Earnings Transcript for IMOS - Q3 Fiscal Year 2024

Operator: Greetings, and welcome to the ChipMOS Third Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I would now like to turn the conference over to Dr. GS Shen of ChipMOS TECHNOLOGIES' Strategy and Investor Relations team to introduce the management team of the company in conference. Dr. Shen, you may begin.

GS Shen: Thank you, operator. Welcome, everyone, to ChipMOS' third quarter 2024 results conference call. Joining us today from the company are Mr. SJ Cheng, Chairman and President; and Ms. Silvia Su, Vice President of Finance and Accounting Management Center. We are also joined on the call today by Mr. Jesse Huang, Spokesperson and Senior Vice President of Strategy and Investor Relations. SJ will chair the meeting and review business highlights and provide color on the operating environment. After Silvia's review of the company's key financial results, SJ will provide our current business outlook. All company executives will then participate in an open Q&A session. Please note, we have posted a presentation on the MOPS and also on the ChipMOS website, www.chipmos.com, to accompany today's conference call. Before we begin the prepared comments, we remind you to review our forward-looking statements disclaimer, which is noted as the Safe Harbor Notice on the second page of today's presentation and in the results press release we issued. As a reminder, today's conference call is being recorded, and a replay will be made available later today on the company's website. At this time, I'd like to now turn the call over to our company's Chairman and President, Mr. SJ Cheng. Please go ahead, sir.

SJ Cheng: Yes, thank you, GS. We appreciate everyone joining our call today. Our results were strong in the third quarter. We are pleased with our business execution in the face of headwinds from inventory adjustments across most end markets, which is being seen by the broader industry and is not specific to ChipMOS. At the same time, we continue to focus on improving operating leverage, operating expense management and overall efficiency of our business. We are carefully adding capacity through disciplined capital allocation to meet higher growth opportunities. As a result, we are expanding our leadership and building greater value for shareholders over the long-term. In terms of Q3 highlights, our Q3 revenue increased 4.4% compared to Q2 2024, and was up 8.7% on a year-over-year basis. Q3 gross profit increased 3.4% compared to Q2 2024, while gross margin remained flat over the same period, impacted by cost increases and a lower Assembly UT and decreased 200 basis points compared to Q3 2023. Net Earnings of NT$ 0.41 in Q3 2024, and NT$ 1.63 for the first nine months of 2024. In terms of the details, our overall utilization rate was 67% in Q3 2024 compared to 69% in Q2 2024. The slight decrease came from Assembly UT, which decreased to 58% in Q3, impacted by customer inventory adjustments. Average Test utilization and DDIC both held the same level as Q2 2024 were 67% and 75% respectively. Bumping UT level slightly increased to 66%. Regarding our manufacturing business, assembly represented 22.1% of Q3 revenue. Mixed-signal and memory Testing represented 22.8% and wafer bumping represented 23.2% of Q3 revenue. On a product basis, our DDIC product represented 32.6% of total revenue in Q3, with gold bumping representing about 20.5%. Revenue from DRAM and SRAM represented 13.6% of total Q3 revenue. Our Mixed-signal products represented 10.6% of total Q3 revenue. As additional color on our business, our memory products represented 36.3% of total Q3 revenue. Memory product revenue slightly increased 1.1% compared to Q2 2024, and increased 16.2% on a year-over-year basis. DRAM revenue slightly decreased 1.6% compared to Q2 2024 and represented 13.3% of total Q3 revenue. Flash revenue represented about 22.7% of Q3 revenue, which was up 3.2% compared to Q2 2024. NOR Flash also benefited from customers rebuilding inventory levels and increased 9% compared to Q2 2024. NAND Flash represented 30.2% of Q3 total Flash revenue, impacted by customer adjust inventory, and decreased 10.4% compared to Q2 2024. Moving onto Driver IC and gold bump revenue, this represented about 53.1% of total Q3 revenue. This was up 4.3% compared to Q2 2024 and generally flat on a year-over-year basis. Of note, Gold bump revenue was up 14.5% compared to Q2 2024, while DDIC revenue was slightly down 1.3% compared to Q2 2024. New OLED project production helped offset macro softness in large panel demand. COG represented about 65% of Q3 DDIC revenue and grew 7.3% compared to Q2. Demand related to Auto panels contributed about 25% of our Q3 DDIC revenue, which was down about 2.7% compared to Q2, reflecting ongoing customer inventory rebalancing. Regarding TDDI, it represented around 17.7% of Q3 DDIC revenue, while OLED grew to 26.3% of Q3 DDIC revenue. This was up 9.2% compared to Q2 2024 driven by New OLED project production and customer re-stocking. On an end-market basis, total revenue from Automotive and Industrial represented about 21.2% of Q3 revenue. This was up slightly 1.6% compared to Q2 2024. TV panel demand represented 16.3% of Q3 revenue, which was down 10% compared to Q2 2024, reflecting broader demand softness of large panels. Smartphone revenue represented 39.5% of total Q3 revenue, which was up 10.6% compared to Q2 2024, led by New OLED projects. Computing accounted for 3.4% of Q3 revenue, which was mostly flat with Q2 2024. Lastly, Consumer related revenue represented 19.6% of total Q3 revenue, which was up 5.2% compared to Q2 2024, due to seasonally typical customer re-stocking. Now let me turn the call to Ms. Silvia Su, to review the third quarter 2024 financial results. Silvia, please go ahead.

Silvia Su: Thank you, SJ. All dollar amounts cited in our presentation are in NT dollars. The following numbers are based on the exchange rates of NT$ 31.65 against USD 1 as of September 30, 2024. All the figures were prepared in accordance with Taiwan-International Financial Reporting Standards. Referencing presentation Page 12 consolidated operating results summary. For the third quarter of 2024, total revenue was NT$ 6,068 million.Net profit attributable to the company was NT$ 299 million in Q3.Net earnings for the third quarter of 2024 were NT$ 0.41 per basic common share or US$ 0.26 per basic. EBITDA for Q3 was NT$ 1,640 million. EBITDA was calculated by adding depreciation and amortization together with operating profit. Return on equity remained very healthy in Q3 at 4.9%. Referencing presentation page 13 consolidated statements of comprehensive income compared to Q2 2024

SJ Cheng: Thank you, Silvia. Based on what we are hearing from customers and companies in the industry, we expected the third quarter will be the high point for the year. We are taking a conservative view on Q4 given the continued headwinds facing the broader market and uncertainty around continued customer inventory adjustments. Overall, we continue to expect the second half of 2024 will be better than first half of 2024. This is also in line with what we have heard from some of the largest semiconductor companies. Therefore, UT level improvement is our operation and business priority for ChipMOS. In our memory product business, a slight correction is expected in the fourth quarter due to softer demand and inventory adjustments by customers. DRAM products are maintaining stable momentum with improving end markets. A slight correction for NAND Flash is expected in Q4 primarily due to a weaker consumer market. NOR Flash is expected to be impacted by normal seasonal inventory adjustment at customers. In our DDIC business, we expect to see some correction in Q4 due to soft demand of TV panels and customer de-stocking in smartphones. Meanwhile, auto panel and OLED business momentum has slowed with customers taking a more conservative order pattern in response to the market situation and inventory levels. Therefore, we expect our DDIC product momentum to be impacted more than our memory product momentum. In-addition, we are working closely with our customers on our new low cost silver alloy bump solution on panel level reliability qualification with continued manufacture process optimizations and simplifications. I am pleased to report that our low-cost silver alloy bump solution has successfully passed the reliability test for small and medium-sized panels. This is another bright spot for us with some customers’ products already starting to design us in, and a lot of interest from both overseas and domestic customers in our solution. We expect our low cost bump solution will further enhance our DDIC product competitive position. Overall, ChipMOS is in a very strong position in long-term growth markets with a very strong balance sheet. We will continue to develop long-term customer relationships and provide the support that customers rely on us for and value. Operator, that concludes our formal remarks, we can now take questions.

Operator: Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from Anthony Liu from Yuanta. You may begin.

Anthony Liu: Can you please give us some guidelines for 2024 and 2025 CapEx?

Silvia Su: We expect 20% to 25% for 2024 due to previous high-end tester capacity expansion and roughly15% to 20% for 2025.

Anthony Liu: Can you please give us some guidelines for depreciation? Would you expect the depreciation to still be 3% to 4% incremental quarterly under the condition of previous higher CapEx?

Silvia Su: We expect the depreciation of 4Q 2024 to 1Q 2025 would still be around a 3% to 4% quarterly increase. However, if the CapEx in 2025 would be lower as previous mentioned, then the number could be reduced.

Anthony Liu: May be it is still too early I have some questions about the 2025 outlook, firstly, any strategy or action of the Company for competition from China?

SJ Cheng: As mentioned earlier, we are cooperating with our customers for our low-cost silver alloy bump solution on panel level reliability qualification and have successfully qualified for small and medium-sized panels. We are already seeing a lot of interest from both overseas and domestic customers in our solution. We expect our low-cost bump solution will further enhance our DDIC product competitive position. Further, we also expect that our UT level could be lifted and then improve our profit with the recovery of end-demand. In the meantime, we are improving the product mix by increasing the market share of high profit and margin product, for example OLED, auto panel, flip chip of memory and other mixed-signal product.

Anthony Liu: Secondly, please give us more color on the DDIC and Memory segments in 2025?

SJ Cheng: Well, it is still too early to comment, however, we expect to see some rush order of large panel DDIC while approaching year end. Further, we also see inventory level improving.

Anthony Liu: It appears that a couple of fabulous companies in Taiwan and China are aggressively focusing on the OLED market. Do you see any business opportunity from them?

SJ Cheng: A couple of them have been our long-time customers. We closely follow their product roadmaps to grow together.

Anthony Liu: Thirdly, please give us more color for Memory outlook in 2025?

SJ Cheng: In terms of memory, we are optimistic about the product trend of upgrading commodity DRAM to DDR5 and high-density, multi-chip stacked NAND Flash.

Operator: Thank you. And I am not showing any further questions in the queue. I would like to turn the call back over to GS Shen.

GS Shen: Thank you, I will read one question from foreign institutional investors. The question is asking about the Company'ss dividend policy under the current business situation.

Silvia Su: To consider the further operation cash, capital expense and shareholders' equity our dividend policy would still be between 40% to 60% of earnings.

GS Shen: That concludes our question and answer session. Thank you for participating. I'll turn the floor back to Mr. S.J. Cheng for any closing comments.

SJ Cheng: Thank you, everyone for joining our conference call. Please email our IR Team if you have any more questions. We appreciate your support. Goodbye.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.