Good day, ladies and gentlemen and welcome to the Himax Technologies Second Quarter 2019 Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today’s conference, Miley Bergman [ph]. You may begin.

Welcome everyone to Himax’s second quarter 2019 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 remarks we have allocated time for questions in a Q&A session. If you have not received a copy of today’s results release please e-mail himx@mzgroup.us or you may 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 industry growth are forward-looking statements that involve a number of risks and uncertainties that could cause actual results or events 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 and 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, 2018 filed with the SEC in March 2019. Except for the company’s full year of 2018 financials which are provided in the company’s 20-F and filed with the SEC on March 28, 2019, the financial information included in this conference call is un-audited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny, including the internal auditing procedures and external audits by the 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, Miley. And thank you everybody for joining us. In today’s call we will first review Himax’s consolidated financial statements for the second quarter, followed by the third quarter 2019 outlook. Jordan will then give a 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 second quarter 2019 revenues, gross margin and EPS all met our guidance issued on May 9. For the second quarter, we recorded net revenue of $169.3 million, an increase of 3.7% sequentially and a decrease of 6.6% year-over-year. As expected, our smartphone segment recorded a significant sequential growth while automotive business declined amidst worldwide sluggish car sales. The TV sales were also hit by the falling panel prices caused by the display industry’s oversupply situation. Gross margin was 19.5%, down 310 basis points sequentially due to less favorable product mix. IFRS loss per diluted ADS, were $0.03, in line with guidance range of $0.02 to $0.035. Non-IFRS loss per diluted ADS, were $0.0279, in line with the guidance range of $0.0180 to $0.033. Revenue from large display drivers was $59.3 million, down 15.3% sequentially and down 2.2% year-over-year. Clouded by weak demand and oversupply, our panel customers have been over-stocked since last year. Our large panel driver ICs experienced lower shipments and pricing erosion in the second quarter as a result. Large panel driver ICs accounted for 35% of our total revenues for the second quarter compared to 42.9% in the first quarter of 2019 and 33.4% a year ago. Revenue for small and medium-size display drivers came in at $81.7 million, up 20.9% sequentially but down 8.5% year-over-year. The segment accounted for 48.3% of total sales for…

Thank you, Jackie. Before I discuss our business outlook for the third quarter, I would like to comment on overall industry trends that are currently impacting our businesses. As we mentioned last quarter, market conditions have been challenging and we do not see them improving in the near term. Uncertainty in the global economy continues to overshadow the marketplace where we are seeing softness in all industries that consume display. This combined with prevailing industry-wide capacity oversupply has led to severe pricing and cost pressure for panels, which has directly impacted our sales and margin. Against the backdrop of an unfriendly market environment, we have faced multiple challenges that have had an adverse effect on our overall financial performance over the past 12 months. First, the large display driver IC and small/medium driver IC markets experienced chip-on-film or COF and wafer capacity shortages respectively. The severe shortages significantly affected our ability to fulfill customer orders in the back half of 2018, which not only impacted our 2018 sales, but also jeopardized our ability to win new projects with customers at the time. While these constraints were resolved towards the end of 2018, we are still suffering from the repercussions of the loss of new projects as we did not get to take part in the mass production of those projects, many of which started in the second or third quarter this year. Second, beginning earlier this year, there has been a major pullback in demand for DDICs as panel makers facing an industry-wide overcapacity and uncertain economic outlook, cut back their production and, in the meantime, attempt to lower their DDIC inventory which they built earlier to address the IC shortage concern. The combination of these two factors has negatively impacted our performance in the second half of 2018 as…

[Operator Instructions] and our first question comes from Jerry Su from Credit Suisse. You may proceed.

I think the first question is more related to our driver IC pack. I think on the smartphone related, our TDDI you have mentioned that you have seen some bottlenecks of getting AMOLED design wins, but I would like to know what’s your view on going into 2020 when you have those new partners ready. And at the same time, what is the pricing outlooks for the TDDI in later this year also in 2020? And then second question is more related the wafer-level optics. Because you have expanded, you built a new facility for the WLO for 3D sensing. But as you mentioned, the industry didn’t really take off. So, I was also wondering will there be any idle capacity issue and then we need to ask to take some write off in near future? Thanks.

Thank you, Jerry. Firstly, on TDDI, we are entering to we are launching the second-generation design. And as you know, and we mentioned repeatedly in the past, that our first-generation technology-wise it was okay but we missed the market opportunity slightly compared to our competitors and we had we suffered from a severe, very severe foundry capacity shortage. And that, actually as I mentioned in my prepared remarks, not only impacted our sales at that time but also arguably more significantly also jeopardized our chances for new design opportunities which represent the shipments of the current moment. And so, the growth of TDDI shipment this year came from first generation. And that certainly came from a low pace as the reason I just mentioned above. Now so while we are shipping TDDI products for this year, we are also at the same time right now, starting new design engagements with our customers, primarily utilizing the second generation TDDI products, stuff like high refresh rate 100 megahertz or dual gate designs. So, and some of those will involve COF packaging as well. And again, we are talking about primary two major resolutions, meaning full HD+ and HD+, so we have such engagement or discussions or design wins, a design win already with panel customers and certain major end customers. So, I also mentioned the revenue contribution from such new design wins will only be seen starting next year primarily. There will be very limited such contribution within this year. Pricing erosion continues. And I think you will continue to will continue to see pricing competition. Quite simply, the market is weak. And that only that not only affects the smartphone’s total shipments but also their desire or their budget to kick off new projects. And so, with relatively few new project…

Yes. Thank you. And then just one quick follow-up, on the TDDI pricing you mentioned that the ASP erosion might continue into next year. I’m just wondering, do you think that we will reach our parity, which means TDI ASP will be similar to the discrete driver plus the touch by next year?

You mean price? You mean price?

Yes, ASP.

Price.

Pricing, pricing.

Price, unlikely because TDDI by definition is a combination of 2 things, right, it’s a touch controller and display driver IC. So, on apple-to-apple basis, one chip against one chip TDDI price will always be higher than discrete driver. Having said that, it is also more expensive to make, right, because it is a combination of 2 things. So, when I say pricing pressure, what I meant was the margin pressure. And ASP will always be higher.

Yes.

And certainly, there is also the packaging type, right, with TDDI for the reasons we all know, some phone makers are choosing tougher COF packaging and that in turn has quite a bit of cost. For us, with discrete driver there is no such thing. It’s all COG. So, you save the packaging cost as well.

Yes. But maybe to define this question more precisely, so if on a like-to-like packaging basis, for example, COG, will the TDDI ASP eventually be similar to some of discrete driver IC plus touch in 2020?

I think let’s set aside the additional cost for COF on apple-to-apple basis. Let’s say it’s both are COG packaging type. I think when TDDI cost started, the cost of TDDI is a combination of display driver and touch panel controller. And you add them together and you’ll lose little bit on longer testing time and probably you suffer a little bit because of bigger die size suffer a little bit from year rate. But that is the cost of TDDI. So, it is actually comparable to the traditional discrete driver cost plus the discrete touch panel controller cost, but initially with a higher margin because it’s a new product. And now we are talking about margin erosion, while the cost remaining pretty much the same. Certainly, the second generation TDDI we have made some improvement on cost. But likewise, traditional [indiscernible] historically every year we keep on making improvement on cost as well. So, they are really from a cost point of view, by integrating the two things together this in directly save cost for the end customer because of the integration per se. So, it’s more of like one plus one equals two and you still have to pay two for the combined TDDI chip initially, so the margin is higher. Now we are seeing margin pressure, that’s what I was referring to. I don’t know if that answers your question.

Okay I got it. Okay thank you.

Thank you, Jerry.

[Operator Instructions] I’m not showing that we have any further questions at this time. I’d like to turn the call over to Jordan Wu for closing remarks.

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

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