Good day, ladies and gentlemen and welcome to Himax's Fourth Quarter and Full-Year 2018 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be provided at that time. [Operator Instructions] I'd now like to hand the call over to John Mattio, with Lamnia International. Please go ahead.

Thank you, operator. Welcome everyone to Himax’s first quarter and full-year 2018 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 a question-and-answer session. If you have not yet received a copy of today’s results release, please email jmattio@lamniaintl.com or access the press release on financial portals or download a copy from Himax’s website at himax.com.tw. Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and 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 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 and demand for end-user application, also 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, 2017, filed with the SEC in March 2018. Except for the company’s full-year of 2017 financials, which were provided in the Company’s 20-F and filed with the SEC on March 28, 2018, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not yet been subjected to the same review and scrutiny, including internal auditing procedures and external audits by an independent auditor, to which the company subjects its 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. Now, I’d like to turn the call over to Ms. Jackie Chang, Chief Financial Officer for Himax Technologies. Jackie, the floor is yours.

Thank you, John, and thank you, everybody for joining us. Our outline for today’s call is first to review Himax’s consolidated financial performance for the quarter and full year 2018 and to provide you with our outlook for the first quarter of 2019. Jordan will then give an update on the status of our business, after which we will take questions. We will review our financials on both IFRS and non-IFRS basis. The non-IFRS financials exclude share-based compensation and acquisition related charges. Our fourth quarter 2018 revenues and gross margins met our guidance, issued on November 8th, while EPS exceeded the guidance. For the fourth quarter we recorded net revenues of $191 million, an increase of 1.4% sequentially and an increase of 5.5% year-over-year. The revenues increase in the quarter was attributed to the production outputs of newly added foundries for both large display driver ICs and TDDI chips. Our WLO shipment volume to an anchor customer also increased sequentially. Gross margin was 24.3%, up 90 basis points sequentially, due to more favorable product mix. IFRS earnings per diluted ADS were 4.9 cents, better than the guidance range of 1.5 to 3.6 cents. The better than expected earnings were due to revaluation gain of 1.7 cents per diluted ADS from an AI startup investment made in November 2017. Non-IFRS earnings per diluted ADS were 5 cents, outperforming the guidance range of 1.7 to 3.8 cents. The better than expected earnings were again due to the reevaluation gain mentioned above. Revenue from large display drivers was $74.2 million, up 12% sequentially, and up 27.1% year-over-year, driven by Chinese panel customers’ continued ramping of new LCD fabs where we have solid design in penetration. Large panel driver ICs accounted for 38.9% of our total revenues for the fourth quarter, compared to 35.2%…

Thank you, Jackie. In the fourth quarter of 2018 we delivered solid growth in the areas of TDDI, WLO and large display driver IC despite weakness sentiment in the overall consumer electronics markets. Looking into 2019, on the backdrop of an uncertain global economy, the TV panel market is overshadowed by concerns of over-supply and the global smartphone sales are projected to suffer some decline. We are however, still targeting some top line growth with upside momentum coming from TV and automotive markets as well as significantly more TDDI shipments for smartphone application, where we only made a small amount of shipment last year when we suffered from foundry capacity shortage. We will continue to advance our technologies across key strategic areas. These include among others, next generation display driver technology for 8K TV and AMOLED, 3D sensing for both mobile phone and non-mobile phone applications and ultra-low power smart sensing where we are seeing rising momentum in new applications such as smart home. Fully aware that we are operating in an uncertain macro environment, we are also putting cost control at the top of our agenda list, targeting to continuing R&D activities across all our strategic areas without raising R&D expenses from the last year. The total OpEx is budgeted to be at around the same level as that of last year excluding the anticipated increase in depreciation arising primarily from the construction of the new fab described above. Now let me give you further insights behind our Q1 guidance and trends that we have seen developing in our businesses. Our large display driver IC business enjoyed strong growth in the second half of 2018 as 4K TV penetration continues to rise globally and China continues to ramp brand new advanced generation LCD effects. Looking into 2019, while the…

[Operator Instructions] Our first question comes from Jaeson Schmidt with Lake Street Capital. Your line is now open.

Hey guys, thanks for taking my questions. Jordan, just wondering if you could comment on what's behind your confidence in the smartphone rebound in the second half? Is this just based on normal seasonal patterns, is this based on design wins you have in the pipeline? Any additional color would be helpful.

I think is primarily on the design pipeline we have with the customer and also the projects being discussed with the customer which hopefully many of them will soon become true real design wins. And certainly in the second half already on the year particularly I think our new technologies are for higher end full HD+ is primarily how we call [indiscernible] design, in which we are leading the charge in the industry, which basically enables further reduction on our own display bezel without the need to use COF package material, which as you know is both very expensive and also is heavy and lot of surprise, all these concerns. So we are trying to narrow the gap of bezel of narrow bezel design between ICs without COF package, so that is for the higher end full HD+ technology that we are focusing on at the moment. And on the low end HD+ the effort there is primarily to further reduce cost. So in our next generation design we have so called [indiscernible] design which again we are leading the charge in the industry. So we are already engaging customers. We are starting development projects with customers. We anticipate [indiscernible] new designs we're starting to make [indiscernible] contributions from second half of the year. So for all these various reasons I think we are committed for a strong rebound in the second half, not to mention the fact that we have been hopefully, successfully trying to convince the customer that the capacity shortage, [project] [ph] capacity shortage of last year which was very bad is already probably behind us. So I think we are ready to go with the customer.

Okay, that's helpful. And along the capacity constraint lines, just curious if you could quantify what sort of capacity on the TDDI side you expect to have in Q1 and then how that will ramp throughout the year?

In terms of firstly on our target for the year, we are targeting to reach on a monthly basis over 10 million per month in the second half which is going to represent about 25% of global TDDI market at a time. So as far as the capacity is the concerned, certainly our [prepared] [ph] capacity is well above that number meaning more than 10 million per month. So, we are ready to take more orders if we can so that is effecting how we are trying very hard on which is to try to be aggressive and to get out there and [indiscernible] design project with the customer right now. But our target I think is achievable, is reasonably achievable, more than 10 [KK] [ph] a month and get our capacity is well above that.

Okay, thank you.

Thank you, Jaeson.

Thank you. Our next question comes from the line of Tim Savageaux with Northland Capital Markets. Your line is now open.

Yes, thank you, good morning. A couple of questions, you mentioned that the – despite the sequential decline you expect year-over-year growth in wafer level optics I imagine through a greater number of devices at your large customer. I wonder if you could talk about your expectations in growth trends for WLO for the year, both as a result of increased number of devices at your large customer as well as any potential traction on the Android side at the WLO level as the year progresses?

We - actually we didn’t specifically say we expect WLO to growth this year against last year as the reason being what we did say is that our overall revenue, overall sales for this year we expect for a number of reasons we expect to see some growth despite the macro economy, and so that we did say, but we didn't specifically say that we are always going to register growth this year. That is primarily because admittedly our WLO business in terms of shipments, although we have good design pipelines and collaboration projects with multiple customers, but in terms of actual shipment we are highly dependent on one single customer, anchor customer, which provides very big volume and in all we have been very solid vendors to them. But it's certainly our first quarter compared to first quarter of last year because of more [modest] [ph] adoption, the volume did see some increase, but I think we are not providing full year visibility because we honestly we don't have and we are just building according to their demands. So that's [indiscernible] our WLO outlook. Now we do have Android customers in the pipeline, but the Android customers for 3D sensing the volume if they do happen they are small for this year compared to [indiscernible] expected volume. So I think the main driver of revenue for WLO within this year is going to be the anchor customer again for which we don't pretend to have good visibility. We have visibility for the whole year. Having said that, we are working with multiple projects with the anchor customer and also other Android customers. So hopefully, starting from next year, we will have a more diversified balanced sales portfolio as well as projects portfolio and even customer portfolio. So that is the aim for next year and beyond, but for this year it is highly dependent on that one anchor customer.

Understood and thanks. If I could follow up, despite the sequential decline forecast in large driver looks like you're growing pretty good pace on a year-over-year basis. I think to your point you've mentioned overall expectations for revenue growth which you say your large driver is the biggest part of that and it looks like you're growing more than - based on what you're guiding 20% in Q1, I know you had a stronger second half of 2018, but what sort of growth expectations or would you expect that type of year-over-year growth to continue in large driver?

First Tim, I appreciate the question. In addition to large driver perhaps I can give a quick overview on both on large driver and small-medium sized driver and a little bit on non-drivers. So you get a full picture, fuller picture of how we're thinking for the whole year. Again, we appreciate, fully appreciate the macro economic uncertainties. So that is going to impact the market demands and we also appreciate the fact that people are generally not so bullish of smartphone market which for Himax is the single biggest end market. So these all are factors are certainly negative and we have to bear that in mind in our projection and also by providing some colors for the projection, we are not providing solid guidance for the whole year numerically. Now for our large display driver, our target are hopefully double-digit growth year-over-year. Chinese panel makers, their ongoing capacity expansion certainly is going to help. And also I mentioned in my prepared remarks, we suffered last year a lot by capacity shortage, firstly on the foundry side and thereafter on the COF packaging material side and for both I think we are leading the industry in terms of resolving those issues, so we feel we are very well prepared and we are actually ready to restart preparation compared to our peers, ready to pitch aggressive to customers trying to win more design wins because of our strong capacity support for the second half. So, and also I think China for large panel has been our largest market and within China there are actually upper tier customers and lower tier customers and our focus has a lot more upper tier customers who typically enjoy better - are customer engagement or relationships, they enjoy better technology and they enjoy better market…

It sure does. Thank you very much.

Thank you.

Thank you. Our next question comes from Jerry Su with Credit Suisse. Your line is now open.

Thanks for taking my question. Jordan I would like to ask you about the OLED progress because you made in your prepared remarks about the OLED driver IC especially with smartphone you have been working with customers. I remember several years ago you had been shipping some OLED driver ICs, I would like to know what's your latest progress and then the approximate timing for this to see revenue contribution?

I think many of our revenue contribution is going to be next year, a little within this year. This year we do have across major OLED customers in China we do have progressing projects, we do have engagement, but it really depends a lot on also the customer's progress. And in some cases, the specs or the target of market last year been changed. So for smartphone market, we certainly is the major target market. We have a lot of activities, but unfortunately in terms of actual sales or contribution I think it is more safe to say in your modeling it should should be next year’s story rather than this year. Now, we do have OLED projects include automotive as well, certainly in terms of production timing even later than in the smartphone but we do have engagement again with Chinese leading customers on that as well. Over there you speak a bit, so you talk about even higher end displays compared to our [indiscernible] and even with the benefits of we are talking about plastic OLED, so free form designs which will be very important for the market. So I think OLED there are lot of activities both in smartphone and automotives, but in terms of revenue contribution you would not see until next year.

Okay. Thank you. And then probably a followup question for Jackie, I think in the prepared remarks had mentioned OpEx are targeting for a flattish excluding the increasing depreciation, but for the - I think if you - could you let us know what is the amount of the depreciation increase in the OpEx line or more easily, can you just give us a rough idea about what's OpEx spending for this year? And also comment on the effective tax rate for this year? Thank you.

Yes. The total OpEx for 2019 is budgeted to be around $175 million IFRS basis of which we see $8 million more depreciation, incremental depreciation versus the last year, and of the $8 million incremental depreciation $2 million really come from the capitalized lease. So we basically were capitalizing our lease right? So I think that represents about 5.6% year-over-year increase. As far as the effective tax rate, right now we are projecting about 3% because if you put everything together, I think that right now because of the low visibility and the uncertainty of the macro economics right, we try to remain conservative. Therefore, our driver IC division may not be as profitable this year. So the effective tax rate will be lower because we'll be paying less taxes, at least that's in the current assumption right now.

Okay. About 3% is that?

Yes 3%, yes.

3% okay. Okay, got it. Thank you.

Thank you. Our next question comes from Donnie Teng with Nomura. Your line is now open.

Good evening CEO and CFO. My first question is related to TDDI. So it looks like the TDDI shipment will sequentially decline to first quarter from fourth quarter last year. And you mentioned about your change in the new design, so probably that's the main reason. But I'm not sure whether there is still some capacity constraint particularly in the back end. So that is another reason you cannot get enough capacity because it looks like Novatech's market share is still meaningfully pretty high in the first half. And also wondering when will we see the TDDI shipment to pick up this year, will it be in the second quarter or it will be more like backend loaded in the second half? Thank you.

Certainly very much second half back end loaded, but certainly you should expect further pickup second quarter from first quarter. First quarter would definitely be the bottom. And I think first quarter is low because of some serious capacity concerns we really had to last year fourth quarter in particular, we really have to escort a lot of customers in order to just focus to satisfy the demands of while major Chinese end customer and that is unavoidable and difficult decision to make because we simply didn't have the capacity to satisfy everybody. So we stuck to a major customer that we had we focused on in the last year. Everybody was pretty much in a panic mode, so because capacity was so short across the board. So I think the end result was that they ended up taking what they really needed from us in Q4 last year and therefore we are seeing some inventory correction from that major customer. And now we are actually diversifying into other customers, but this diversification process because admittedly we did have a high degree of dependency on one single customer. So the fluctuation, I think compared to our competitors, our leading competitor as you mentioned I think is certainly not in our favor, but hopefully when we have a more balanced customer portfolio and product portfolio starting from now actually the situation will improve. Now, I just mentioned about our new generation of design. We are not saying our sales will [indiscernible] those designs. I think we still this size, we hope to win more design win sockets. But I think with this current generation design we will continue the next shipments and again last year the concern was more primarily capacity. It took a little bit of time to really convince the customer that the concern is already gone and then it will be a design engagement stage and then lead to shipments. So it will be some lead time required for us to diversify our customers, but I think the fact that we were able to support our high end product for HD+ with an industry leading customer, I think that kind of demonstrated our capability. And we just have to start from there and try to win more projects with small customers.

Got it, got it and one more question…

And also, I think for TDDI I also want to talk about potentially other applications, not actually, not potentially, they are happening right now. TDDI is going to be more and beyond just smartphone. You talk about automotive, higher tablet, or larger display with active stylus and even two-in-one and notebooks, such products industries already adopted TDDI. And I think we are in the front tier in terms of exploring those opportunities and engaging with those customers. So with automotive, I think to give you a rough idea, automotive we expect shipment started - starting from second half of this year, starting small but the next year will be a lot more programs starting mass production, that is for automotive TDDI from higher target. Again, the development and verification by panel makers, we spent our revenue contribution from three quarters or from the third quarter of second half of this year and active stylus TDDI actually this is where we are leading the industry. Together with our key partner we made an announcement and then all at CES we got a pretty good response. So the engineering sample will be ready in the second quarter for OEM [indiscernible] design, so hopefully again, mass production by the end of this year. Two-in-one note book solution will be ready by the end of this year, but mass production is expected next year. So although any one of this single sequence in terms of volume has nothing to compare with mobile phone biting for long term, I think they also represent good growth areas for us.

Got it. So one followup question on the capacity constraints, so this year can we say that the foundry capacity now is no longer a constraint but probably more like in the back end, is that a fair comment?

For very high end TDDI, you talk about COF packaging, then COF certainly capacity is a constraint. I know for sure quite a number of even leading smartphone customers they are hesitant to go into such designs simply because of capacity concerns. And we also know of probably two or three medium smartphone customers, they had to go straight to the ecosystem and go secure COF capacity directly by themselves. So it’s very expensive and it's got a lot of capacity constraint. So in our projection for this year, although we do have such technology and we do have some shipment records for COF, but again we are suffering from the same set of capacity constraints, so in this year it is safe to say we are not really counting on that. So that is, if you probably mean, but again the COF packaging then, yes it's got a COF capacity constraint. But in terms of testing, indeed it requires higher testing and testing as always is a long term issue, but is an issue that has always been resolved. And it is always the issue, it has always been resolved. And it may represent some a little bit of shortage, but it is not a big scale shortage such as our - what we saw in terms of foundry capacity or what we are seeing right now in terms of COF. We are talking about very different story. So those are testing capacity constraints. I think it is only marginal now and they can be resolved.

Got it and my second question is pretty simple. I think we have some long term growth drivers like all display driver ICs and 3D sensing and LCOS, if you look at the coming one to two years, when what product line should we expect to see more meaningful sales contribution at the earliest, and if you're wondering if you can rank these three product lines, so when will we have better visibility on these product?

I think in terms shorter term visibility, certainly the best potential comes from 3D sensing where we provide critical optical components or particular modules to both Android and now Android smartphone markets covering COF and [indiscernible] and all these solutions. So there we are talking about a very small number of leading customers who have their in-house technology steps to provide their own total solution. So, we along with some of our peers will be called in to provide certain critical component of technologies to go with their total solution. So that if you like, is certainly the major revenue contributor, last year, this year, next year, that is the most short term. So I think in terms of 3D sensing, we talked about in my prepared remarks, admittedly the first generation arguably, the technology development was a reasonable success, but I think we probably didn't do well enough in terms of cost and also easiness for customers integration. So that is how we're working now at the moment together with our platform partners. So the talk is end of this year to early next year sampling for our new total solution and mass production is likely to be second half 2020. Okay, so and also we do have existing technology, existing solutions which we are using to explore opportunities primarily in non- smartphone sectors. Again they are less cost sensitive, but they don't total solutions, so only a very small handful of vendors around the world to supply that. But the difficulty here is the fact that you need to meet their requirements both technical and commercial requirements and you need to put together a truthful solution for them in order to start to generate the revenue. By saying that we are talking about not just our total solution,…

Got it. Thank you so much.

Thank you, Donnie.

Thank you. And with that I will now turn the conference back over to Mr. Wu for any closing remarks.

As a final note, Jackie our CFO will maintain our investor marketing activities and we'll continue to attend investor conferences and we'll announce the details as they come about. Thank you and have a nice day.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.