Good day ladies and gentlemen, and welcome to the Himax Technologies' second quarter 2017 earnings results conference call. (Operator Instructions) As a reminder, this conference call may be recorded. I would now like to turn the conference over to Greg Falesnik, Managing Director of MZ North America.

Thank you, operator. Welcome everyone to Himax's Second Quarter 2017 Earnings Call. Joining us from the company are Mr. Jordan Wu, President and Chief Executive Officer; and Ms. Jackie Chang, Chief Financial Officer. After the company's prepared comments, we've allocated time for questions in a Q&A session. If you have not yet received a copy of today's results release, please e-mail greg.falesnik@mzgroup.us or access the press release on financial portals or download a copy from Himax's website at www.himax.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 the 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 Himax, demand for end-use application products, the uncertainty of continued success in technological innovations as well as other operational and market challenges and other risks described from time to time in the company's SEC filings, including those risks identified in the section entitled Risk Factors in its Form 20-F for the year ended December 31, 2016, filed with the SEC in April 2017. Except for the company's full year of 2016 financials, which were provided in the company's 20-F and filed with the SEC on April 12, 2017, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with U.S. GAAP accounting. Such financial information is generated internally and has not been subjected to the same scrutiny and review, 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 for 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. Jackie Chang.

Thank you, Greg and thank you everybody for joining us. Our outline for today's call is first, I will be report Himax's consolidated financial performance for the quarter on a GAAP basis and provide supplementary results on a non-GAAP basis which excludes share-based compensation and acquisition-related charges. Second, I will provide the third-quarter outlook. Finally, Jordan would discuss our business and product highlights, after which we will take questions. Our 2017 second quarter revenue and GAAP earnings per diluted ADS came in at midpoint of our guidance, while gross margin exceeded the guidance, for the second quarter we reported net revenue of $151.7 million with a gross margin of 23.8% and GAAP loss per diluted ADS was $0.004. The second quarter revenue of $151.7 million represented a decrease of 2.2% sequentially and a decrease of 24.5% year-over-year. I will go through the issue was causing the revenue decline below. Revenue from large panel display drivers was $52.1 million, down 12% sequentially and down 22.8% year-over-year. Large panel driver ICs accounted for 34.4% of our total revenue for the second quarter, compared to 38.2% in the first quarter of 2017 and 33.6% a year ago. The decline was due to temporary slowdown of our large-sized driver IC business caused by earlier misses of certain customer’s new design in projects as we have reported in the last quarter's earnings call. We have overcome the engineering hiccup and business will be back on track starting the third quarter. In spite of the lukewarm sales in the first half of 2017 our engineering collaboration and design-in activities with large-panel customers across China, Taiwan and Korea all remain robust. Such activities will lead to future rebound in sales momentum. Revenue for small and medium sized driver came in at $70 million, up 5.1% sequentially and…

Thank you, Jackie. Despite the decline in the first half in our business, we anticipate a strong recovery in driver IC segments and exciting opportunities in the non-driver segments over the remainder of the year and beyond. Looking ahead we believe our overall financial performance will be resilient. Now let me provide you with some details behind our guidance and trends that we see developing in our businesses. Firstly on our large panel driver IC, we have a positive outlook on the growth momentum in our large display driver IC business. While global TV shipments may experience 0.4% year-over-year decline, China's share of global TV panel shipments is projected to reach 33% in 2017, compared to 29.5% last year. Being a market leader in the large display driver IC business in China, we will capitalize on China's rising market share. Not only have we refreshed our product roadmap and delivered better product costs to our existing and newly added customers, we have also secured new design wins, particularly in 4K TV to solidify our growth for the remainder of the year. Looking forward, 4K TV penetration is still on the rise and Chinese panel customers are still ramping new advanced generation fabs over the next few years, including a brand new Gen 8.5 fab and another Gen 8.6 during the second quarter of 2017. This will help further grow our revenue and market share in the large panel segment in 2018. In the small and medium-sized panel segments, our driver IC sales for automotive applications have enjoyed over 30% annual growth over the last few years, well surpassing the market average. Still more panels are going into vehicles, with the number of units expected to increase from 135 million in 2016 to 200 million in 2022. We have successfully engaged…

Thank you. (Operator Instructions) Our first question comes from the line of Thomas Sepenzis of Northland Capital, your line is now open.

I am wondering Jordan, if you can talk a little bit more about your structured light solution and how that might compared to a VCSEL in terms of overall cost or capability, what the advantages might be, and when you think you might actually see some revenue from that product? Thank you.

Thank you, Tom. There is actually a lot of misunderstanding around the marketplace and I've been seen research reports lately because apparently people started to speculate about the up and coming smartphones having 3D sensing capabilities. Now, I said this is misunderstanding because one should not compare structured light against VCSEL. VCSEL is one the 2 major types of lasers, and structured light, can use both VCSEL and the other type of laser which is called Edge Emitter. Okay now VCSEL and Edge Emitter there are pros and cons among the -- between the 2 and in fact, we have our current in-house solution in terms of total solution we are using primarily Edge Emitter type but we are also working with our customers on VCSEL type meaning our technology can actually [inaudible] cope with both. So again, I mean one should not compare VCSEL with structured light, a better comparison if I may elaborate on the question, I think it's very important for everybody to understand about 3D sensing. Structured light technology, a right comparison with this technology is something called Time-of-Flight or ToF or another type, which is little mentioned is stereoscopic or dual camera type. I will talk about dual camera because dual camera is already in the race. Dual camera by definition, in theory can generate 3D picture or 3D image but it's not really a suitable solution for smartphones, because dual camera require two cameras to be separated apart quite far away and your smartphone simply doesn’t a space to take that distance. And that is why although dual camera has been around in smartphone for quite some time. You don't -- you never see dual camera in those smartphones enabling 3D sensing because of this very reason, because they are not separated far away…

Our next question comes from the line of Tristan Gerra of Baird.

Also a quick technology question regarding the heads up display you've mentioned some progress if first, you could talk about the timing and of potential ramping and what revenue opportunity and also compare it with the DLP or micromirror MOEMS technology that some competitors seems to be implementing for headset displays if you could just give us a quick overview of the differences in technology and why you think you are well positioned there?

Firstly, quite frankly the market is slowing down. There are couple of very high profile launches, but they hit the sweet spot of the consumer's demands, if you will, and we were fortunately enough to have participated in both in fact in many others as well. So I think for us in our customers we have kind of learned from the lessons and basically they are some technology issues but more importantly are cost issues. Technology issues include the very famous field of view and certainly the weight and the size and the mechanical design, the industrial design of the whole gear [inaudible] and what not but I think the most important thing is probably cost and the -- and because of this issues the developers are not particularly enthusiastic [inaudible] about developing as particularly for AS glasses and that just adds to the problem. So I think what us and our customers are working very hard to do behind the scene, if you like, is try to solve all these problems hopefully once and for all and there are -- and so you're probably not hearing like higher-- high profile or our announcing break through [inaudible] LCOS technologies again but there are actually a lot of activities going on as we speak behind the scene. Having said though -- we do anticipate if not end of this year probably sometime next year there will still be customers trying to launch products, new products, tried to further test the market but I think again what we and the industry leaders are doing right now I believe is fair to say is that we want to sit back and really learn from lesson and really tackle the problem that we learned from the past. As far as comparison with DLP and…

Our next question from the line of Sujeeva Desilva of Roth Capital, your line is now open.

On the 3D structured light solutions, the total solution versus the component parts the total solution for Android when can we expect that to ramp? What's the ASP difference there and what king of ROI do you get on that it's the largest endeavor for you guys?

Right. I mentioned in my prepared remarks, our total solution, which is targeting precisely the Android camp. We are talking about early 2018. So that means we are working, we have real customers we are working on designs, we are solving engineering issues, we are and what not so we are talking about stuff that are very real and our customers give us tremendous pressure for timetable they want it faster but, but I think we are way ahead of our peers because of the fact that we can offer total solution, I think that's most critical. And as far as ASP is concerned now you have -- you have front scanning -- front sensing and rear sensing. Front sensing by definition will be lower cost and rear sensing vision is more powerful i.e., higher cost. The industry is likely to start with front sensing because it is lower cost and also engineering wise it's easier to handle. So in terms of front sensing I would say for our total solutions, it's early stage so I may have to change my answer over time but I'm not talking about $15-20ish. The thing is for a smartphone I think and then for rear sensing, I think it would be [inaudible] $20 plus. The thing is we don't believe anything beyond $30 is sellable for a smartphone. I mean you can force your customer into it, but then there is no demand. So what's the point? So our goal, our job is to squeeze the cost, squeeze the power consumption, squeeze the size while still making good profits and provide affordable price for customers. So I think for your modeling purposes I would say start with $15 is probably a good starting point for front camera. But I think we are thinking…

And our next question comes from line of Charlie Chan of Morgan Stanley.

Hi, Jordan, hi Jackie. Congrats for a very strong quarter and upbeat 3D sensing outlook. So my first question is regarding your non-driver IC business it is essentially doubling in third quarter. So can you give us some of breakdown of the components in non-driver ICs the revenue mix and how does each of them grow in the third quarter.

I can't really give very detailed breakdown. But the major, major, major growth area is WLO, naturally. We highlighted starting from 2 quarters ago, I believe 2 or 3 quarters ago that we are having -- customer urgent demand, big capacity requirement [inaudible] and that's why we need to retrofit our -- existing headquarters to make room for the capacity. And we also announced that if everything goes as planned start the third quarter will be mass production and everything is going as planned. So, that additional CapEx, again I will be highly reluctant to talk about our ROI but it's quite good. So that is a major contributor. So that is the optics part and also another strong growth area is our RGB sensor, timing controller these are major growth areas. The one area that has fallen a lot in the revenue is LCOS. Last year at the same time, we did have this major customer launching and mass producing its AR devices and then they ended the production. So if you look at year-over-year that is a major loss.

So since the WLO is key growth driver in 3Q. I remember kind of mentioned that those are non-driver ICs in particular WLO enjoys a better margin but why company margin only improved by 1 percentage point in third quarter, can you elaborate a little bit?

It's called -- it's something called weighted average, so it's weighed out by other things and also it's very early stage mass production. We're talking about the first quarter only. So you can image there will be little bit of learning curve and also the capacity is not yet utilized in full, although based on this anchor customer‘s behavior and projection, it will become fully utilized[inaudible] very soon. So all these has affected the gross margin. But having said that – it’s indeed a good margin.

And my second question is regarding your raised CapEx for very strong 3D sensing demand. So, I'm not sure if you can quantify the revenue contribution from 3D sensing in 2018. And then if you can break down into Android smartphones and none Android smartphones revenue contribution, that would be great.

I mean non-Android you are talking about really only one customer in the world. I cannot comment one or the other, whether or how we're our dealing with [inaudible] that customer, right? Or even whether, right? So I really can't comment on this particular question at all. Overall, I think it's too early to make projections for 2018 because of the fact that we haven’t even started mass production yet. But I mean it's really easy math, if you care to do your modeling, I already disclosed about $15 up to $20 dollars of ASP. And then you multiply that by the number of units per month and then you got the idea -- the answer is if everything goes as planned the revenue contribution will be tremendous, it will be a major game changer for Himax. Himax will be looked at very, very differently next year, and the year after from now I believe. But it really depends on how many units the customers want to ramp, what kind of model they are designing for their smartphone, the consumer reception, our capability to supply in time and so on and so forth. But if you extend the timetable slightly longer then I think all these issue will be, will not, will not be issues anymore because I firmly believe, consumers will love this and our customer, we will have the first customer then we have the new customers and then both new and existing customers will add models and then very soon, you'll be talking about the penetration of smartphone using, having 3D sensing I believe and when that happens I think [inaudible] again you do your modeling, it will be tremendous growth.

Lastly, so you said that you had much ahead of your competitors in that, 3D sensing total solutions so may I know how many competitors in the market and if you can name 1 or 2 of them. I know they are very behind but in the coming 3 to 5 years, who are the potential competitors or what type of company could be the potential competitors to your 3D sensing business?

Thank you. I think there are numerous reports already it doesn't come from me, it comes from lot of speculation, rumors and reports that Apple is going to launch its new iPhone with 3D sensing. So if anybody claims to have 3D sensing revenue this year. I think it must be from Apple right because no other smartphones has this features just and I'm also speculative because I don't know when Apple is going to do that or not. But there are lots of lots of reports that you guys know better, but starting next year it will be more interesting, because as I said, hopefully the Android camp will start to see the first one and the second one, hopefully next year. And, so, in terms of competition, I will be reluctant to name names and provide comments to my peers. It's fair to say that the number is very, very few. So if you ask me to name 2 or 3 or even 4. I'm starting to have trouble because I don't know if I can have that many serious competitors by now. But if I may try to address your issue from a different angle I think the combination so-called competition as far as I can see it comes from 2 kinds of backgrounds. The first one is from algorithm because 3D sensing you need a 3D depth map generation it requires algorithm, right? and this type of company tend to have good algorithm team probably a small team, very smart but they tend to lack the other software components, which are very, very challenging to achieve, not to mention the capability to integrate them. I'm talking about NRI sensors, the WLO [inaudible] the laser and what not and so on so forth right. So that is…

Our next question comes from Jerry Su of Credit Suisse. Your line is now open.

Jordan I just want to follow up on the 3D sensing, I think, because you have mentioned that you have team up with some of the very best of suppliers in the projector, the laser, or IR filter, lens, I just wondering for those components that you need to outsource, what is the percentage of their value add versus your value add in that $15 of module.

I cannot disclose the detail but in-house is bigger. In-house includes [inaudible] which is expensive, the optics and the sensor which is also expensive and also I have to do my math, but we account for a very significant portion that's absolutely true. Laser is also expensive less so for lens and certainly less so for IR filter and certainly module assembly which is labor intensive. I still think we -- that also account for, for a meaningful amount of dollar in our build of material. I cannot disclose the details right now, but our part it's actually significant in particular, well, actually we are, let me, let me just try to do it all over again. Algorithm chip is expensive, it's a logic it's a rather complex logic chip, the sensor we have 1 mega and 5 mega sensor and it’s actually much bigger pixel because of this particular implication compared to the RGB sensor you're used to. There you talked about 1.1 micron or even 90 nanometer kind of pixel size over here is 2 micron pixel size so you cannot really compare apple-to-apple [inaudible] with that kind of sensor. So sensor is also expensive, and optics per say is not that expensive but integraton of optics together with laser involving active alignment and the sub module, the sub - the projector module process that also cost money. We do the integration ourselves and active alignment ourselves, and lastly we also provide a laser driver for the laser in-house. So we do have quite a big number of components provided in-house.

So generally for the algorithm and the sensor, the optics, active alignment and the laser driver all these are in terms of the [inaudible] BOM cost should be greater than those outsourcing parts, is this correct?

Yes. Having said that though our ASIC chips and sensor, are also [inaudible] outsourced for manufacturing. So it depends on how you look at it.

But I think that know how right?

Yes, we, I mean for those if we get back to our business model which is fabless, right? You will understand that.

The second question I want to shift to TDDI, you had mentioned that you're already developed the full HD+ TDDI but just wondering because the market trend now seems to be, I think HD+ is also seeing a very big pickup in later half of this year, and HD generally is a market probably has bigger volume because full HD has being cannibalized by OLED or other more high-end product. So just wondering what's your progress on HD+ TTDI, and when can we see the revenue contribution?

HD+ TDDI‘s revenue contribution will be starting from Q1 next year. Some shipping in this quarter right now, Q1 next year we have lined up with top name customers, certainly also second tier customers, but big name customers. We are very excited very hopeful about that particular project. And HD+ TDDI small volume production this year-- this quarter some more next quarter and next year. I'm not sure I agree with that. I think full HD+ is equally important even more important than HD+, than HD+ for us. I mean, and in particular, full HD+ for branding customers they want ICs with ram so it provides better, much better ASP rather than [inaudible] ramless because power consumption is issues for top name customers, for second year customers probably for sake of costs they would -- they will use our ramless solutions, but we are very, very much ahead in progress compared to anybody in the Marketplace in full HD+ TDDI in particular because the industry is switching to 18:9 aspect ratio and also we pioneered this what we called interlays [inaudible] design approach, which enables the bezel, or the boarder of the edge of the display to be very, very narrow and we're leading edge that is why today, [inaudible]with literally all in particular full HD+ literally all major kind of customers and quite a few big name end customers have adopted it, and again mass production is scheduled to be Q1.

And then a quick follow-up on the HD for the HD+, does your solution supports that less TFT mask, which is like for silicon like 6:7 base design?

Yes. So for Full HD+ the advantage is bezel-less design, for HD+ the advantage is cost reduction as you said, it reduce the number of mask for our panel customers.

I'm showing no further questions at this time. I'd like to turn the call back over to Jordan Wu for any closing remarks.

Thank you very much again. As a final note, Jackie, our CFO will maintain Investor, marketing activities [inaudible] and attend future investor conferences. We will announce the details as they come about. Thank you and have a nice day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.