Good day, ladies and gentlemen and welcome to the Himax Technologies fourth quarter 2017 earnings 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. Please go ahead.

Thank you, operator. Welcome everyone to Himax's Fourth 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 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 review and scrutiny, 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. The floor is yours.

Thank you, Greg and thank you everyone for joining us. Our outline for today's call is first, I will review Himax's consolidated financial performance for the quarter and full-year 2017 on both GAAP and non-GAAP basis. The non-GAAP financials exclude share-based compensation and acquisition-related charges. I will conclude with the first quarter 2018 outlook. Jordan will then provide an update on the status of our business, after which we will take questions. Our 2017 fourth quarter revenues gross margin GAAP and non-GAAP earnings per diluted ADS all were met our guidance. For the fourth quarter, we reported net revenue of $181.1 million, a decrease of 8.1% sequentially and a decrease of 11% year-over-year. Gross margin was 24.6%, down 0.9% sequentially. GAAP earnings per diluted ADS were $0.137, compared to the guidance range of $0.13 to $0.15. Non-GAAP earnings per diluted ADS were $0.138 cents, compared to the guidance range of $0.132 cents to $0.152 cents. Revenue from large display drivers was $58.4 million, up 6.3% sequentially but down 13.7% year-over-year. Large panel driver ICs accounted for 32.3% of our total revenues for the fourth quarter, compared to 27.9% in the third quarter of 2017 and 33.3% a year ago. Our large panel driver business grew mid-single-digit sequentially, in line with guidance, driven by ramping of new LCD fabs in China and strong TV demand ahead of the Chinese New Year holidays. The year-over-year decline was caused by phase-out of certain customers’ old models and the misses in certain customers’ new design-in projects as we reported in previous earnings calls. We have overcome the engineering hiccup and business has started to be back on track since the third quarter. We’re pleased with our current engineering collaborations and 4K TV design-in activities in the pipeline. Such activities will lead to further rebound…

Thank you, Jackie. We delivered much improved results in the second half versus the first half last year. Looking into 2018, our major growth engines will be, for large panel segment, China panel makers’ increase in capacity, for small panel segment, in-cell TDDI for smartphone and driver ICs for automotive applications, and last but not the least for non-driver areas, increasing WLO revenue, and commencement of 3D sensing total solution shipment. 3D sensing will be our biggest long-term growth engine and, for this year, a major contributor to both revenues and profit, consequently creating a more favorable product mix for Himax starting the second half of the year. With that now let me give you some insights behind our guidance and trends that we see developing in our business. Our large display driver IC business experienced a strong growth momentum in the second half of 2017 as 4K TV penetration was still on the rise globally and China continued to ramp brand new advanced generation LCD fabs. In fact, BOE has just launched the world’s first Gen 10.5 fab a few weeks ago, while CEC-CHOT’s Gen 8.6 fab and CECPanda’s Gen 8.6+ fab will also go into operation this year. Being a market leader in large display driver IC business, we will benefit from such capacity expansion. However, the whole market is currently facing a capacity shortage of 8” foundry where vast majority of large panel driver ICs are fabricated. While the growth of our large panel driver business may be limited by the tight 8” foundry capacity during this year, we are starting the early ramp of a newly built 12” fab in China. Adding the 12” fab into the pool of our foundry capacity will greatly alleviate the shortage issue of our customers. However, the ultimate ramping schedule…

Thank you. [Operator instructions]. And our first quarter comes from Tom Sepenzis of Northland Capital Markets. Your line is now open.

Hi and thank you for taking my question. I was wondering if you can give us a little bit more color on the new stereoscopic 3D product in terms of ASP and security. Will this be usable for payments specifically things like Alipay?

Thank you, Tom. The ASP, I think the total solution combined, well firstly I should say I’m assuming the algorithm of the process will be embedded in the AP processor to save cost, okay so with that assumption I am talking about a [fewer cents the optic the license and the entire optics] [ph] The target price for the whole thing I think somewhere around less than $10 I would say. Although further details on COP were down. As far as the secured network is concerned it's actually a challenging issue. Our goal is to enable secure payment under certain conditions, that’s not without limited payment amount. Here the of the payment should be state, I think it is still too early to say something we’re still discussing with Alipay and our other partners about. but the goal is to still enable Alipay, but probably with certain restrictions because the accuracy level of stereotype 3D is still not as good after all but we believe that should be sufficient for most of smartphone users demands. I am talking about small non-payments.

Good, thank you and then what stops others from creating a similar 3D solution to challenge you here?

I will not comment on specific competitors or alternatives, I think the way we see the market is developing right now some of the players announcing such solutions I think from point of view is premature. For example, some with solutions with only RGB life capability meaning it will be ruled out for smartphone altogether. Smartphone business and that all, some we feel are the 3D sensitivity is not good enough, some are focusing primarily on their algorithm IC, I mean there is ASIC require. Our approach, our strategy similar to socialize solution is for small home market to work primarily with SoC players. Right now, we are working with major ones. I cannot disclose further details. But that’s the difference of our strategy. So, our strategy, we believe even the low-cost requirement and also the fact that all major APs have been pretty experienced in handling your dual camera. Clear algorithm is quite similar to require for active stereo 3D. So, we feel to save cost and also to take note of the fact that the serial type camera, dual camera has been quite mature in algorithm. So, we should take advantage of the activities that are acquired produce only the optics and sensor solution. So that is our strategy and approach and that’s something we are executing enough.

And our next question comes from Tristan Gerra of Baird. Your line is now open.

Could you give us a sense of what we should expect in Q2, understanding that you’re not guiding for that quarter yet. But in terms of a rebounding in the China's supply chain and whether we should expect further sequential decline [indiscernible] shipments in Q2?

2Q pretty smartphone, right now, I think in the pipeline inventory level it’s pretty high, not just of 8x9 panels also 6x9 panels [indiscernible] customers are now release, so into [indiscernible] promoting the new 8x9 design. But I believe for more indications Q1 will be period to digest such inventories, hopefully Q2 will rebound and based on our projection for smartphone Q2 shift rebound by more than 20%, but it's still very early. So, don’t take this on guidance yet. On WLO, I mean for sure Q2 will rebound. But as far as how much issue will rebound, I should say it will rebound nicely. As to how much effecting we are still discovering with the customer for their final answer.

And is it fair to assume that the inflection point to TDDI business is related to the rebound whenever the China's [indiscernible] market rebounds and what type of volume should we anticipate at that point?

I think you should expect rebound quarter-after-quarter [indiscernible] and certainly I mentioned in my prepared remarks, but our shipment in Q1 is in [indiscernible] by the fact that customers are still digesting their all inventories which we are not [indiscernible]. And Q2 hopefully as I said earlier, hopefully the situation will improve, but I just want to emphasize that our design top line with leading names and customers and panel makers, is pretty good actually. So, I think you should expect quarter after quarter of increase starting from the second quarter. In the second half, our target is to ship a maximum amount of 10 million units and I think it’s fair to say that if we can achieve that this will become a very stable business for us going forward. And now, our focus right now is still on HD+ and full HD+ TDDI solutions. We’re not going to get back to 6x9 solutions.

Thank you. And our next question comes from Jaeson Schmidt of Lake Street. Your line is now open. Q – Jaeson Schmidt: Hey, guys, thanks for taking my questions. Just first of all, wondering if you guys expect any 3D sensing revenue from [indiscernible] OEMs in Q1? A – Jordan Wu: In Q1, you talk about 3D sensing, right? Q – Jaeson Schmidt : Correct.

Our 3D total solution, right? Q – Jaeson Schmidt: Yeah. A – Jordan Wu: Okay. There will be some more revenues, but not very significant, although we do sell some at the premium to the much potential price, but it's not significant. Q – Jaeson Schmidt: Okay. And then as a follow-up, wondering if you still expect a capacity of 5 million to 6 million units per month for your SLiM by year-end?

I think so. I do think so. Although we stated that we have to watch very closely, right. I just mentioned, we are working now and we will hopefully soon introduce, formally introduce stereoscopic type 3D. It’s something new and the two are going to complete [indiscernible] for all these reasons. So, a slight concern, our belief is that starting from premium model front facing 3D solution, then on to the world facing 3D solution and thereafter, platform solutions, okay. And I explained earlier in our previous calls that our uniqueness – one of our uniqueness is that we do provide a total solution --- all components and how to optimize that and how to fluctuate those in and out. So that gives us a very unique position in the future tailor-made solutions for customers, if they need they may be want to -- in their unique use cases and they may also even bring in their other algorithms. We can accommodate all that and in fact, I just mentioned in our CES demos, we are getting quite a few of such inquiries although, our focus today needless to say is still smartphone, we have to bring up smartphone ASAP. So, if you combine all this together I think 5 million long-term is certainly 4 million, 5 million long-term is very, very possible. Now with that said with that said, our CapEx will be different from active 3D against structural [ph], is efficient [indiscernible] and VOE. We also need to make pretty heavy investment in active environment to align the optics later. With a lot more seem to be slight telescopic type 3D. The active alignment is probably not anything and also in many cases probably we try to pave the way even the polymetal as only leaving the POE. So, if you compare the so-called capacity, apples-to-apples basis the CapEx will be different. I think it's still will be different for us as well. Now I think it's still too early to tell exactly how much volume we can expect for each, but capacity expansion for stereoscopic type 3D. I just mentioned we expect to be mass production ready in Q4. So, I think certain CapEx for that s reason primarily on the VOO, without active alignment. I think you can expect that later in the year. Exactly how much capacity and how much CapEx dollar amount we feel we are not prepared, although we are working very hard to finalize the plan, but have not prepared to announce it yet.

Thank you. And our next question comes from [indiscernible] of Roth Capital. You line is now open.

Hi Jordan, Hi Jacky. On the stereoscopic solution Jordan, is the competitive landscape is somewhat different from this SLiM product or is it still a similar competitive landscape for you?

I think eventually I suspect you will probably be more like probably firstly the potential aspect. The reason why this is lower cost is because it doesn’t have the complicated projector that is required rather in social life you have sensor for the receiving end, in stereoscopic 3D you have two sensors. So, you imagine in terms of the value of the whole solution, sensor company has more incentives to get than the projector company because projector is minimized, sensor actually needs two times the sensor value. So first of all, I think that we’ve probably encouraged sensor companies to try to get. Right now, what we are seeing is, they are only part of ecosystem only but they are now leading the charge. My suspicion is they will probably try to play a bigger role in active stereotype 3D. However, what we are seeing is that for most people anyway, they let the 3D algorithm and at the active element of the total solution. Meaning if you look at the RGB sensor today it is passive, what I mean by passive, it will provide a sensor and the environment provides a light. In the 3D sensing type even for active stereo type, it requires active light meaning you do need to have laser primarily or probably for the very low-end even LED. But you need a light source and the light source needs to be probably [indiscernible] to enhance the 3D effects. So, you need to combine the light source with [indiscernible] knowhow and combine that and optimize that with the sensor solution. I think that is probably the stuff that the sensors companies feel lack. And finally, as I said earlier, we are seeing some companies coming from algorithm background trying to be into the gap. And I think what they typically -- many of the first companies actually come to Himax trying to get off the optics sensors. So, I think the algorithm, of course meaning they trying to put the algorithm in ASIC, as I said earlier to lower the costs probably the better idea that the algorithm is handled by AP. So, in that case, in a way they are competition to the AP platform providers, while we try to be partners of them. So, I think this are the difference. Although, I think it’s still too early for me to make a whole prediction.

And then switching to WLO customer here, in 2018 progression would it involve more placements of content per device, would it be more devices. Is that one of the tailwinds you’d have as the WLO product ramps for the customer?

I think we are getting into more there different kind of components and different devices. Although obviously I am not supposed to comment too much of the customers activities. But I think, I reported in the prepared remarks, that we are more excited than ever, because in the past, we handle them one thing for them now, we are handling multiple things for them simultaneously all R&D stage, development stage.

And our next question comes from Charlie Chan of Morgan Stanley. Your line is now open.

So, my first question is regarding your foundry supply. I know you’re moving to 12-inch fab in China. But can you explain why, you reduce other fab for example Taiwan or Korea to fix that shortage issue. And also given roadway for products hike, do we expect your margin cash to decrease because of the shortage?

The age of all globally is very, very tight. Because I’ll start even that MOSFET which is very, very low value now is very good price for foundry guys and that alone, stuff like fingerprint sensors and power management ICs now are even more and more heavily used in smartphones. So probably 8-inch capacities that there is no new supply and we are competing against new things and many of them seeing quality and the can actually afford better price than us. And also, I think foundry makers sufficiently have been probably too heavily dependent on driver IC business and actually they want to diversify. So, I think we are working with 8-inch almost funder guys across Taiwan and Korea. We actually use multiple foundries for multiple suppliers in both countries and so that is point 1. Point 2 is that the 12-inch fab, the new is located actually in [indiscernible] province. It's actually located right exactly as I said site, it’s the measurement which is in place of our major customers. So, I think logistically and also in terms of development support it is actually quite beneficial for us. Now we will be able to get pretty decent price support from the 12-inch fad and lastly you talk about whether you know because of the tight foundry supply our margin gets squeezed. I think in some cases we do face pricing pressure from our foundry partners. But we are also in discussion with our customers for certain price increase. So, all this are being discussed, so I think overall, we don’t expect our margin to be eroded as a direct result of the 8-inch foundry type of business. What we are more worried is about customers qualification of our foundry because for TVs and in this case, we’re talking primarily about the last panel, and last panel is primarily about TV. So, in TV our customers do need to go through their customers qualification. Now everybody, the end users included, understand the severity of the foundry tightness. So, I think it is not like people don’t want to do it but they do have to go through the procedure which is almost a hassle. So I said in our prepared remarks that our customers all being very hard on the qualification and as far as we are concerned, we have successfully qualified the new 12-inch foundry and the customer has accepted our result and we will actually, we are starting to rent some volume but whether the volume will really rent big enough to totally alleviate our problems and when that will happen I think it’s probably yet to be further reported.

Okay, thank you. So, my next question is, your full year outlook. I know you can already quantify the [indiscernible] gross will be, but I think the key growth driver which is the [indiscernible] can you give us some sense about the potential revenue contribution or the revenue mix from the anchor customers versus those entry [ph] customers. Can you give us some breakdown?

For the whole year, again, it’s too early business too dynamic. But I think market is [cellphone] [ph] stable, I think it’s fair to say that [cellphone] [ph] market will be stable trade market overall will be stable in terms of demand and supply balance, some are slightly above oversupply because of China’s expansion, but we will actually be -- we will actually benefit from China’s expansion because we have a major market share in China. So, in large panel in particular, I think China expansion will benefit us. Although it may cause a little bit of slight oversupply for the whole large panel business. And in small panel, I think we have to count TDDI and I commented on TDDI already, automotive and stuff will continue to grow. The big variable will be on driver, harder to predict. One thing we are certain WLO will increase because last year we only had half a year of operation, this year will be whole year, although Q1 was very, very low, Q1 was slow, but I mentioned earlier, second half is expected to be strong, followed by a rebound of second quarter as well. So, for the full-year basis, I think WLO will be pretty safe, will have major growth from last year. And last but not least, it’s big variable which is 3D sensing, we said, the [indiscernible] will start to ramp in the second half. I think it's something we’re discussing with our customer almost every day, right, exactly how much and how and I think to be fair, they are still trying to test the water of face recognition, face ID, secure payment, online payment and all of that, right. So, I would say they will start with premium model, coupled with Qualcomm’s 845 Snapdragon and 845. Thereafter, we tried to penetrate to Qualcomm’s 600 series and there will be such an overlap between Social Eye [ph] and stereoscopic type 3D, right. So, we’ll see about that, but I think this year particularly is very, very difficult for us for full-year protection, even if there was 3D stereo is, we say Q4 mass production, grading and some customers are actually very anxious, so much protection as early as possible, but we’ll see about that, still long way to go.

Thank you. [Operator Instructions] And our next question comes from Jerry Su of Credit Suisse. Your line is now open.

Probably the first question, I just want to follow-up on what Charlie has asked, about the 3D sensing, I think if you look at the full-year contribution and then potentially your customer is ramping up more models with this 3D and then enjoy opportunity. So, if we look at the non-driver business for the second half of this year, do you think this non-driver right now is about 20% plus or minus of the total sales, can this percentage for the increase or maybe become the largest segment for your business into the second half of this year?

Second half I don’t know, but I think next year very likely you’ll be second half as I said, solidly staged, you know how much customer want to ramp in their premium model and so how the consumers were responsible, I think it’s really too early to tell. What all we can do is get ourselves ready but I think with structural [ph] and we have a role mix next year there will be new products launched and then you have stereoscopic 3D which is more at this small cost friendly and all these factors combine. I think I have a fair degree of confidence that next year 3D sensing will be the biggest piece of our business. And I think I just want to mention, advertise one thing, if you look at I know there are certain alternatives structuralized 3D sensing available in the market and we keep saying that our solution is far better. I think it is very, very important for you guys to understand this because if you look from all measures, whether its performance, it is [indiscernible] it is the features, you know it is support the AP platform even IP protection. You know all of them we are in all every single measure, we are superior and probably superior right far. So, I think again 3D sensing, we believe is a very long-term negative, many things will require 3D sensing not just smartphone, not just for Face ID, face recognition to unlock your face. There will be many other things AR and main camera and so on. So, we are here for a long time so what we are most concerned about is how we are and how are our solution compared to others and I think it is -- I have full confidence in saying that our solution is indeed far better than any of the potential competition in all measures of comparison. And I think that will put us in a very unique position in the long-term. In fact, some of the biggest tech names in the world are already coming to us for non-smartphone acquisitions. So, or job is to start the right this year and hopefully make some profit, without profit invest into further expansion and expand the portfolio to provide further coverage for 3D sensing. But I think we are here for a long period of 3D sensing that’s for sure.

Okay, thank you. And just to clarify when you say that the second half this year, you are not sure if 3D can become the largest segment, does this include optics and also may be the other non-driver business.

No, we are not called the available optics.

But that’s for sure a 3D total solution?

Yes, it is 3D sensing total solution, And as I said, Himax design-ins the customers have -- may have already indicated their intended volume, but this is really the pilot production, right, the customer will be pioneering the effort, and how we have to adjust our strategy and product and performance and whatever to answer to customers demand, I think you all yet to be seen. So, I think to predict the volume for second half will be too early. However, there’s no reason for us to believe that in the second half we cannot start mass production because our solution is ready, the customers I think are ready and, we just have to see about that.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to management for any closing remarks.

Okay. Thank you for your questions and as a final note, Jackie, our CFO will maintain investor marketing activities and continue to attend investor conferences. So, we will announce the details as they come about. Thank you and have a nice day and happy Chinese New Year. Thank you.

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