expenditures amounted to $3.1 million versus $6.3 million a year ago and $2.7 million last quarter. As reported in the last earnings call, the CapEx for both new building construction and the 3D sensing capacity expansion were concluded in the fourth quarter of 2019.

16:56 The first quarter CapEx was for R&D-related equipment for our IC design business. As of March 31, 2020, Himex had 172.2 million ADS outstanding, no change from last quarter. On a fully diluted basis, the total number of ADS outstanding was 173.3 million. As we mentioned in the last earnings call, the coronavirus outbreak created major uncertainties in the marketplace and new challenges for our operations. We have taken swift actions and work extremely closely with both our customers and suppliers in an effort to adapt to new circumstances.

17:41 Among other things, we have proactively monitored the logistics and customs operations in various ports in China to identify any potential impacts to the supply chain and quickly adjusted the production and shipping plans accordingly. At this time, China reopening and other countries moving in the same direction. The market appears to be stabilizing, but business outlook remains murky. For the second quarter, we are confident in the smooth operation of our supply chain, and the current driver IC shipment pipeline remains strong for notebook, monitor, smartphone, and tablet. However, TV and auto businesses are under pressure as global consumption appears to have shrunk Among our non-driver IC products, WHO sales were reduced significantly from the last quarter. Jordan will elaborate on this in a few minutes.

18:43 The second quarter growth margin is likely to be lower than that of the first quarter. Notably, the automotive display driver, which enjoys the best growth margin among our driver IC products, is being hit by the coronavirus. while the monitor business, which is expanding in volume right now, is relatively low in gross margin. In addition, as mentioned above, the second quarter WLO sales will drop significantly. This will also lead to much reduced gross margin of WLO for its lower SAB utilization. For the second quarter, we expect revenue to decrease slightly by within 5% sequentially.

19:28 Growth margin is expected to be between 20.2 to 20.6%, depending on our final product mix. IFRS loss attributable to shareholders are expected to be in the range of around 1.5 cents to 0.5 cents per the alluded ADS. Non-IFRS loss attributable to shareholders are expected to be in the range of 1.3 cents to 0.5 cents. to 0.3 cents per fully diluted ADS. I will now turn the call over to Jordan. Jordan, the floor is yours. Thank you, Jackie. Since late June 4, 2019, we have started to see a major turnaround in literally all aspects of our business with positive momentum and a strong outlook.

20:21 This has been due to design wins with new and existing customers, across our major product lines. However, the strong momentum was interrupted at around the time of the Lunar New Year holidays when many areas of China started to impose strict lockdown measures in the face of the COVID-19 outbreak. Uncertainty in the marketplace has continued since. Despite supply chain disruptions caused by China lockdowns, We delivered decent results in the first quarter, although the results could have been better without the coronavirus. China has recently reopened, and other countries are seemingly moving To the first quarter, our second quarter business is being affected by the COVID-19, especially for TV and automotive-related products.

21:37 However, homeworking and online education have triggered a surge in demand for notebook, monitor, and tablet-related products. We are also seeing very strong momentum in our small phone TDI business on the backdrop of a sluggish global smartphone market. TDDI for Tablet, which has made a decent contribution to our first quarter result, is the major highlight of our business right now, as the technology is being adopted and put into mass production rapidly, as we speak. We are the dominant TDDI supplier to global Tier 1 Android tablet makers, making iMacs the market leader in the emerging trend to replace the traditional design of having two ICs, namely in Q2 and throughout the rest of 2020.

22:53 Despite the coronavirus, We are still making great progress and remain committed to ongoing R&D projects for forward-looking products, notably ultra-low-power smart image sensing, TDF automotive, 3D sensing, and AMOLED. All of these new product areas are growth opportunities with great potential. We have taken proactive steps to strategically manage the business through the current crisis and our commitment that we will deliver both top and bottom line growth in 2020. Now, let me take you through each of our major business areas.

23:38 Let's start with the large panel display driver IT business. For the second quarter, we expect the large display driver IT segment revenue to decrease by high single digit sequentially. Although we deliver strong results in Q1, our visibility is low for the second time in 2020. As a leading IT supplier for the Chinese panel market, Himex is well positioned to benefit from the increased demand coming out of the major Chinese large display players.

24:38 If we look into specific product segments, the global TV market continues to face challenges with reduced end-market demand as well as supply chain disruptions. Conversely, The strong growth momentum we experience in Q1 for notebook and monitor is expected to extend to Q2 and the second half. Home working and online education have created new demand for these products. In addition, the Chinese government has recently mandated that all public offices and institutions replace foreign hardware and software with Chinese alternatives within the next three years. This has boosted the need not only for our large display driver ICs, but also our timing controller components.

25:29 Our businesses in high-end monitor and new generation low-power notebook products, where we are the market leader in DDIC and or TCAN, will benefit significantly from this trend. On the supply side, In anticipation of there being foundry capacity shortage of 8-inch silicon wafers for display drive ICs, we strategically prepared 12-inch foundry as well as associated back-end packaging and testing ahead of our peers to cover the potential 8-inch capacity shortfall. Our design project coverage is strong across all leading Chinese panel makers. The additional capacity has enabled us to accommodate customers' rush orders from monitors, which are in very strong demand globally.

26:26 Looking at technology development, despite the delay of the 2020 Tokyo Olympics, top-tier TV brands continue to promote AK TVs. We have active design activities in both AK TV display driver and timing controller ICs. of which we are the market leader. The AKTV timing controller technology enables the display to bring more realistic and vivid images, delivering immersive viewing experience, especially for high-resolution contents such as scans. Recently, there have been multiple customers announcing their latest AKTVs with high-mesh technology inside.

27:11 Although the penetration of AKTV is still low, we expect this to be a close opportunity for HiMAX as AKTV sales will boost demand not only for our driver IC but also timing controller contents where the product ASP is much higher. Now let's turn to the small and medium sized display driver IC business. Beginning with an update on our smartphone segment. Our TDDI product roadmap, as well as new design wins with end customers and a function capacity advantage, have positioned HiMAC to gain market share. of Next Generation High Refresh Rate TDDI Solutions, for which HIMEX is a leading technology provider.

28:21 Also, the demand for 5G in China is expected to stimulate smartphone demand in 2020, which will, in turn, drive the growth for TDDI. Expecting aggressive Chinese government subsidy for 5G to boost the economy, smartphone makers continue to aggressively develop 5G products and Himex will benefit from all these trends. Although global smartphone market demand has been severely impacted in the short term by the pandemic, based on the current pipeline, we expect our TDI smartphone shipments to grow significantly in future due to the new design wins into a certain newly launched models as well as are ongoing strengths in new design in schedules for 2020 mass production.

29:18 Barking the strong headwind of a declining global smartphone market, we are confident that our smartphone TVDI business will grow strongly from last year for the reasons mentioned above that are specific to Himex. The price erosion of TVDI over the past year is expected to bait in 2020. This is not only because the new high refresh rate products will enjoy a better ASP, but also that the industry-wide tightening of foundry capacity for TVDI will likely provide the price support. Although we are currently facing some pricing pressure, we expect this to stabilize in the second half with growth margin improvement for smartphone TVDI.

30:09 We have prepared the capacity to meet strong TVDI product demand and capitalize on the opportunities for smartphone TVDI as well as other TVDI applications such as tablet in 2020. Due to the strong demand, we expect in Q2 and the second half, we foresee the potential for capacity tightness again. We are therefore working diligently to enable additional capacity. Our C2 sales in 2DDi for smartphones is expected to increase by over 40% sequentially. Our traditional display driver IC sales in 2 smartphones posted a slight sequential decline for the first quarter. We expect traditional smartphone display driver IC shipment to continue to decline in Q2 It will be more than offset by the increase in smartphone DDDI shipments.

31:11 The traditional discretionary IC for smartphones for the second quarter is expected to decrease by around 60% sequentially. As discussed previously, We are encouraged by the progress we have made, collaborating closely with leading panel makers across China for AMOLED product development. We expect a small volume of smartphone AMOLED DVIC shipments in 2020.

32:00 Additionally, we see OEMs aggressively gearing up to produce wearable devices. We own smartphones. We have made progress in wearable AMOLED display drive ICs, where Himex is very active. Overall, we believe AMOLED display drive ICs will soon become one of the major engines for our smart panel drive IC business. Turning to the automotive sector, the worldwide auto sales remain sluggish, with highly uncertain consumer demand in the second half. HMS commands more than 30% of the global market in automotive display driver IC and inevitably this business has been impacted.

32:52 Revenue was down 9.7% sequentially in Q1 and we expect to see around 15% decline in Q2. Even so, combining the two quarters, we are still up around 4% year over year. The year-over-year growth is mainly due to Chinese panel makers' increased market share globally, for which we benefit. Our Chinese customers' ambition to get market share in auto displays, combined with our technology and leadership in this area, position our automotive-related business for further growth.

33:38 Despite short-term challenges, Himex will remain the leader as the major developing trends have not changed. In the auto display segment, the number of displays per vehicle continues to rise as the overall auto display market is set to increase from 2020 onwards. Equally important for Himex, the market is quickly shifting towards a number of new technologies for auto display. including high-resolution, in-sail touch, slim border, giant pillow-to-pillow screen, local dimming for higher contrast, and plastic AMOLED for free-form design, all of which are contributing to expanding demand for automotive display services.

34:52 With existing leading panel makers, we have numerous TDI design projects with multiple new TOI customers and R&D activities if new technology development continues without delay despite the pandemic. We only expect a small volume of shipments. adding backlight improvements for instrument cluster display, especially in dark surroundings.

35:41 Local dimming has shown the potential to improve contrast and achieve OLED display properties without reliability concerns while also providing power savings over traditional backlight. Currently, we have numerous local dimming design-in activities with global tier 1 car makers. Turning to the tablet and consumer electronics businesses, we expect the tablet business to be a major growth area for Himex during 2020, with a significant volume of tablet TDI shipments that began in Q1. The strong momentum is expected to accelerate into Q2 and throughout the rest of 2020.

36:28 The business growth will be driven primarily by leading Android tablet brands rapid adoption of the newly developed in-sale TDDI solutions. In-sale TDDI is quickly becoming mainstream for tablets due to its lower cost and a simplified supply chain as well as faster and easier integration for display manufacturers. At the same time, Consumer demand is expected to accelerate for these cheaper, slimmer, lighter, and more stylish tablets. Himex is the primary supplier for all Android tablet in-sale TVDI products right now. While we only started mass production in Q1, it already represents over 30% of our tablet revenue and around 5% of our total revenue for the quarter.

37:24 We continue to see growing demand in Q2, further boosted by the current trend of homeworking, online education, and the Chinese government's plan to replace IT equipment. Furthermore, we see TDDI tablets with active silos becoming the new mainstream, and Himex is also the market leader in this space. It is worth highlighting that While tablet market is smaller than smartphone, the ASP and number of units for 3Di in each tablet are much higher than that in smartphone. In the second quarter, 3Di for tablet is expected to increase by around 80% sequentially.

38:16 Additionally, for large-sized tablets with slim bezel design, we continue shipping our traditional display driver ICs with cough packaging to a leading Chinese brand customer and expect strong shipments in Q2. We expect a strong momentum in our tablet products, both display driver IC and TDDI, to be one of the main growth drivers in Q2 and throughout 2020. Currently, TDIC and TDTI sales for the second quarter are expected to increase by around 40% sequentially and 150% year-over-year. For the second quarter, revenue for the small and medium-sized display drive IC is expected to increase by low single-digit sequentially.

39:11 Now, let me share some of the progress we made on the non-drive IC businesses in the last quarter. First, on the WLO business. We delivered very strong results in Q1, almost doubling the business year over year, despite a modest decline sequentially. However, we expect a significant decline in Q2 sequentially due to the coronavirus outbreak. The factory to which we usually ship this product has been ordered to shut down by the lower government as part of their disease containment measures. The much reduced shipment in the second quarter, i.e., the much lower WOF utilization, will also have a negative impact on our overall gross market.

40:03 The demand for this product is likely to remain uncertain for a while. even after the factory reopens. Despite the short-term disruption, we continue to make progress with our ongoing R&D projects for next-generation products centered around our exceptional design know-how and mass production expertise in WO technology. Next is an update on the 3D sensing distance. In the smartphone segment, we have advanced our WO Optics solution to cover both structure light and time of flight or TOF 3D sensing. We are seeing increasing TOF adoption by smartphone makers for world-facing camera to enable advanced photography, distance, smash slash dimension measurement and 3D depth information generation for AR.

41:05 In the past few months, We have been actively working with an industry leading TOF 3D camera vendor to develop a new and advanced TOF solution targeting Android smartphones. Leveraging our WO technology, we have made great progress providing the partner with a spot projector for their relevant design, which has been ready for leading Android smartphone makers' evaluation this quarter. A slight delay from Q1 due to the pandemic. We have received positive feedback from our partner and have ongoing active design activities, providing optical component or projector to our tier one smartphone OEM customers.

41:55 3D sensing remains one of the main growth drivers for us. Our known smartphone 3D sensing engagements continue to focus on smart door lock and Industrial Automation Applications, where we provide socialized-based 3D sensing total solution. Projects with several smart developers and customers. In addition to providing a total solution, we also offer individual key components, including optics and our proprietary 3D decoder ASIC, where we have received frequent inquiries from customers for various applications in 3D sensing.

43:04 We also continue to work with partners in shoe automation to optimize its manufacturing process for both cost and production efficiency. I am pleased to report that prototypes of our 3D sensing-enabled automatic robotic cementing system are ready now for production optimization testing. AI-enabled ultra-low-power intelligent sensing, especially in markets such as home appliances, door lock, doorbell, TV, notebook, building control, and security.

44:10 Wi-Fi, a total solution for AI-based ultra-low-power smart sensing. It's built on ANZAC's unique AI-based algorithm. on top of HIMAX Operatory Computer Vision Processor and CMOS Immune Sensor, all equipped with ultra-low-power design. Currently, the laptop is the market of focus. A HIMAX Wi-Fi 2.0 notebook solution provides a laptop-ready 3-in-1 RGB IR AI solution, respecting privacy while enhancing security for notebook users. The number of leading notebook OEMs and ODMs demonstrated our Wi-Fi notebook solution in their next generation premium notebooks with positive feedbacks.

45:06 In addition to notebook, we have also made progress with more OEMs in Wi-Fi solution into the displays Although the COVID-19 disrupted the development schedule, we see customers already starting product promotion. In order for Wi-Fi technology to reach its maximum potential, we have adopted a flexible business model whereby, in addition to the total solution approach mentioned above, we also offer individual key parts, both hardware and software.

46:07 to address the customer's specific needs. For customers who own their own technology and wish to develop their own applications, we can provide our ultra-low power AI processor and image sensor without our algorithm. The customer can piggyback on our technology and focus their efforts on bringing AI to edge devices and transforming sensor for image, sound, activity, gesture, temperature, pressure, and biometrics, among others, all with extremely low power consumption. We continue to collaborate with Google TensorFlow Lite and other AI framework providers in order for our Wi-Fi AI processor and image sensor platform to boost the inference performance and shorten the time to market for the customers targeting the wide variety of AIoT applications.

47:20 Moreover, we are also collaborating with cloud computing service providers in deploying the HiMAC Wi-Fi platform to edge to cloud certified IoT devices. We believe it will be a long-term growth driver for Himex in smart manufacturing, retail, and smart building applications. Moreover, for those customers slash partners whose main business is to provide AI processors, we can offer our ultra-low-power image sensors without our AI processor and algorithm. We are pleased to report that Our industry-first ultra-low power DexA illuminated VGA CMOS image sensor has already been commercialized.

48:07 It's designed with low latency and autonomous modes for always-on intelligent visual sensing applications, which enables with extremely low power consumption, human presence detection and tracking, gaze detection, behavioral analysis, and post estimation for growing markets such as smart home, smart building, health care, smart phone and AR, VR devices. The VCA resolution also supports greater than 90 degree wide field view lens. That makes us ideal in monitoring, detecting and image capturing. We expect demand for the ultra-low power sensing IoT market to explode in the near future. and numerous customers slash ecosystem partners are expressing strong interest in our unique technology where we have made extraordinary progress in AI TV, smart home appliance, smart door lock doorbell, smart surveillance applications, 90-grade voice and audio activation beyond facial recognition on each device.

49:28 Next on our CMOS Immune Sensor Business Update, we have covered our actual low-power smart sensing product status above. Now, let's turn to our CMOS Immune Sensor Business Update. We expect to see a strong growth in this business due to the accelerated adoption of home working and online education. Our industry first 2-in-1 CMOS Immune Sensor, which is another critical part of the Wi-Fi 2.0 notebook solution. is currently available for our partners slash customers. This hybrid CMOS image sensor combines high-quality HD image capabilities with ultra-low power output for AI visual sensing applications, specifically designed for notebooks.

50:17 Featured in unique design and small form factor, enables step-up makers to achieve ultra-narrow bezel design which is on track to become the mainstream in the next couple of years. Our sensor has also incorporated an RGB IR design to enable Windows Hello facial recognition. It helps reduce costs by eliminating the need to add an additional camera. We expect a small volume shipment for this product in 2020 with much expanded volume in the years after. For the traditional human vision segments, we see a strong demand in notebooks where we are one of the market leaders and have experienced increased shipments for multimedia applications such as car recorders, surveillance, drones, home appliances, and consumer electronics, among others.

51:16 Lastly, on air costs, we continue to focus on... and the 2020 CES with positive market feedbacks. Our technology leadership and program manufacturing expertise have made us a preferred partner for customers in these emerging markets and their ongoing engineering projects in AR goggles and SUD for automotive applications.

52:02 For non-driver IT business, we expect revenue to decrease by over 15% sequentially in the second quarter. Aside from the WO sales, which are expected to be done, we expect other products to grow sequentially. That concludes my report for this quarter. Thank you for your interest in HIMAX. We appreciate your joining today's call and we are now ready to take questions. Ladies and gentlemen, if you have a question at this time, please press star and the number one on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

52:50 Your first response is from Tristan Guerra of Barrett. Please go ahead. Hi. Thanks for taking the question. I know visibility is very low, but you've mentioned that Notebook demand was expected to be resilient even into the second half or at least in Q3. Could you give us a bit more color as what you're hearing from customers in terms of demand for some of your other end markets into Q3, whether you expect... More segments to weaken further, or do you see any areas that are potentially going to be rebounded in Q3? Right. Thank you, Kristen. The situation is evolving. And I think, yes, the visibility is low, and people are cautious. But I think it is also fair to say that what we're seeing right now is that people's confidence is growing as opposed to a month ago, for example, in literally all aspects of our businesses or applications.

54:02 So notebook certainly is one of the areas. And also, don't forget, I also mentioned Monitor repeatedly, where we just happen to be a major drive IT supplier into the segment. So what we are looking right now is extraordinary growth in Q2 and another very strong growth year over year for Q3 and Q4. Although, because we are building our production so fast that it is likely that if you look at second half against first half, the monitor business is likely to to be flat or slightly down. But on year-over-year basis, it's still very strong.

54:51 So I've talked about notebook and monitor. And one thing we like to highlight repeatedly is the template market. Template market overall is strong. Again, for the same reason, the pandemic, right? People are working from home and so on. And template is especially meaningful for Himex because As I said earlier, we have a dominant position in Android tablets for traditional driver IC, and now we are almost a sole supplier for TDDR into tablets for Android, for which we have seen exceptionally strong growth. The mass production started in Q1, very strong growth in Q2, and another very strong growth in Q3 and Q4.

55:46 So, both are EOV, YOY, and... Our automotive demand for the... Third Quarter, and even for Q4, I would say it shouldn't be really high. I would say one of the reasons, obviously, is the fact that our market share in China, I'm talking about automotive display markets, our market share in China is very, very high. Although we also enjoy decent market share elsewhere, but our market share in China is very, very high.

56:44 in terms of global market share overall is still behind Taiwan, Japan, and Korea in automotive sector. Although in other places such as TV and monitor, they've already dominated the market. So it's an area, automotive displays, an area Chinese panel makers are very keen to catch up on. So We kind of take advantage of that, so we have fairly good confidence that although the automotive sector with liquidity is limited for the second half, our market share can actually grow in the second half because of the reason I mentioned, even the volume in revenue for second half.

57:34 Now, if I look at the forecast, it's actually a decent growth for the first half. although it is something still to be watched because of the economy status. TV is the area where I've been hearing customers saying, you know, monitor and notebook are so strong, I'm switching my production into those areas and I'm cutting back my TV production. And that is still the case. So if we look at the The second half versus first half TV demand, we are likely to see some decline. So overall, I think, yes, we don't want to sound as if we are overly optimistic, because the economic uncertainty is indeed very, very high, as we all appreciate.

58:30 But if we look at our product, our forecast pipeline, and a lot of which, because of high-med specific reasons, We actually feel pretty positive about our second half outlook compared to our first half. So we are looking at, you know, we are certainly looking to achieve double-digit growth for the whole year compared to last year and also double-digit growth second half against first half. Okay, that's very useful. Thank you. And then just a quick follow-up. What is your view about inventory management as your customer? Are they starting to reduce inventories given the headwinds in terms of fan demand?

59:21 How do you see inventory levels now in the supply chain and how do you think they will be trending over the next couple of quarters? And finally, do you see any changes in your lead times or expect any changes in the coming quarter? Firstly, on lead time, I'll get back to inventory level in a minute. We did suffer from and adapt to the new circumstances pretty rapidly and pretty, I would say, pretty amazingly.

1:00:12 So, you know, as I speak right now, I think in terms of on the supply side logistics, customers, customs and so on, I think that sector has been fairly, to a very large extent, eliminated. On inventory management, what's very interesting is that we are seeing customers with wide portfolio products adjusting their production plan very, very quickly to address the new market demands or weakness thereof. And for us, we also have to adjust our sales and production and planning very fast.

1:01:05 to meet their demands. So, honestly, in a few areas, we are actually seeing a kind of tightness of supply because of the pull-in requests, the ramping... So I hope, I mean certainly, again, the visibility is limited, but what we're seeing is that people are watching extremely closely, paying much more attention than usual in terms of market demand changes, and try to adapt their production accordingly with very fast speed, and we try to also accommodate such changes. Such quick actions. And so hopefully we are not seeing...

1:02:30 Good sign. So, so far I'm not... to worry about that inventory, idle inventory build-up so to speak. Great. That's very useful. Thank you very much. Thank you, Kristen. Thank you. Your next response is from the line of Jerry Hsu of Credit Suisse. Please go ahead. Hi, Jordan. Thanks for taking my question. I just want to follow up on the large-sized enterprise. I think you cited the revenue to decline. and Hsien-Kyu Kim. But if you look at your comments about the notebook monitor related things, that part is quite strong.

1:03:15 So are you seeing a very big slowdown for TV? Because if you look at the supply chain for the panel makers or your other peers, I don't think it sounds like the TV streaming is going to see that kind of decline in the second quarter, so can you help us understand how is that evolving? Thank you. Thank you, Sherry. Indeed, Dutch panel, we said, you know, high single digits second quarter decline. It's mainly It's mainly the TV. And the TV, in terms of volume, is certainly much bigger than a monitor and notebook.

1:04:05 So if I share with you the whole picture, The current TV, based on the current forecast and pipeline, is likely to be down year over year by high single digit to high teens. What monitor is likely to be up by more than 30% and monitor up by double digit in mid-teens. So, however, although the monitor and notebook are so strong, TV, you know, will cause the whole segment of large panel display driver to be down a high single digit. So, indeed, that is primarily TV.

1:05:08 Although, as I said, we just have to adapt, you know, actually, just earlier today, in fact, you know, one of our major customers in China which previously announced to us, the suppliers, that in Q3 they are planning to cut back their TV production. And now they say they are changing their mind and they've actually got orders for further TV outputs. So they say Q3 TV is likely to be at a level similar to Q2 and so on. So as I said earlier, when, you know, answering Tristan's questions. I said the market is evolving and it appears to be looking more positive now than even a month ago or even two weeks ago.

1:06:03 But I think overall still TV is a sector that is likely to suffer from some decline. This year. Okay, thank you. And then a second question on the WHO. I think you mentioned that your customer's facility is under shutdown. Can you give us a little bit more comment on that, you know, which regional country, and then when do you expect that, you know, that shutdown or the factory to restart? I can only tell you that the country is not China. It is the module factory that we are instructed to ship our optics into, right? And it has been that way since day one of our production.

1:06:56 And unfortunately, actually towards the end of Q3, that country started to impose very strict incoming flight restrictions. So we actually, together with our customers, we rushed our shipment towards the end of Q1 and early Q2. And thereafter, somewhere in April, that entire region where the factory is located was completely shut down. So there's actually no workers in the factory. There's not even people to receive our goods. and therefore nobody can ship anything.

1:07:43 And I mean, that kind of disruption, honestly, in our entire portfolio of shipments and operations was very rare, but it did happen, right? So I would say in Q1 for WHO, we probably overshipped and that probably represents some cushion of some buffer of good inventory for the customers to use for their Q2 production, I would say. And Q2, because of this unfortunate incident, W.O. shipment is likely to be rather dramatically reduced from Q1.

1:08:29 And honestly, there's nothing we could do about it. Okay. Thank you. Thank you, Chairman. Thank you. I'm showing no further questions at this time. I'd like to turn it back over to the physical closing remarks. As a final note, Jackie Chen, our CFO, will maintain investor marketing activities and continue to attend investor conferences. We will announce the details as they come about. Thank you and have a nice day. Ladies and gentlemen, this concludes today's conference call. Thank you for participating and have a wonderful day.

1:09:17 Connect. Centers hold the line.