Ladies and gentlemen, thank you for standing by. And welcome to the Himax Technologies Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker, Maili Bergman, Managing Director of MZ Group. Please go ahead.

Thank you so much. Welcome everyone to Himax’s fourth 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 comments, we have allocated time for questions in a Q&A session. If you have not yet received a copy of today’s results release, please email HIMX@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 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, 2018 filed with the SEC in March, 2019. Except for the Company’s full year of 2018 results, which were 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 unaudited 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 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, CFO of Himax. The floor is yours, Jackie.

Thank you, Maili. And thank you everybody for joining us. In today’s call, we will first review the Himax consolidated financial performance for the fourth quarter, followed by the first quarter 2020 outlook. 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. We pre-announced preliminary key financial results for the fourth quarter on January 7, 2020 as the revenues, gross margin and EPS of the quarter all exceeded our guidance issued on November 7, 2019. Revenues and gross margin were in line with the pre-announced results, while EPS were at the high end of the range. For the fourth quarter, we recorded net revenues of $174.9 million, an increase of 6.5% sequentially and a decrease of 8.4% compared to the same period last year. Revenues were better than our guidance of flat quarter-over-quarter. Both display driver and non-driver businesses contributed to the better-than-guided sales. Gross margin was 20.6%, exceeding the prior guidance of a slight increase compared to third quarter’s 19.5%. A more favorable product mix among small display products, improved WLO factory utilization and higher than expected engineering fees from new project engagements enhanced the gross margin for the fourth quarter. IFRS profit per diluted ADS was $0.006, exceeding our guidance of a loss of $0.003 to $0.045 [ph] Stronger sales and improved gross margin both contributed to the better than expected earnings. In addition, we booked a revaluation gain of $3.8 million from an investment we made in an AI startup during November 2017. The revaluation gain was not included in the November guidance. Non-IFRS profit per diluted ADS was $0.009, exceeding our guidance of a loss of $0.027…

Thank you, Jackie. When we hosted our third quarter earnings call this past November, we were facing trends in the marketplace that created headwinds for us. Specifically, at that time our performance and forecast reflected challenges we faced in our smartphone TDDI business. This was exacerbated by an oversupply of capacity in the LCD industry that negatively impacted our display driver IC sales and margin. As a result, our overall sales and outlook were weak. Since that time, we have started to see major turnaround in literally all aspects of our businesses. The strength we are seeing in Q1 is expected to extend into Q2 and throughout the rest of 2020. Notwithstanding the uncertainty arisen from the coronavirus, we are confident that we will see decent growth across the board for all our major product categories in 2020. Now, let me take you through each of our major business areas. Let us start with the large-panel driver IC business update. For the first quarter, we expect the large display driver IC segment revenue to increase by around 10% sequentially. Sensing strong signs of panel price recovery, panel makers began to replenish their inventory and increase production starting the end of Q4 2019. Our leading Chinese panel customers are particularly active in gaining further market share, taking advantage of Korean panel makers’ ongoing fab restructuring. As the leading IC supplier, Himax is well positioned to benefit from increased demand coming out of the major Chinese large display players. These market trends, that began to emerge during Q4 2019, are expected to drive strong results in Q1 that will accelerate throughout 2020. On the supply side, we reported during the last quarter’s earnings call that Himax and some of our major panel customers were already seeing foundry capacity shortage of 8-inch silicon…

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

Hey, guys. Thanks for taking my questions. I just want to start on the TDDI business. It sounds like you're seeing some nice traction given some pricing tailwinds this year. But outside of that, do you think some of the strength is really being driven by overall market growth or share gains as well?

Definitely, it is true that [ph] primarily with our share gains and market momentum, certainly 5G is going to help. And certainly that took [ph] with the current the issue of capacity constraint and also unique position for having a mature and sizable and ready to offer capacity that all these factors combined I think is going to add to our strong momentum expected for this year for TDDI.

Okay. That's helpful. And then just curious if you could comment your thoughts on what channel inventory looks like in the Chinese smartphone market?

It's a tricky question. If you're talking about smartphone right?. Am I correct.

Yes.

Okay. Again this is a tricky issue because the coronavirus situation I think is making things pretty blurry for us for the time being. Although I think things will get clarified soon. Having said that though, I mean, the situation is still evolving. I think I would just like to you know probably further elaborate on your question, I think I mentioned earlier in my prepared remarks that we have taken into account or let me rephrase it, we have discounted already the impact coming out of the virus into our guidance, right. And on top so, what we have seen with a copy in our guidance and on top of that we have further widened our guidance on the low end just in case because as I said earlier you know, its still evolving. And so if you asked me so effectively how much impact the coronavirus is going to have on Q1 results, I would say [indiscernible] or even more [indiscernible] even more of our total sales and that is primarily coming from small panel in particular smartphone, sales of smartphone TV effect tech. Now I'm sure you all - you are going to wonder why is smartphone and why not glass panel. I think long story short, it is primarily because as many of you know, the larger panel size the less likely the panel makers are going to outsource their module assembly to third parties and vice versa. So in the case on TV it is highly unlikely, actually it is - we are not that at all that the panel makers are outsourcing their module assembly to outsiders, i.e., panel makers are making their modules themselves. And smartphone you know happens to be the smallest in size, in display – in display. So it is…

No, that's very helpful, I appreciate that color. And then just last one for me and I'll jump back in the queue. You're expecting some pretty nice gross margin expansion here in Q1, sorry 22% at the midpoint of guidance. Should we assume that that is the low watermark for the year? Do you still expect gross margin to expand as we progress throughout 2020?

I certainly believe so. I still think it is so. We expect in 2020 that the gross margins will further improve because those are smartphones, small size, and although large space, foundry capacity of the above facing constraint. I mentioned again and again early in my prepared remarks. So that is going to provide a good price support and those sorts specifically for example DDI [ph] new products, we're going to enjoy better ASP, loan drivers such as 818 [ph] for example you know where actually it's we’ve [indiscernible] but we do have some major - major market position in this region going to take off, right. So again that is high ASP and high margin. So other non-driver product as well, going to enjoy ASP in margin. So I think we have a strong level of confidence that 2019 gross margins is extraordinarily - extraordinarily low and we certainly expect a good rebound from that in 2020.

All right. Thanks a lot guys.

Thank you, Jaeson.

Thank you. [Operator Instructions] Our next question comes from Sujeeva De Silva with Roth Capital. Your line is open.

Hi, Jordan. Hi, Jackie. Congratulations on the progress here. The TV design market, it seems like it's a tight supply and firm pricing. How many quarters do you think that situation can persist before pricing competition resumes competitively?

Well, I think right now what we're seeing is the customers and customers included are very anxious about capacity access. So – and like this is a very, very different situation from last year. So you know I mean, very now we have do have this virus situation, but I think overall or again we believe the problematic side are not going to - there could be some small hail cut although, PDDI market share will continue to grow within a year. So we don't think - we think PDDI market is going to further grow this year. And that is going to make the situation – tight this situation. A real issue for both our customers. So I think the price erosion that we saw last year is pretty unlikely to repeat this year.

Okay. That’s all for Jordan. And the on the large panel, clearly the China panel makers are gaining some share. Can you give a sense of how much of the market is transitioning over and then how much is Himax’s share go to China’s panel makers?

For our large display driver business, vast majority of our – I don’t have the effective breakdown right now. I mean, I would say probably [indiscernible] for large panel is coming from Chinese customers and by the way we are – I think we are number one or you know, eco number one in China with a pretty piece of market share. And in terms of how much China is going to get from the Korean restructuring, I guess, its harder to predict this year, even I can give you [indiscernible] from 2019, I guess, 2018, if you look at the glass output, glass area output, glass output distribution, in 2018 Korea had also reached 2%, whereas China had 35%, right. So its 32 and 35 in 2018. In 2019 the margin already widened to 28%, so these are 43% or 44%. And I think the trade [ph] is expected to continue to widened further for 2019. So I think it is safe to say that in 2019 China is going to commence half or more then half of the global glass output for large panel. So that’s pretty significant.

Yes. Okay, great. And then my last question is on driver and WOO [ph] with your lead customer here. Is there an opportunity for content gain given competitor capacity or is that something where that stock expect to be phased out over time?

I think I cannot elaborate too much on this, given the obvious reason. I can only say that right now you know, we – how we provide this to our [indiscernible] customer, we are the sole source and also we are working on further projects, some of it or maybe you know, will be bigger in size compared to current project and I cannot indicate precisely exactly when the new process is going to start up. I think don’t have to – update in your guides, in due course.

Understood. All right, thanks, Jordan.

Thank you, Sujeeva.

Thank you. And I am not showing any further questions at this time.

Any more questions from the floor? Without more questions, it’s a final note, Jackie 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, this concludes today’s conference call. Thank you for participation. You may now disconnect.+