Ladies and gentlemen, welcome to the Himax Technologies, Incorporation Fourth Quarter and Full Year 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. And now I would like to turn the conference over to Mr. Eric Li, Chief IR and PR Officer at Himax. Mr. Li, please begin.

Welcome, everyone, to the Himax Fourth Quarter and Full Year 2024 Earnings Call. My name is Eric Li, Chief IRP Officer at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer; Jessica Pen, 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 e-mail himx@mzgroup.us or hx_ir@himax.com.tw 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 industrial 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. A list of risk factors can be found in the company's SEC filings Form 20-F for the year ended December 31, 2023, in the section entitled Risk Factors as may be amended. Except for the company's full year of 2023 financials, which were provided in the company's 20-F and filed with the SEC on April 2, 2024. 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 or 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. On today's call,…

Thank you, Eric. In 2024, our sales revenues in each quarter consistently outperformed guidance. While this strong performance is certainly commendable, it also highlights the challenges we faced such as limited market visibility and conservative customer demand, while many customers rely on cash orders to address their actual demand. On the other hand, our rush orders are indicative of the tight inventory position of our panel customers in general. In the past few quarters, we have consistently demonstrated our ability to handle most of such rush orders, underscoring our agility, adaptability, strong capabilities in inventory management and swift market responsiveness. The automotive IC sales remained our largest revenue contributor in 2024, accounting for almost half of total revenues, achieving close to 20% annual growth. This performance highlights Himax's automotive leadership in technological innovations, product development and market share. Looking ahead, we expect our automotive TDDI and Tcon technologies to maintain growth momentum, further strengthening our market competitiveness. Beyond LCD technology, Himax is advancing development in the automotive OLED sector with numerous projects currently underway in partnership with leading panel makers. We anticipate that automotive OLED IC will serve as one of the key growth drivers for Himax in the coming years, further solidifying our leadership in automotive display market. Meanwhile, Himax is actively expanding its technology development beyond display ICs. To that end, in the WiseEye AI segment, we have made notable progress with leading notebook brands and achieved significant breakthroughs in smart door lock authentication and smart home applications, collaborating with world-leading customers to develop new innovations. We anticipate a strong growth trajectory in our WiseEye business in 2025 and beyond. Himax's proprietary Wafer Level Optics or WLO technology for Co-Packaged Optics or CPO has recently garnered significant attention in the capital markets. In fact, as early as June…

[Operator Instructions] Now we'll have our first question, Donnie Teng, Nomura.

My first question is regarding to CPO because maybe in the past few months, some investors were asking about whether our CPO is firstly adopted by scale out or scale up server systems. So wondering if you could elaborate more there. And also, you mentioned about there has been already some small-scale production. And could you give us some update on when should we see more sizable mass production scale in the coming years. And also, could you update a little bit on the competition landscape there? It's like how well our position right now compared with the multiple peers?

It's not an easy question. I'll try to address the question perhaps from a slightly different angle. But I think, understandably, the one issue you guys are really interested in now is that exactly how much contribution this will be for Himax in the foreseeable future and even the long term. I assume that is basically the essence of your question. As I just mentioned, this year, 2025 will be a year for engineering validation with only sample shipments for us. So while the sample shipment will accelerate quarter-by-quarter, the revenue contribution will be rather limited if you compare that with our total revenues. The fourth quarter, which presumably will be the peak of this year, the revenue is set to be in millions of dollars based on current forecast. But again, it's still quite small compared to our total size and things can still change as it is still early. Now in all likelihood, mass production will commence in 2026. But we don't know how and certainly, we won't comment on exactly when in 2026. It's probably still more than a year from now. There are still many unknowns like how many customers, how many projects or their revenue curve, et cetera. And therefore, while 2026 is likely to be the first year of mass production, it is still early and it still difficult to give a revenue indication for the year at this point. Now if we look further ahead and ignore the exact timing and revenue curve, et cetera, for the time being, and let's just try to paint the picture for, I would call it annualized potential revenue for Himax because the first year production could be just a quarter or whatever, I don't know. But let's try to annualize it, and analyze the potential revenue…

But I'm wondering if we talk about 2026, do you think that CPO is mainly used for the on switches or it can be directly used for the connection between GPUs and GPUs?

Again, we are so upstream. We are probably not the best person to answer such questions. However, as far as we are told, it will be firstly adopted in switches and that is going to account for the bulk of the volume in early stage. That's what we're told, although again, you're probably not asking the right person because at the end of the day, what we provide is those critical optical components, and how our customers are going to use it for whatever application it's really their core and they don't necessarily need to share such information with us. However, we also know as I mentioned in my prepared remarks, in addition to cloud application, we believe eventually, this also has great potential for things like automotive and robot. When it comes to very consumer products, CPO technology is low cost compared to those applications. But if you're talking about like notebook or smartphone, it is still relatively high cost. So I don't know about those potentials and I'm certainly not counting those in our assessment. I'm not even counting automotive or robot or whatever. I'm just saying in long term, we believe those are also good areas to use CPO. However, so I want to emphasize in our assessment, we are only counting cloud application. We are only assuming a very low attach rate for the cloud application only. And that can easily result in hundreds of millions of annual sales for us.

My second question is related to the core driver IC business. So for automotive driver IC business to be sequentially declining into the first quarter, as you just guided, I'm wondering if it is just like the previous quarters that customers have some normal inventory adjustment or order adjustment, or is there anything changed in terms of the competition landscape? And it looks like gross margin in the first quarter remains at a similar level in fourth quarter, but with lower sales contribution from automotive. So do we have better product mix in the first quarter versus fourth quarter, or there are other reasons behind that gross margin can still hang over there similarly as fourth quarter?

So basically, 2 questions. The first question is about Q1 outlook, the sales. I think the sequential decline really just reflects the seasonal factor, the Lunar New Year holidays. If you take that into consideration, if you compare this revenue guidance with any other previous years, I think this is not necessarily a bad first quarter for us. Again, in our prepared remarks, we mentioned that we noticed some of our peers, their customers are giving them pulling orders because of tariff considerations. We are not seeing the same in automotive. I guess for a variety of reasons, I don't want to comment exactly on the reasons, but because I truly don't know exactly in detail. But we have certainly checked with our customers, and that's the feedback we get from them. We are getting that normal level of orders without customers considering tariff factor for their pulling orders for Q1. So I think the sequential decline is just a fair reflection of the Chinese New Year holidays. And also, I said quite specifically in our prepared remarks, we believe across the automotive display IC ecosystem, the inventory level is quite healthy. So that is definitely good news for us as we look forward to the whole year's outlook. And you also mentioned gross margin. Yes, it is a result of product mix. And specifically, we are seeing DDIC remains quite strong, although TDDI, we are seeing some decline. Again, it's just one single quarter phenomenon. I'm not sure I should speculate on the reasons or comment on why the the change of direction in both product areas is one single quarter phenomenon. So I don't see anything unusual there. Just that it just happens that DDIC is going to be up slightly, while TDDI will be down slightly. So all in all consider our gross margin is going to remain about flat.

[Operator Instructions]

There are a few questions from online Q&A box. They are read through. They are all related to automotive. So if I may quickly repeat their questions. Question 1, automotive revenue mix between Chinese and non-Chinese cars. No obvious difference there. Given our market share, we have to do both. In fact, for the so-called non-Chinese cars, we are talking about Europe, U.S.A., Japan, Korea, and all these major car markets, our market share, I would say, is quite evenly spread across all major markets. Although Chinese customers tend to be more aggressive in terms of bringing our newest technology to mass production, which is a clear trend we are observing. Other than that, in terms of market share, we don't see a significant difference between Chinese and non-Chinese. Top 3 automotive customers and their respective revenue percentage contributions. Our direct customers, our paying customers, are panel makers. And we also get to a lesser extent because of touch business. We also get some businesses to a much lesser extent from Tier 1s. And we don't really get revenues from OEMs and customers. So in this regard, if you ask me the top 3 automotive customers, they are obvious customers with LCD makers with the biggest capacity. So I don't want to name their names right now, but it's probably not too difficult to guess. They are major panel makers with the biggest capacity. Percentage of the remaining 70% of auto design wins, those that have not yet entered is that expected to in 2025? Not necessarily. Typically, customer will get inquiries and there could be a bidding process or customer will just grant us the design win. But anyway, at some point, there will be the official kickoff and that is when we define it as design win. It's…

Then there are no questions at the moment. Thank you.

As a final note, Eric Li, our Chief IRP Officer, 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.

Thank you, Jordan. And ladies and gentlemen, this concludes Fourth Quarter and Full Year 2024 Earnings Conference Call. You may now disconnect. We thank you, and goodbye.