Parade Technologies, Ltd. (4966) Earnings Call Transcript & Summary

Welcome, everyone, to Parade Technologies Limited's 2024 Third Quarter Webcast Investor Conference. Investor Relations of Parade Technologies, Mr. Yo-Ming Chang will present 2024 third quarter financial results first. [Operator Instructions] And after the presentation, there will be a question-and-answer session in English by CEO, Dr. Jack Zhao; and Vice President of Finance, Mr. Kuowei Wu. And we also will remain last 15 minutes for the attendees who would like to ask questions in Chinese. Please follow the instructions given at that time if you would like to ask a question. [Foreign Language] And 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 2024 Q3 Webcast Investor Conference. Parade Technologies' third quarter 2024 consolidated revenue was USD 136.25 million and the net income was USD 23.58 million. It’s both basic and fully diluted after-tax earnings per share was USD 0.30 and USD 0.30, respectively. These results compared to consolidated revenue of USD 116.96 million and net income of USD 19.32 million or USD 0.24 and USD 0.24 per basic and fully diluted share in the year ago quarter. In U.S. dollars, the third quarter revenue increased 12.72% sequentially and was up 16.49% year-over-year. The gross profit in the third quarter of 2024 was USD 57.95 million, an increase of 13.01% from the previous quarter and an increase of 13.24% compared to the same quarter of last year. On August 21, 2024, Parade announced the availability of the PS8353 DP 2.1a linear redriver, facilitating DP 2.1a reversible or bidirectional active cables and the DP/eDP signal conditioning for notebook, desktop PC and tablet designs. PS8353 supports DP 2.1a and eDP up to 4 lanes and UHBR20 link rate. It features low power consumption and power management, including Modern Standby and DP 2.1a advanced link power management. Its low-power design minimize power use in DP 2.1a active cables and greatly extends the battery life of mobile devices. PS8353 can greatly extend the cable length for DP 2.1a beyond the typical 1.2 meter or 3.9 feet limit for a passive cable without degrading the full performance. On August 27, 2024, Parade introduced the TC1312V device, its first fully integrated AEC-Q100 qualified touch with Tcon embedded drivers targeting automotive cockpit displays. The TC1312V combines Parade's broad portfolio of patented touchscreen technology and proven in-cell, display processing and high-speed signal technology to provide the lowest EMI and the lowest latency touch experience for automotive displays. The TC1312V leverages Parade's TrueTouch patented technology portfolio and the design experience gained from shipping over 1 billion touch devices. It provides a superior EMI suppression, low power, low latency and a flawless touch experience across the temperature extremes of the automotive cabin. The TC1312V also provides accurate touch response for a wide range of finger sizes and gloved touches across various materials and thickness. Using Active Shielding Technology, TC1312V can deliver best-in-class water rejection and wet finger tracking perfect for reliable touch with surface compensation or even stepping in from the rain. In addition, the TC1312V offers the industry's only true Variable Refresh Rate solution for automotive displays. On September 4, 2024, Parade proudly introduced the PS9010 USB4 dock controller as the newest member of Parade's USB4 product family, designed to meet the rising demand for high-speed, multi-protocol connectivity, the PS9010 sets a new standard for USB4 peripheral controllers, offering unprecedented performance, versatility, and power efficiency. The PS9010 is built to optimize the user experience in modern computing environments where high-bandwidth data transfers and display connections are critical. The chip seamlessly integrates support for USB4, Thunderbolt 3, DisplayPort 2.1, and SuperSpeed USB, ensuring compatibility with a wide range of devices and peripherals. Leveraging Parade's industry-leading USB4 PHY technology, the PS9010 is fully compliant with USB4, USB 3.2, and related USB-IF specifications, as well as VESA's DisplayPort standards. Whether used in docking stations, monitors, or external peripheral devices, this cutting-edge chip ensures smooth and reliable performance across all connection types. Additionally, the PS9010's integrated PCIe, DisplayPort, and USB 3.2 tunneling functionality provides the ultimate flexibility for complex peripheral setups. On September 4, 2024, Parade also announced the availability of PS8650 DP 2.1a MST hub controller for docks, accessories, video displays, and desktop/workstation graphics cards that need DP port expansion. The PS8650 is compliant with VESA DP 2.1a specification. The DP 2.1a receiver supports MST and SST modes, up to 4 lanes at UHBR20 link rate, and DSC 1.2a decode and pass-through. The 4 DP 2.1a transmitters, each up to 4 lanes at UHBR20 link rate, are capable of MST and SST modes, single video split, lane/link rate conversion including DP 2.1 MST to DP 1.4 MST conversion, and DSC decode and compressed video pass-through. PS8650 represents the best-in-class power performance solution on the market with its low power design greatly reducing system power consumption. It complements Parade PS9010 USB4 dock controller and PS8839 USB-C retiming DeMux with DP 2.1a port expansion for dock solutions. PS8650 expands Parade DP 2.1a product portfolio of DP 2.1a retimer, redriver and retiming MUX, as well as USB retiming MUX and DeMUX, USB4 retimers and USB4 dock controller with DP 2.1 Alt Mode, providing end-to-end proven solutions. On October 10, 2024, Parade announced a series of new eDP Tcon devices developed for high-performance PC gaming applications. DP826 enables resolution support up to WUXGA 360 hertz. DP827 enables resolution support up to WQXGA 240 hertz and DP828 enables resolution support up to UHD 144 hertz. The DP828 supports UHD displays up to 144 hertz refresh rate and a derivative part number DP828A supports 2.8K and 3K displays up to 180 hertz refresh rate. It supports GPU brand-specific variants including Intel Intelligent Display Technology, Link Off Between active Frame, AMD Freesync Premium Pro, Freesync Replay and Freesync Fast Transport as well as Nvidia G-Sync and Dynamic Display Switching, and it supports 30-bit input and global dimming for DisplayHDR 400 performance. The DP828 provides full eDP 1.5 functionality including Panel Replay which is the preferred function to use for Panel Self Refresh, Early Transport, and other advanced features. It accepts up to 4 lanes on the eDP interface with link rates up to 8.1 gigabits per second. The DP826 and DP827 provide an identical feature set, but with higher refresh rates and lower display resolution applications. Based on the current business outlook, Parade is providing the following guidance for the fourth quarter of 2024. Revenue is between USD 121 million to USD 134 million. Gross margin is between 42% to 46%. Operating expense is between USD 32 million to USD 35 million. [Foreign Language] This is my presentation for the 2024 Q3 financial results. Now I transfer to CEO, Dr. Jack Zhao, to answer your questions. Jason, you may begin.

[Operator Instructions] And our first question will be coming from Mike Yang, Bank of America.

So my first question will be kind of housekeeping. Could you update the third quarter revenue breakdown by business to us?

Okay. Thanks. In the Q3, DP is about 40% -- above 40%. Our high-speed PS product is about 45% and our TC or our source driver is about 10% and our TT or TrueTouch is less than 5%.

Okay. And then I would like to know further on the new product cooking schedule, especially on the server and data center side. Can you update us on the PCIe Gen 6 redriver? What's the expected time line that we should be looking for into '25 and '26?

We have been developed both PCIe redriver and the retimer on the Gen 6 level. And we have a PCIe Gen 6 redriver in our lab. In fact, we just received the product a few days ago and which has 16 channel, 8 channel and a 4 channel. So 3 of the products were received at the same time. So the path looks pretty good and promising. So we still are bringing up those PCIe Gen 6, and we'll work with the customer to do the verification. And recently, we see more and more customers become more interested on the PCIe Gen 6 redriver because of lower power and lower cost. And we'll continue to develop PCIe Gen 6 retimer, but it will take a longer time for the retimer development.

That's very clear. And then my last question will be on the panel solutions side. I think previously you mentioned that there is a tougher competition on the general notebook business. So I'm wondering if that is the case? And then because you basically give the same gross margin guidance for fourth quarter. So just like to know that whether there is a change regarding to the competition landscape or dynamic on the general notebook side.

Yes. Thanks. I think the, in general, after the COVID -- the competition on panel side is getting, especially notebook competition, the panel side solution getting more high and higher than the previous -- before the COVID time. And the notebook panel on the high end start to transition more towards the gaming, towards the MOLED. And that's what you heard, we announced the gaming solution, and we also work with the Tier 1 panel guy and continue for the MOLED, the development solutions. On the competition mainly on the low end and on the full HD or HD level, and our positioning is more towards the high end and integrated solution, which we had said, the TED or touch-enabled, tTED and those solutions. And recently, we saw the more OEM and panel vendor getting interested on the touch-enabled integrated panel solutions. So we are ready for the people to use those solutions for the notebook. While the competition is high, we remain positive for those high-end and notebook panel [ plays ] for integration panel [ plays ], and we think we can strive to make a difference for customers.

Next one, Bruce Lu, Goldman Sachs.

Okay. So I'm happy to see that there's some progress on the redriver market. My understanding, the redriver ASP is a lot lower, but the penetration might be higher than the retimer for the server. Can you tell us what kind of addressable market you would expect from the redriver market and server? And what's the competitive landscape in the space? But I think it's more crowded in the redriver market than the retimer market. Is that the right understanding?

It depend on which generation, right? If you go to the PCIe Gen 6 on the higher speed and the earlier solution provider, the better. And as the addressable place and you have on the cars application for SSD or even for the driving car and as well as a lot of cable application and highly demand on the redriver side for 2 or 3 meters. And recently, actually, we have engaged with the cable guys. And those are for data center application. The reason we see the redriver attractive is really the customer come to us to ask such a solution because the retimer -- while the performance is good, but retimer has issue is the higher power, higher cost. And almost every board, the different system you have to tune. So it's a burden for customer to use. That's where we are to develop both solutions. And we are pin-to-pin compatible and for the 16 channels. So we are open for customers to choose which one to use. And so that's our strategy at this moment.

But again, what is the -- but what is the addressable market size for the redriver market for the data center? Is like $100 million, a couple of hundred million…

I would think a few couple of hundred million type of market size or maybe include the cable. Those are the size.

I see. Okay. So the second question I got is that in addition to the redriver or retimer market in the data center, is there any other new addressable market or new product you are working on, which can be like a potential revenue growth driver for the company?

As we present on the high-speed side, we provide a large portfolio, the high-speed solution for the general electronics or general PC, the consumer electronics market. And we -- recently, the USB4 become -- start to become dominant and with a much high speed of 20 gigabit per second or we will go to the 40 gigabit per second on the USB 4.2. We are just announced, as Yo-Ming read through, we have a USB4 hub. And with that device, we provide end-to-end the USB4 solution, whether you are a transmitter, whether you are redriver, retimer and receiver side and with PD and coupling with our MST, the DP 2.1 hub together. Those have become a pretty powerful complete solution for USB4. And we're looking forward to speed upgrade to the 40 gigabit per second. We think those are the -- will make the business continued growth in our high-speed area and has been -- it has been before as we are present all the tracking data for the high-speed segment.

Just a quick follow-up. When do you expect the USB4 to surpass the prior product in terms of revenue contribution in your high-speed interface…

Our USB4 retimer and for the 2024, look at the single product, our USB4 retimer alone provides the highest single product revenue for our entire high-speed product. And that portion will continue to increase significantly in the 2025. So that's the magnitude we are talking about. And we introduced and used default timer about 2 years ago. So that's the -- this year already exceed any other product. And this single product create multiple revenue for us.

Next one, Daniel Yen, Morgan Stanley.

From my side, maybe the first part, more focusing on the near-term. I recall in the last earnings, I know it's still early. But when we ask about the very preliminary outlook for 4Q, it looks like 4Q maybe overall could be a little bit flattish, if I'm not mistaken. Now based on our guidance, 4Q implied revenue to decline high single digit quarter-to-quarter. So my first question is wondering what's changed in the past 3 months? Is it because of the weaker overall PC demand or any product line that we are seeing, maybe weaker outlook? Or maybe we can get an update on your 4Q business growth between different product lines. So that will be my first question, mainly on the near-term 4Q revenue side.

I think you have a good observation. First of all, in general, the PC notebook demand in the Q4 is lower than what we had expected. And I think has been reported in the research report, people had a thought and the overall 2024 might be reached the unit notebook growth exceed 5%. And in the end might only reach about 3% as I talked to the industry, the research guys. And I think Q4 sort of reflect that one of this kind of market demand situation. In particular, more on the -- as to your second question for the product line side, we continue to see our high-speed PS product line even in the Q4 are pretty encouraged or promising and has not been seen any weakness. The weakness more relate to, as I described before, is panel-related. And it seems panel demand is reduced or, as we said, the competition is getting higher. So that's what we see. Otherwise, the high-speed side looks good. And in general, the panel side is weak.

I see. If assuming the high-speed interface remains promising, as, Jack, you mentioned, do you think given the better product portfolio into 4Q, maybe our gross margin can show some recovery or some improvement into 4Q just because usually I think our high-speed product line bears higher margin. So just a quick follow-up.

At this moment, I still would like to -- based on our -- the guidance and for the guidance range, and we have to look at to see the gross margin is complicated, not only the product mix and as well as other factors will factor in. So at this moment, I will still point out to our guidance we just provided.

Sure. If I may, can I just follow up one thing? When you refer to the panel -- the competition within the panel solution, I think we are mainly referring to the driver IC segment or we are also referring to the Tcon segment. I just want to clarify. So DP or even the driver IC or the driver IC segment, which one we are referring to more?

The price side is more on the driver side. However, as low-end panel solutions and -- become mature and especially eDP 1.2 and price become the dominant factors, especially in the China panel vendor place. So those are impact both on the Tcon so as the driver side. And that's what I referred to. But driver is more dominant, but Tcon is still also impacted. And that's the panel -- the current status. And so yes, that's what we observed.

I see. Jack, so given we mentioned about maybe this year the PC demand is weaker than expected. Do you think given the inventory digestion in 4Q, maybe 1Q next year, we can see a better seasonality? I know it's still a little bit early, but you are always -- you have some visibility. So I just want to consult you on how do you think about 1Q next year?

Based on the current our book -- order book and Q1 looks stronger than normal seasonality. I think one factor might play is the China stimulus, the package. And this time, China stimulus package is go through the channel. So all the way go to the system vendor side take a little bit longer time. So like a 1 quarter delay. So you clearly see the Q1, the order is getting stronger than normal seasonality. And another thing I hope all industry start to getting excited is the AI PC, AI notebook. And we continue to see more high-end system got introduced. And we are pretty luck or pretty strong associated with all of the AI platform, except the Intel on the USB4 retimer. The rest of the AI significant player or platform all using our -- or reference our USB for retimer. So we are getting excited for the AI machine applications. And those systems, when the size is getting bigger, using our chip from 2 to 4 under 1 notebook, under those retimer. So that is one of the things getting us excited. And we think by the next year, Q1, Q2, they will have more such system introduced to the market.

I see. That's exactly what I want to ask about, the USB4 retimer opportunities. So if I may follow up on your commentary on multiple platform design win, except for Intel. Can I ask, if I think about more like maybe in the next 1 to 2 years, I know Intel right now have their own retimer solutions. But how do you think about the potential order win even in the Intel platform. Do you think it's -- do you think it's -- do you think it's possible? And how do you think about the product road map between your USB4 retimer and Intel's? Basically, I just want to understand whether or not our USB4 retimer TAM can also expand to the major CPU platform. So yes, that's something I try to figure out.

Okay. Our retimer with Intel are pretty compatible. We support Thunderbolt we support USB4. Our OEMs has been pushing Intel to allow our chip to -- on their system. It's a continued effort. So far Intel still want to bundle sell their CPU together. We see -- as we heard, we just visited Intel, the site and they start to -- I'm not that sure, probably may in some systems, may well start to evaluate because of the OEM push. However, majority of our sales or our wins are based on the other platform, whether AMD, whether Qualcomm, whether upcoming NVIDIAs. And those are our core strengths and those are our product, the customers like our products. And frankly, we helped many of those OEMs to pass rigid CTS test and fundable CTS test. And our customers are pretty happy with what, the service we provide and the strength of our product. So yes, Intel is one thing, they decided to continue to use their own retimer, and that's unfortunate, but the OEM are pushing very hard. And we hope we will see some light. If we see some light, I will report to you. We did visit Intel, the Indian site and to communicate with them and to compare notes and so on and so forth, yes.

Next one, [ Wang ], HSBC.

So the first question is, I'd like to ask, is there a demand for retimer in the GB200? And what place is it located? Is it in the compute trade or the switch trade?

Say it again, on the USB4 retimer?

Sorry, is there a demand for retimer in the GB200 AI server? And where is it located?

Okay. Those are not our market. Those are the NVIDIA decide, and as I understand, the NVIDIA, the new one the design has been architecture changed, and we are not in those systems. What I mentioned NVIDIA is upcoming NVIDIA AI notebook platform. I'll just clarify it.

Okay. So is there any new AI server clients and…

We have some AI server clients, yes, but not in the big scale.

Okay. Can I ask a follow-up on the expected mass production timing for the AI server client?