Parade Technologies, Ltd. (4966) Earnings Call Transcript
October 28, 2022
Earnings Call Speaker Segments
Welcome everyone to Parade Technologies Limited 2022 Third Quarter Webcast Investor Conference. Investor Relations of Parade Technologies, Mr. Yo-Ming Chang, will present 2022 third quarter financial result first. [Operator Instructions] [Foreign Language] Now I would like to introduce Mr. Yo-Ming Chang, Investor Relations of Parade Technologies. Mr. Chang, please begin. [Foreign Language]
Thanks, Jason. Welcome everyone to Parade Technologies' 2022 Q3 webcast investor conference. Parade Technologies' third quarter 2022 consolidated revenue was $151.04 million and the net income was $32.64 million. Both basic and fully diluted after-tax earnings per share were $0.41 and $0.40, respectively. These results compared to consolidated revenue of $191.72 million and a net income of $53.34 million or $0.67 and $0.66 per basic and fully diluted share in the year-ago quarter. In U.S. dollars, the third quarter revenue decreased 30.3% sequentially and was down 21.22% year-over-year. The gross profit in the third quarter of 2022 was $68.37 million, a decrease of 33.2% from the previous quarter and a decrease of 27.37% compared to the same quarter of last year. On September 14, 2022, Parade announced redriver additions to its portfolio of HDMI 2.1/2.0 interface and signal conditioning devices. The new PS8219 HDMI 2.1 redriver and the PS8210 HDMI 2.0 redriver are pin compatible with the PS8419 HDMI 2.1 retimer currently in high-volume production. The PS8419, PS8219 and PS8210 pin compatibility provides OEMs with the ability to quickly switch between the retimer option for best performance and the redriver option for lowest power in less challenging signaling environments. This greatly lowers the risk of OEMs for a PCB redesign at a later time, due to compliance or production issues, offering improved time-to-market for the end products. On September 7, 2022, Parade announced the availability of the PS8570 PCIe 4.0 16 gigabits per second linear redriver for PC, server and datacenter applications. The PS8570 features a quad-channel unidirectional linear redriver with a 2x2 crossbar switch. The PS8570 is fully compliant with the PS -- PCIe 4.0 specification. The PS8570 features the industry's lowest operating power for a PCIe 4 linear redriver. OEMs can enable PCIe 4 16 gigabits per second support for power-sensitive mobile devices. The 2x2 crossbar switch allows for flexible interconnect configurations for high performance systems. Based on our current business outlook, Parade is providing the following guidance for the fourth quarter of 2022. Revenue is between $100 million to $110 million. Gross margin is between 43.5% to 47.5%. Operating expense is between $29 million to $32 million. [Foreign Language] It is my presentation for the 2022 Q3 financial results. Now I transfer to CEO, Dr. Jack Zhao to answer your questions. Jack Zhao, you may begin.
And ladies and gentlemen, we will now begin our English question-and-answer session. [Operator Instructions] And our first question is coming from Jacky Chen of HSBC.
Jack, this is Jacky from HSBC. To start off, can you give us the product mix for third quarter '22 and if you may let us know how to look at the product mix going forward? That will be nice.
And yes, for the DP, that's slightly lower than 50%. And for our PS product, it's higher than 30%. And therefore, our PC product is above 15%. And our TT product is lower than 5%. And moving forward, they may have some change between the DP and PS product. We'll see PS product percentage may go a little bit higher because of the product mix and DP may go slightly lower.
Very clear. My second question is, we're seeing an increasing inventory. Do we have any strategy to cope with the increasing inventory and what might be the driver driving the increasing inventory?
Yes, we also experienced high inventory due to the industry-wide demand on the consumer product PC notebook has a dramatical reduction, and we have been working on the control on inventory in 2 way; one is, pushed our [indiscernible] to our customers [ aggressively ]. And secondary we cut down our manufacturing production quite significantly in the last 3 or 4 months. However, both Q4 number largely flat, the PO -- manufacturing PO increased in the June, July or May because the manufacturing take 5 to 6 months to come out. So that's the -- you have to go ahead and build the inventory, when the market demand was very high at that time. So we believe gradually, you will see the inventory reduce and we are working very hard to cut our manufacturing to make our inventory in control.
Next question is from Aaron Jeng of Nomura Securities.
Number one, for the 4Q outlook, the [ prospect ] driving the weakness by the product lines from the strongest to the weakest. And the number two, given third quarter and the fourth quarter to be 2 significant [ long ] quarters, are you now expecting like 1Q to be worse or better than 4Q? These are my 2 questions.
We -- I think the industry-wise experienced downturn and in general, pretty broadly on the PC notebook demand. And also caused by previous -- that was a super-hot demand in the last 2021 Q4 and Q1 2022 or mid Q2 2022. And your customer may double ordered, and so that impact to the current quarter. However, we kind of see the situation kind of start to getting better, I would say in the last 2 or 3 weeks. And because we cut down and push the inventory to the customer side. And demand of the notebook seems start to stabilize. In terms of segment, of course the DT has the most stable demand situation due to our customer planning and ordering doing very well. And the PS part is general on the number of market. This year was similar with notebook type of reduction and on the PC side, it's more associated general notebook market. And the TT, on the touch side is associated smartphone -- not smartphone, smartwatch demand weakness.
So how do you look into Q1 versus 4Q given that you are already seeing significant decline in [indiscernible] the fourth quarter this year?
Yes. After the significant 2 quarters demand and we see some sign of stabilized demand side and also we see the inventory, our distributor, the distributor side start to moving and start to flow into our customer side, and that's what I say we see some [ light ] after 2 quarters of reduction. And hopefully, the Q1 were getting better, and that's our hope. But really subject to the demand side of notebook, the -- we have been clear, I think many of us also heard that we experienced those Ukraine war, the China lockdown towards very high inflation rate around the war. And many people are talking about a micro -- the economy may face a recession. And while we are cautioned to see macroeconomy what it would look like and hopefully, if anything, the macroeconomy similar to today and we probably hope that Q1 will do better.
[Operator Instructions] Next question is from [ Jamie Yeh ] of KGI.
Before -- it seems that even though the quarter-over-quarter revenue declined that much you still hold up quite well for the gross margin. Can you share with us that the pricing for overall of your products. Is that still stable? And I think all the declines mainly come from competition?
Yes. Our product is quite stable. And at least in the last 2 quarters, we don't see price change -- a significant change in the coming months at all. And on the gross margin side, largely because of product mix and also you would be very cautioned on the inventory side, and so we take a productive -- the sort of proactive measure to look at the inventory side, but as we got the inventory, gross margin for us we think we will keep the gross margin as the current guided and that's what we hope for.
Jack, do you expect that foundry I think, they are lowering price as well. So into 2023 may be gross margin stability as even -- will be even more stable?
There are -- I think you guys are also aware of the 2 or 3 category of the foundry. There the foundry publicly announced they will increase the price and...
Only one, right?
Yes. They are the foundry and more towards into China. They reduce the price and they as the foundry keep it silent about the price or only say they would like to raise the price, but has not been public to say it. So we are facing that kind of involvement and we talk to our foundry very aggressively to express the current demand situation and aggressively to ask them not to raise the price. And in fact, we negotiate significantly to ask the people reduce the price and we made some success to have a foundry to reduce their 2023 price. Overall, we worked very hard to reset the current market demand situation to our foundry partner and to convince them for sure that's not the time to raise the price. And we don't have a way to take more pricing on the manufacturing cost and we would like to see the price reduction in order to encourage our customer to take more [ part ] in order to gain -- ourselves to gain market shares as well as our foundry partner can gain market shares. So we push very hard trying to reduce our manufacturing cost and after all, in last 2 years, our foundry, our manufacturing partner has been raising the price quite significantly in some places.
And I have a second question, so I think people asked you about this question before. For your standard-plus customer, in earlier quotes, I think, Jack mentioned that it's holding up quite well. I am not sure whether it's still the case. And the second one is, today I think it doesn't make sense for them to make their own [indiscernible] but do they ever integrate back any IP from [ TCON ] leading to lower ASP for beauty products and fabs, ever impact our revenues?
Well, I think they are doing quite well. You saw the quarterly report, and we pretty enjoy and pretty happy with such a customer in the order before downturn side that they are keeping relatively and acquire the company with the forecast, and we continuously see they are doing this, and we have been engaging with them more than 10 years, and to whatever the level whether GSM side, whether they're custom-made engineering side, or they are panel side, and [indiscernible] side. And I don't see they have integrated any IP, I don't see they intend to do those kinds of things. And as I said many times, so we work very close both in the technology development and the future product development. Yes, I will add, just we went there and talked to the management quite frequently, and in many cases, it's a [ weaked ] base.
Next question, Jimmy Huang of JPMorgan.
This is Jimmy Huang, JPMorgan. I would like to ask about your server PCI Retimer business. Actually, how much revenue could you realize this year? And what's your target for the next few years? And second question is about PCI Gen 5. Did the company start sampling to our customers and what's the potential net production timing?
Yes. We'll be sure with the investment community in terms of PCI Gen 4 Retimer. I think we're lower than the retimer in this year, and we'll continue to do the design wing, and we think that by 2022, we might have some increase on the PCI Gen 4 Retimer customers and we will continue to engage with those customers. However, it does take a longer time to get into the data center and so on and so forth. In terms of PCI Gen 5 Retimer, we have a chip in our fab -- in our lab and it's actually working quite well. And we show enough -- to give our sample to our customers for one of the data center application.
I got it. So we may still have -- I thought you meant production timing right?
When you start to engage with customers. Yes.
I see. May I have a follow-up question? So we'd like to where being one of the Gen 4 suppliers in this area. But we are also curious about how we gain get market share from the largest competitor. So [indiscernible] our challenges or opportunities, when we're trying to gain market share from the competitor?
Could you repeat it one more time, I missed them.
I mean, that's always trying to get more customers and gain some market share. But we are wondering, like, what are our challenges and opportunities when we're trying to gain the market share from the largest US competitor in PCIe, Gen 4 and Gen 5 business?
I think, we learned from the PCI Gen 4 software that SDK side become a critical for the products overall success. And we -- Parade as a hardware chip company, we traditionally focused on a lot of chip sales or hardware sales. And it becomes a sales issue, we need emphasis on the software and so-called the SDK, the total solutions.
[Operator Instructions] Next question, Martina Huang of Fubon.
My first question is could you give us some update on the progress of the Linear Redriver and the PCI Redriver?
We offer multiple level of Linear Redriver. And on the smartphone side, our PS5169 for the USB 10-Gig sort of linear redriver. On that front, it has been designing to the tablet and they are already in the market in 2 or 3 systems. And [indiscernible] and there are more smartphone people look at the solution. In addition, we recently also engaged the linear redriver with dual port gaming console and very likely next year, early next year we will start to ship the linear redriver to quite famous the gaming console. On the notebook, on the PC side, we always have dual solution retimer and the linear redriver, just for people who have a different application may need different solutions, depending on their trace, depending on their quality of notebook, typically, the commercial notebook, one or 2 years of retimer, and the consumer one might want to compromise the quality usage with the linear redriver, right. And then recently we introduced Silicon Germanium by CMOS, PCI Gen 4 linear redriver. It's really a consideration of lower power, so as they are convenient to use, for the application that will now have long trace and provide [indiscernible] on a gaming notebook, which has a [ 60-inch, 70-inch ] and that's very convenient to use. For desktop type of server, using the PCI Gen 4 there and also, very convenient to use. Those are no power pods. It works very well, and they are basically a [indiscernible]. You don't have the complexity or competition on the retimer type of thing, because the retimer really take longer time to develop on the system level. We will continue to introduce those kinds of devise. You imagine we will do the PCI Gen 5 redriver as well and see if those high-performance PC, desktop, notebook, would demand PCI Gen 4 and Gen 5. And those device will have a room to be there and they [ took ] care the power and those kinds of things. If you compare with a linear redriver with a retimer, the power is much, much lower. So those are the applications we target to for the high-speed linear redriver.
My second question is, could you talk more on PC market such as like [indiscernible] markets?
That's good. We are -- as we say, we are doing the PCI Gen 4x4 data center and our high-speed device, mainly retimer. We are doing the -- qualify our high-speed device to the automotive. And so far, we have 4 or 5 device into the automotive. Some of them already in the mass production, and we will continue to see more device into the mass production in the automotive area. And we are also designed to pro-audio systems. And if you look at a pro-audio systems, they demand HDMI. For example, now the HDMI 2.1 and the USB Gen 4 and DP 2.1, those are the pro-audio systems and we are being engaged almost with all the pro-audio customers. And then we also design to those industrial application for tester and those demand a high-speed device. In the top side, we are engaged in high-speed automotive application for the panel -- automotive panel. So as few of other automotive applications and very soon those work will start production. And we're also designing our touch device to many POS system. We are probably one of the touch supply into the POS system, for example, the [indiscernible] Ingenico, who totally started to adapt to our touch device for their POS systems. And so it's quite many the industrial type of application using our touch device. So that's just basically general, we're talking about the non-PC side of our application. And certainly in the panel side we have quite a few of the panel application on the POS machine, on the medical application using our panel device and a more advanced aviation system wants to use our panel solutions.
Next question, Mike Yang of Bank of America.
I have a concern, a follow-up for the PCIe Gen 4 retimer. You just mentioned that it could take longer time to enter into datacenters, devices and so on. I'm wondering if that's -- I mean, the difficulty located in that software issue you just mentioned, or is there any hiccup or difficulty that you can share with us? That's my first question.
I think the -- we have a reasonable success for other customer, and particularly for one of our customer in our experience is really integrated our software into their system. And that takes time and have a learning curve there. And we hope that PCI Gen 5 would make -- do better. And I think that if you are refreshed or [indiscernible], what I was saying, we should do better, I think in the software side we need to do better, of course, the hardware side also. I think hardware is probably less issues than the total system solution providing.
And I have a follow-up also on the PCIe side, because you talk about the differentiation in between you and your peers. But on the other hand, we noticed that also there could be competition like Asian vendors such as Python. Just like to know, what's your view on the Asian peers or competitors on this PCIe retimer or redriver?
We start to see a little bit about Python, but we have not [ reigned ] to them much at all. If I were to say, in the big customer side. And I probably had a comment too much because we really did not reign to them. And that's as much as I can say. And we have worked very hard to engage with Tier 1 customers of such devices.
And maybe the last final question, if I may. How should we think about the maybe unified Type-C Interface introduced or promoted by Europe, especially for the smartphone devices? It is a good opportunity for Parade going forward as well?
Yes. The one thing for sure USB Type-C will probably become much, much more and one thing for sure, when we acquired the previous the Fresco Logic, and really the right decision for us to take a market share on the USB Type-C. And we are very much focused on the USB Type-C and very soon with USB, we are continuing to introduce higher bandwidth of USB C hub and we will introduce the related devices to occupy the market. And USB C has a lot of application, which you carry the DisplayPort so as the data and that they can meet many device and to achieve that. So we are working with one of the customer very tightly to introduce to secure some business, large dollar amount business in the USB Type-C. So it's very busy to do the USB C related device. And we think whatever the announcement to enforce the USB-C charger, and it's greater news to the company like us.
Okay. Thank you, Jack. It's very clear.
The point also is, you used to use the USB C charger, right? And for example in the car, so far is a charger, right? And the leading automotive supplier is not to trade the USB C as a charger, they could ask the USB C as a data port. There is a quite tons of USB other device to show for your phone to the backside chair so on so forth. So whenever a first step at USB C as a charger laid out is no longer charger, it's data port, then increase significant amount of our business. Yes, that's what I talk about it. In the car we would have a PS pods going to really the -- there you start to see the customer using the original charger port now, they become the sync device to pick up the data, then you need a sense of our device.
Next question, Daniel Yen of Morgan Stanley.
My first question, I still want to ask about the 4Q guidance. First of all your guidance, could you let us know what the magnitude of the sequential decline, I think different product lines. And also you mentioned about your standard plus customer in terms of demand, although it's still stable. When you define stable, what's your definition of stable? Is it still flattish in 4Q or it sounds less than others? I want to get more sense on your earnings or your revenue write-down in terms of different segment into 4Q. That's my first question.
Okay. I think mainly the reduction came out from the general that whether the palm book or window based notebook, right. There you see the related panel demand reduction, so that's our PC device and therefore as our high tech PS device. So that's the majority of that reduction there. I think relatively the panel solution dropped probably more than PS high-speed sided drop. Your second portion of question, our standard plus customer, what I would -- I quote it stable us, a very simply as it compared with the forecast they provide in the early days. And they follow the forecast reasonable well, and in many way, we are kind of surprised to see that. And we also very happy to see their performance. And certainly, we kind of feel different quality of customers. In my view, I might say, in the rush time last year or those time they do not like other custom notebook guys to intentionally to make the forecast because they just forecast on what they see. And they also become, they have a very short supply chain or they see the supply chain very clearly. That's why they do the forecast much better than other. I think after they follow their forecasts very well.
I see. Very clear. My second one will be, Jack, you just mentioned about the overall pricing remains quite stable. And when we look at the foundry, I think apparently the another foundry partners, I've seen not only your partner, but most of the foundries I think should be -- I think there's already inventory correction happening now. So foundry cost, at least, there is no follow-up into 4Q. So when I look at your gross margin, I think should be the first time you take down 1 percentage point of your guidance range in 4Q. So I know it's just a small number, but just wondering, is it mainly because of product mix…
It's mainly the product mix, but I will also take precaution on the inventory side of it and we try to be careful on the inventory revaluation side.
My last one, if I may. I wanted to ask about your view on M&A adoption in the pad or notebook in the future. I think a couple of years, I think you mentioned this before that mini LED, it will only be a transition color, maybe they will have some new products in the future as a panel solutions. So I would like to get your view on M&A adoption in either pad or notebook. And what does that mean to your business opportunity? Will there be higher content, gross margin or anything you can share?
We have been shipping the notebook MOLED TCON for almost a year with one of our Tier 1 MOLED kind of provider. And I think the waiver for large shifts could exist the MOLED, MO solution for the people who are shipping, for example, ASUS, Lenovo, HP, where ASUS has lost folded the notebook, right? So very likely they are using the wall of our MOLED TCON. And as a result, we continue developing MOLED TCON with the Tier 1 customers and we proceed that MOLED has its unique market share moving forward, especially on the consumer device, it's because it's relatively light and that because you have a more flexibility can do that, for example, whatever that ASUS does that folded one. And I think that seems that consumer like and potentially like MOLED, that type of panel for consumption like watching the video and those kind of thing. And in terms of quality of a display MOLED versus mini LED is a competing technology, right. So we see customer will use both and we provide both solutions. And MOLED TCON is quite expensive, because almost every pixel there has a memory along with it to store some data there. And so MOLED TCON cost is high. And at this moment, so as MOLED panel is higher price. So until you see some attractive application and I can imagine both the high end that seem may go with the MOLED, they could be popular as well. And yes, by the way, the central MOLED, their own tablet, I believe also use our TCON there, and which is MOLED base. So moving forward, you see more both kinds of solution to have a more market shares and the MOLED. And we take a pretty positive low to continue to develop a multiple MOLED solutions and we may have a more and not only on the mobile side, it will also seek to develop MOLED for automotive display as well. So that's quite many there. But we just take opportunity for order advance, which is the best display which we can make our contributions.
Next question is from [ Bruno Chen from Allianz ].
Jack, one question from my end. It's regarding the competitive landscape in Taipei market PCI is ramping up its capacity. Do we expect to see any change in competitive landscape or if they are going to go back to this market, is there going to be any change in price environment?
Yes. We've heard PCI ramping up a fab. I'm not sure the consumer notebook area will be the interest of PI to address it. That's the first one. The second one, I don't see PI in a high speed than a competitor. They may do some redriver the type of thing, they definitely won't do the retimer, they don't do the USB for retimer, those high-end device. They are the credible competitor at this moment. And that's as much as I can see the high speed side. Of course, to further strategy, we continued to push the speed at too high, continue to introduce more high-end device. And for example USB 4 or USB 5 we're already designing and people call it USB 4.2, 80 gigabit per second the solutions. On the other side, just previously asked, we're also doing the very high speed redriver and to gain market shares to occupy the more low end space. And we do our own thing to being compatible, and customer may reign to the issues on the redriver we have a retimer just plugging you can go. So that become a very attractive to many customers.
Ladies and gentlemen, we are now moving on to the Chinese question-and-answer session. Thank you. [Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language] Thank you very much for all your questions. That concludes our conference for today.
Thank you very much.
Thank you. We thank you for your participation in Parade Technologies 2022 Third Quarter Webcast Investor Conference. You may now disconnect. Goodbye.
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