Release Date: May 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Second quarter sales increased slightly from the first quarter, indicating some positive seasonality trends.
- No significant damage to manufacturing facilities or equipment from the Taiwan earthquake, ensuring minimal long-term disruption.
- IC sales improved quarter-over-quarter, driven by market share gains.
- Strong cash flow during the quarter, further strengthening the balance sheet.
- Optimistic long-term outlook for both IC and FPD demand, driven by trends such as AI and supply chain regionalization.
Negative Points
- Temporary market softness following the Chinese New Year holiday and the Taiwan earthquake impacted sales.
- Gross margin remained flat compared to the first quarter and was down from the previous year.
- Operating margin was slightly lower due to higher R&D expenses.
- FPD sales decreased quarter-over-quarter, reflecting softness in both high-end and mainstream segments.
- Order rates ramped up slower than expected post-Lunar New Year, causing April revenue to be soft.
Q & A Highlights
Q: If I heard you correctly, the impact on the quarter from the earthquake was $3 million? Or was that just on production and inventory? And maybe if you could clarify and quantify how much the earthquake impact was? And how much of it is embedded in your guidance for the July quarter?
A: Hello, Linda, thank you for asking the question. This is Eric. So we had a $3 million impact, like we mentioned related to the earthquake. Most of that was production lost time. In terms of materials or anything else, it was not significant. The majority of it was production lost time. With respect to our forecast, that was a one-time event for us as the earthquake just impacted this quarter.
Q: Is there any impact on the CapEx plans for this year? Or are you still thinking the $140 million that you had mentioned last quarter? Because I'm thinking given the repairs that might have to take place as you are still investigating. Would that have any change on that? And what could be that in FPD?
A: We don't expect that to change our $140 million expected CapEx for the year. It's mostly IC. There is some FPD there, but it's mostly IC.
Q: Could you cast through what is happening here. Why do you continue to see such low levels of growth? And are you seeing impacts primarily from end market weakness, share losses, given notice to new competitors or due to new programs?
A: In the past, a lot of customers, like the design-house customers, they tape out before the New Year holiday. So people can take off for the holiday. And we see a very heavy bookings both in high-end and mainstream before the holidays. Normally, after the holiday, the order will recover step by step. But this year, it seems to be slower than the past. The market seems to be very volatile. It's not quarter-by-quarter. It's month-to-month, especially in the high end because the higher order, every single set is a much higher price. However, at the end of April and going into Q3, we do see orders start to recover and based on the seasonality. Q3 typically is a good quarter for Tape out. So we are expecting the high-end order, especially we reached to the good level in this quarter.
Q: If you think about mainstream, you mentioned a softer demand environment this quarter. Is that what you're expecting in the next quarter as well? And would the softness there be in certain segments or across the board? Maybe give us more color on how the demand environment looks like there, maybe current lead times and maybe touch on pricing as well?
A: In the mainstream segment, because a lot of new fabs, especially in China, they are ramping up in the mainstream business. So compared to the previous quarters, mainstream demand actually very consistent and increasing quarter-by-quarter. In the past several quarters, we did increase our capacity to support our mainstream business. By starting this year, we do have some mainstream new capacity and we start to take more orders and that reflects in our growth in the mainstream IC business.
Q: Looking at gross margins, quite flat from the first quarter and down from last year. And I believe you mentioned it was due to some premium charges, lower premium charges. Could you touch on that? And then what are you thinking for next quarter?
A: Our premium charges are much lower this year than they were last year. That explains the decrease in revenue and our margin. With respect to our margin levels, for the rest of the year, I don't expect them to be much different than what they are at the current level.
Q: Even when expecting an upturn on the horizon. Are you thinking the same for next year and the second half of this year as well?
A: The premium may not come back. However, because of the better product mix, more high-end, especially in 22 and 28-nanometer products, our branded ASP to increase quarter-by-quarter. So if we compare with last year, even though premium disappeared, our overall gross margin actually increased quarter-by-quarter. So it's nice to have premium charges. But we know it's not a long-term event. So we put a lot of effort to improve our product mix such that the branded ASP can be higher.
Q: Do you expect that there was some damage to photomasks that were being used in the market at the time and that, that should lead to some photomasks to be scrapped or serviced and that could lead to a potential bump in future quarter revenues?
A: During the earthquake, most of our equipment has a safe protection system. So if the earthquake is over a certain scale, the tool will shut down automatically to protect the tool. And at the same time, if there are any photomasks in the process inside the tool, that photomask will be considered incomplete. So it cannot continue the process. It has to be rejected. Certain photomasks, for example, if it is in a cleaning process, then we may have to check if there are any defects or contamination on the mask. Some can be repaired, some cannot be repaired. We have to reject it. So none of the damaged or impacted masks will go to customers. However, there will be a reject or repair in the production line.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
