ChipMOS TECHNOLOGIES Inc. (IMOS) Q3 2016 Earnings Report, Transcript and Summary

Greetings and welcome to ChipMOS TECHNOLOGIES' Third Quarter 2016 Results Conference Call. At this time all participants are in a listen-only mode. A brief question and session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded and a replay will be available later, which may be accessed by calling 412-317-6621 and entering the conference ID 136-47-852. I would now like to turn the conference over to David Pasquale of Global IR Partners. Please go ahead, sir.

Thank you, Operator. Welcome, everyone, to ChipMOS TECHNOLOGIES’ 2016 third-quarter results conference call. Joining us today from the Company are Mr. S.J. Cheng S.J. Cheng, Chairman and Chief Executive Officer, and Mr. S.K. Chen, Chief Financial Officer. S. J. will review highlights of the third-quarter 2016 and then provide the Company’s fourth-quarter business outlook. S. K. will then review the Company’s key financial results. We will then have time for any of your questions. If you have not yet received a copy of today’s results release, please email Global IR Partners at imos@globalirpartners.com, or you can get a copy of the press release off ChipMOS’s website at www.chipmos.com. Before we begin today’s prepared remarks and Q&A we must make a disclaimer regarding forward-looking statements. During this call, management may make forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks and uncertainties and other factors which may cause actual performance to vary, and the financial conditions and results of operations of the Company to be materially different from any future performance, financial condition, or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company’s prospectus, included in the registration statement on Form F-4 that the Company filed with the U.S. Securities & Exchange Commission. At this time I would now like to turn the call over to Mr. S.J. Cheng. Please go ahead, sir.

Yes, thank you, David. Welcome everyone to our 2016 third-quarter conference call. We are excited to be reporting today for the first time as the new merged ChipMOS Taiwan and ChipMOS Bermuda. The transaction was supported by a strong majority of shareholders on both sides and by the Board of Directors. Our consolidation marks the start of an important new era for ChipMOS’s industry, leaving us a Company with a commanding share in the market we serve. Our team has spent a lot of time over the past few years on this market stage streamlining our structure. We are very pleased to have closed the latest phase, because if we present the final phase of our efforts we expect to see the immediate benefit that starts with the management being able to focus all of our efforts on the business and growth. We will also see immediately financial benefits, including our billable tax structure. We expect shareholders to see immediate benefit with the elimination of the 20% upstream tax penalty that Taiwan used to pay to Bermuda. We have also been asked about investor intention moving forward. This was reflected in our effort to streamline the structure from the start. Our structure over the passing years [indiscernible] for investors and analysts. We say the completion of our merger and consolidation will help investors and financial analysts in the U.S. and Asia to more appropriately value our Company. The trading over the market system has been more volatile than what we would have liked to see. This has been supported, but not enough to offset the selling pressure. We have got the feedback that there has been selling pressure from the investors taking their cash portion of the merge and then selling the underlying shares. Whatever the reasons, we are directly aware of the selling down of our shares. We are not [indiscernible]. We do not think that selling makes sense, and we intend to counter the pressure through our dividends, working to close our channel strategy, marketing to investors and we will revisit the share repurchasing with our Board. This [indiscernible] and the selling is just near near-term trading. ChipMOS is moving together as a strong unified company with an excellent business profile, long-term perspective and strategy. I mentioned China. This will be the major part of our business. As you know, the proposed sole investment by Tsinghua Unigroup into ChipMOS was approved by more than 90% of shareholders early this year. The next step is getting regulatory approval from the required Taiwan authorities. We have said in the past that while we feel very good about the transition, we do not control the process or outcome. From a timing standpoint, our private placement agreement will be filed on December 11. We will need to have another shareholder vote to extend the agreement beyond that date. This means we have two paths, one over the near term, one over the long term. Over the long term we continue to view the investment by Tsinghua as the best option. This would give us the investment resources to fully realize our expected growth out of China on the larger scale and we think it will allow us to scale up faster and to benefit from key relationships. Over the short term we have [indiscernible] and plan to move forward with our China expansion. Valuable time is being lost as we wait for the required regulatory approval. We would never want to move forward in haste, but we also cannot afford to wait around forever with no outcome. In other words, we think the transition makes sense strategically and financially. We did not expect to be waiting this long for approval, but we continue to work with the regulator. If for some reason the investment is not approved by regulators we will aggressively pursue a plan B, which calls for the establishment of a joint venture to grow our China presence. We do not have answers for you today, but the end result will be [indiscernible], rest assured that we will be working all possible channels to bring this to a positive closure. In terms of the actual third quarter result, revenue for the third quarter coming at the high end of our guidance, up 6.1% as compared with Q2. Please know that this and all financial results being discussed today are for the third quarter 2016 result of the former ChipMOS Taiwan, which may not be comparable to prior periods. We have benefited from strong LCD driver demand in small panels. This up-tick started in late Q2 2016 and is expected to continue through Q4 2016, given the inventor tightness across the supply chain. We expect this to be one of the many favorable catalysts in our business. We are also pleased with the timing of capacity adds in our bumping business, which increased to 78% utilization from 67% in the prior quarter, even as we absorbed the new capacity coming on line. Our memory services also saw demand strength, led by DRAM and flash, including Mask ROM, while the revenue of our mixed signal business grew quite significantly compared to Q2 2016. Overall we are confident in the prospects of our business, with utilization levels expected to trend higher through the first half of 2017 based on the customer feedback, an expected inventory replenishment, and higher demand for our MEMS, finger print sensor, touch driver, AMOLED and OLED testing and assembly service. We also remain fully focused on moving forward with our expansion in China and are looking forward to update you on our progress. In terms of performance of product segment in Q3 2016, revenue for our assembly and testing service for LCD driver declined 4.8% on a dollar basis in Q3 compared to Q2, representing about 24.4% of our Q3 sales. [indiscernible] make up the main trend, revenue from driver for large panels decreased 11.5% on a dollar basis, while the revenue for our small panel driver increased about 3.8% compared with Q2. The large panel segment slowdown in Q3 2016 was owing to inventory correction in the channel. Our bumping business, including service for LCD driver and wafer level CSP increased 14.1% in Q3 compared to the previous quarter, representing about 16.6% of our Q3 revenue. Revenue in our DRAM business increased 6.1% in Q3 on a dollar basis compared with Q2 2016. This represents about 33.3% of our Q3 revenue. As noted earlier, our SRAM business increased 9.2% in Q3 2016 compared to Q2 2016, representing over 2% of our revenue in Q3. Flash memory revenue, including Mask ROM, increased 9.1% compared with Q2, representing 14.8% of our Q3 revenue. Mixed signal revenue further increased 17.4% compared with Q2, contributing nearly 8.8% revenue in Q2. Our wafer level CSP business increased 36.5% in Q3 compared with Q2. Let me now attend to our business outlook. We expect revenue for the fourth quarter to be approximately flat to down in the low single digits, as compared to the third quarter of 2016, which is in line with typical seasonality. Our business in Q4 2016 is expected to be supported by continued demand on our driver business for small panels, including bumping and mixed signal products. We are also seeing momentum in other technology areas, like touch driver, finger print sensor, MEMS, OLED and AMOLED. We expect gross margin on a consolidated basis to be in the range of about 16% to 20% for the fourth quarter of 2016. Before I turn the call over to S. K., let me take a minute to discuss a few other developments. First, pursuant our Board’s authorization in May we repurchasing $0.6 million of shares from the open market in Taiwan during third quarter of 2016. We share the view of our shareholders that our stock is highly undervalued as compared to our peers in the market. Our Board and management team have agreed, and launched buyback on a regular basis aiming to maintain shareholder value and trading liquidity. We have looked into the option to be in the market today. We are advised by legal counsel that according to Taiwan Securities and Exchange Act and regulations, we cannot repurchase shares during the period from our notification of split dividend distribution to two days before book closure date. This means ChipMOS is not allowed to repurchase its own shares prior to November 27th. If the Board moves to reinstate our share repurchasing after November 27th we will notify shareholders. We are hopeful that we can balance the repurchasing along with the dividend payment and other capital needs of our business, including expansion in China and ongoing CapEx needs, as we support existing focused customer demand efforts. Second, as just mentioned, our Board of Directors approved a cash dividend. This will be TWD2 per share without and TWD1.5 with Tsinghua Unigroup private placement, payable on December 19th to the shareholders of record on December 3rd. The timing of this dividend was done to recognize all former ChipMOS Bermuda holders. In summary, we are comfortable with our business outlook and capacity to operate. We are positioned to benefit from steady growth of our existing business base of customers with the improvement going forward as the market improves and inventory is reviewing the channel. We appreciate shareholders taking time today to be on our update call and appreciate your ongoing support. Let me now turn the call over to S. K. to review the third-quarter financial result. S. K., go ahead.

Thank you S. J. All the amounts stated in our presentations are in U.S. dollars. We have provided both U.S. dollars and TWD dollars in our press release. The following numbers are based on the exchange rate of TWD31.27 against US$1 as of September 30, 2016. I will firstly review our revenue and margin. I will provide details and the rates of our third-quarter 2016 results. Net income for the third quarter of 2016 was $8.2 million and $0.01 per basic and $0.01 per diluted common share, compared to net income of $10.1 million and $0.01 per basic and $0.01 per diluted common share in the second quarter of 2016. Net income for the third quarter of 2016 was adversely impacted by 5.5 million, or $0.01 per basic common share in foreign exchange losses. Our operating expenses in Q3 were 14.9 million, or 9.3% of our Q3 revenue, compared to 12.7 million, or 8.4%, of our revenue in Q2 2016. We are targeting for operating expense to be approximately 11% to 14% of revenue in the fourth quarter of 2016, owing to the additional expenses accrued for the close of proposed merger with ChipMOS Bermuda. Non-operating expense in Q3 was 4.9 million. Income tax provision for Q3 was 2.5 million, compared to 3.4 million in Q2 2016. On the segment basis, Q3’s revenue per dollar was 25% in testing, 34% in assembly, 24% in LCD driver business and 17% in bumping. Total capacity utilization was 73% for the third quarter of 2016 compared to 67% for the second quarter of 2016. Our Q3 testing capacity utilization was 69% as compared to 67% of Q2. Assembly capacity utilization was running at 67% in Q3 as compared to 59% in Q2. LCD driver capacity was running at 82% utilization in Q3 as compared to 77% in Q2 2016, and 78% utilization for bumping capacity in Q3 compared to 67% in Q2. Our higher utilization levels are even more impressive, when we consider that we [indiscernible] 45.9 million of additional CapEx in Q3. This is up from 26.9 million of CapEx for our second quarter 2016 and directly reflects the customers’ focus that we are supporting. The breakdown of CapEx for the third quarter was 24% for testing, 7% for assembly, 36% for LCD driver IC and 33% for bumping. We expect CapEx spending to be approximately 35 million in the fourth quarter of 2016. Depreciation and amortization expenses were 27 million, or approximately 16.8% of revenue in the third quarter. This was slightly higher compared to the second-quarter 2016. We expect depreciation and amortization expense for the fourth quarter of 2016 to be approximately $24 million, partly from the newly-adopting depreciation schedule of our fixed assets. EBITDA for Q3 was 42.6 million, or 25.6% of revenue. EBITDA was calculated by adding depreciation and amortization together with operating profit. We end in Q3 with strong -- with a strong balance of cash and cash equivalents of 331.6 million compared to 355 million at the end of Q2. The quarter-on-quarter decline is due to our CapEx and share repurchase in Taiwan. As of September 30, 2016, we maintain our net cash position at $25 million, which resulted in a net debt to equity ratio of minus 4.5%. While EBITDA and net debt to equity ratio are not defined by generally accepted accounting principles, we believe they are helpful indicators to measure our financial strength. Our total short-term debt, including the current portions of long-term debt, was $42.1 million at the end of the third quarter of 2016 as compared to $46 million at the end of the second quarter. Long-term debt was $264.5 million at the end of the third quarter as compared to $263.6 million at the end of the second quarter. Our accounts receivable days sales outstanding in Q3 was 72 days compared to 73 days in Q2. Inventory turns were 49 days in Q3 compared to 45 days in Q2. Our net interest expense was $1.1 million in the third quarter, which was slightly higher than that of $0.8 million for the second quarter. Please kindly note that around close of merger, you may find changes in ChipMOS’s financial [indiscernible]. Number one, outstanding share count of ChipMOS Taiwan is approximately 857 million shares post-merger. This compares to about 27.4 million outstanding when we used to report as ChipMOS Bermuda. Number two, lower operating expense owing to no auditing service fee and full operating expense for Bermuda company, no technology licensing fee to Bermuda from ChipMOS Taiwan. Number three, lower tax expenses since no more withholding tax on cash dividend distributions. Number four, removal of non-controlling interests completely for our benefit. Now that that concludes our formal remarks, we can now take questions.

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Timothy Arcuri with Cowen. Please go ahead with your question.

Thank you very much. I had a couple of them. I guess first thing, S. K., can you give us the gross margin by each segment?

All right. The gross margin for final testing is about 27%, wafer testing is about 35% and assembly operations gross margin is about 9%. And for LCD driver IC it’s about 20, it’s around 25%. And the gross margin for gold bumping is about 10%.

Okay, thank you. And then I guess, S. K., also can you talk about what the impact on the financials is if the China deal gets approved versus if you have to do a JV? Can you just talk us through what the differences would be in those two outcomes?

I think that I couldn’t share with you more information about the China JV project, since that it’s not been started yet, and right now we diligently discuss this and negotiate this project with our strategy investors. So we will share the outcome with you when everything has been settled with the investors. So I’m sorry that right now no information can be shared with you.

And then maybe just two more things, I guess, just on the December guidance. The October revenue numbers are below seasonal; they were 500 basis points below normal. And yet the December quarterly guidance is pretty much in line with normal seasonal, which would imply that November and December have to be a little bit above seasonal. So can you talk about how confident you are in that? And also if you look out into March, March is usually down something in the range of mid singles. Sometimes it’s a little bit worse than that, but usually I guess on average about mid singles. So I know you probably don’t have much visibility into the March quarter at this point, but can you talk about those two things?

This is S. J. to answer your question. Based on the current customer orders on hand for November and December, we have a strong confidence that we can meet our guidance, so just down a little bit. For some product lines, it’s pretty strong, for example, like mixed memory area, that’s increased a lot. For March quarter right now it’s still too early to say, but based on the customer forecast, and especially from China areas, we will prepare the increased capacity to meet the customer requirements in the first quarter of 2017.

The next question is from the line of David Steinberg with DLS. Please go ahead with your question.

I guess I have a couple of comments for you, for the question. Number one, you guys are aware that over the last 10 years this has been the poorest performing OSAT stock, whether ChipMOS, whether it’s converted in extra dividends and payout. You guys are aware of that. Is that correct?

Yes.

So here we are after 10 years and no matter how much work you’ve put in and efforts to run the business and frustrations as shareholders, we have a company that is probably worth $40 [Technical Difficulty] Taiwan and maybe the ADR is worth 25. That would be an average valuation with nothing in it. I would tell you guys that if you cannot get fair value out of your company between now and a year from now, from either getting better research coverage, a wider group of institutional investors, stock repurchases, that you should put this company up for sale. Now, I’m speaking for myself and I’ve owned this company for 10 years and, S. J., I own almost as much stock as you do, so I want to make sure that you hear my message. I would have assumed that many, many shareholders that are on this conference call share my sentiments on this topic. Regardless of how much work you have done and how hard you guys are working the facts are that this company is selling at a 50% discount. Now we -- I know there’s been numerous calls to repurchase stock and you’ve come up with reasons -- the lawyers won’t let you repurchase stock until November 27. So on November 27 I can tell you personally, and as I said I think I represent many shareholders, we’re going to be expecting here a stock repurchase from you guys. You have $320 million on your balance sheet with 20 some-odd million dollars of net cash. It’s just beyond ridiculous that this stock is selling at a discount of 50%. So I just want to make sure that you [Technical Difficulty] for years and that you hear my message. Do you acknowledge that?

David, this is S. J. I think your message is loud and clear to us. We are also very upset regarding the selling pressure after merger completed. As I mentioned in the script, we are going to re-invest -- revisit our investors -- and find more research coverage, and also complete our China strategy and also revisit the share repurchasing program with our Board members. But today we are really concerned [indiscernible]. Our [indiscernible] dividend distribution to two days before book closure, and we cannot do repurchasing prior November 27.

Thank you. Our next question is from the line of Brian Grant, [ph] a private investor. Please go ahead with your question.

Hi guys. Glad this is behind us finally. I’m going to reiterate what Dave said. The common is massively undervalued and it’s been -- I’d have to say it’s been disappointing to see the valuation gap that we had between the ADR and the ordinary has been closed, but it’s been closed because the ordinary has fallen to meet the ADR. I understand why you can’t buy the stock back. I know in Asia, typically, they have to close the books to get a list of the shareholders, so I get it. But I would hope that as soon as legally available you’ll start buying stock in the market. I see no reason why if Tsinghua Unigroup is willing to pay $40 for 25% of this company why we should be languishing at 23.5. It makes no sense and, as shareholders, we’re strongly urging you to take action to reverse that valuation discount. Secondly, what do you think has been the biggest drag on gross margins? It’s not the lowest gross margins I’ve ever seen, but certainly we’ve been in the low 20%’s before. When can we start to see a return to the low 20’s gross margin area?

This is S. J. speaking first. Your message to us is very clear, so [indiscernible] team also try to work more harder in order to recreate the real value of the company. And the second one is…

Brian, this is S. K. I think the gross margins of the company has been negatively impacted by the capacity build at our Shanghai facility and so we almost pass through the customer qualifications and we can start our product productions from Q4, late Q4 this year. We anticipate that the Q3 we may maintain roughly the same margins we have in Q3 and the margin will move up to, like you say, low 20%’s just around Q2, Q3 timeframe next year. So that’s our best guess. We are expecting to see pretty good growth on our top lines in Q2/Q3 next year, so we are expecting that our margin can come back to 20% levels.

This is really about, effectively about lower capacity utilization until that equipment is filled up.

It partly is from lower capacity utilization, but we are filling up our capacity.

Okay. Is that partly due to this joint venture, or is that, was that already pre-planned business prior to the joint venture?

This is S. J. Our target is still not changed. We will approach joint venture [indiscernible]. The first one can reduce our CapEx and the second we also can extend our local relationship, getting more customers to fill up our capacity.

[Operator Instructions]. The next question is from Tim Milton with DFG. Please proceed with your questions.

Hi. Thanks guys. I’d reiterate what Dave had mentioned. I thought it was very well put, although I actually think the valuations that he put on were actually low. And I’m wondering why, because obviously the market doesn’t care, why you’re so focused on dividend. It’s, I think, 10% plus at this point. There are comparable assets that are getting financed two to three turns of leverage at 3% to 4% in the U.S., so I guess the question is, why don’t you just stop with the dividend, take all that cash, borrow more money and do a massive buyback? Or if you’re not willing to do it, have you hired financial advisers to do it for you and go private, or sell yourself to somebody who is more willing to take aggressive action on the capital structure?

This is S. K. I think, yes, please go ahead.

I was going to say, because barring at 4% to buy back stock that’s at 10% seems like a pretty interesting opportunity.

Yes, it is correct. I think we actually share the same view as you, but you know that we work through our agendas one by one. Recently we just closed the merger projects and the next step for us is to distribute [indiscernible] that we committed earlier than we need to have this cash dividend down before end of this year, after the merger and before the end of this year. We also plan CapEx to build up our Shanghai operations so that we still have a certain agenda and projects that we have in front of us, so, that need money, need us to put in financial resources.

What I’m saying actually saves you cash.

We agree with you that right now since the whole stock has been highly undervalued, so it is worse for us to just spill a certain amount of money to buy back more shares than…

Have you guys engaged a bank or a financial adviser to -- about financing?

Yes. Actually, we started these opportunities, but we couldn’t do that. We couldn’t do buyback as of today and we discuss these issues in our Board today that whether or not we can do buybacks and announce a buyback right now. But unfortunately the answer is no, it’s not, since that we have regulations in front of us that prohibit us to do any buyback as of today. And we will revisit this after, I think after we have this cash dividend down and we will announce to you any decision met by our Board after that. And we would view that the -- since that we also will consider that we may borrow cheap money from Taiwan -- normally and to do buy back since that it is, I think it is also available to our shareholders and also to the Company.

Our next question is from the line of Jerry Su with Credit Suisse. Please proceed with your question.

First on the Q3 OpEx, it grew 18% quarter over quarter. Could you give us some color on why OpEx has this kind of jump versus a 6% revenue growth? And also what’s -- what do you expect OpEx to be in Q4 and also maybe 2017?

The OpEx will increase quite significantly in Q4 just because that we closed the mergers and additional professional service fee that we need to pay for this mergers, so it may come up to roughly 11 point something percent in Q4. And for the OpEx going forward in 2017, there will be I think in average -- the whole-year average for the 2017 will be around 8%. That’s the number I have right now. And that will be…

How about for Q4?

Yes, the average for the - I’m sorry?

For Q4, it’s 8% of sales?

The Q4 2016 will be 11 point something per cent and the 8% is for the full-year average of 2017.

Okay, which means Q4 OpEx is still not coming down. Am I correct -- compared to Q3.

Yes, we are going up.

Okay. Then looking at your utilization, I think bumping had a pretty good improvement. Can you talk about what are you seeing -- what’s the reason behind it? And also the margin now -- I think gross margin you mentioned in bumping is 10%. How high can you go if the orders continue to come in and fill up the capacity?

Jerry, this is S. J. to answer your question, the utilization rate increase not only for LCD driver, but also major contribute from the LCD driver’s business, does include the wafer level CSV and also E-Compass and also the RDL business. That’s the reason they’ve been continuing to further improve our gross margin in the bumping area. And also can extend our product portfolio, not only just focus on bumping and the LCD driver, also extend to other application area.

Okay, got it. I think you also mentioned about OLED in -- before, so can you give us more color about what you’re doing for OLED right now, or what’s your opportunity there?

So from [indiscernible] and testing new products. For OLED and LCD driver we can share the same equipment. But OLED needs a longer testing time because [indiscernible] are more complicated, so it means that if we go to OLED we need to invest for more testing capacity in order to fulfill customer requirements. Is that answering your question?

Yes, okay. So what is your progress at OLED right now?

Basically, we have already run this project for three years already and recently we continue to see growth both in China and also Taiwan.

Okay. Then the next question more -- is still regarding the driver IC. The TDDI, I think some of your customers in both Taiwan and the U.S. have been quite aggressive, talking up about this test one month. Can you share your thoughts of DDI? And also what is the revenue contribution now and how will it grow into next year?

Actually, regarding to the test sensors, they can share the same bumping capacity and also testing capacity for us. The testing time is longer than LCD driver, so if the testing is increased means our revenue and product mix will be adjusted which means we can benefit from that.

Okay. For your driver IC business, it sounds like that next year at least you have, that there are few new products, such as TDDI, OLED and maybe higher penetration of 4K that will continue to drive the business. Then on memory side can you give us some color about how the memory market is, for you, is doing right now, especially that memory pricing has been very strong? So how would that help ChipMOS’s business for DRAM and also for NAND flash in particular? Because previously I think you were working on some kind of new customers for the NAND flash but I’m not very sure what is the situation for that right now.

Regarding to memory wise, I can share with you the things, recently the DRAM price increased a lot, memory increased a lot, so the contribution to us is we had less pressure for price strong, price erosion.

Okay.

And also we see a very strong requirement in a niche memory area which is a turnkey solution for us, including assembly, wafer testing and final testing.

And NAND flash?

NAND flash we are working with that customer, maintain the minimum volume, but not further progress yet.

The next question is from the line of Eric Gomberg with Dane Capital. Please go ahead with your questions.

Hi guys. Good morning, or good evening to you. A couple of questions. One, just trying to understand, every month I’m seeing Powertech with record revenue. In terms of market share how much market share, I realize they have micron now, but how much market share are you losing? And why, you’re spending a lot on CapEx. What do you see ahead of you that’s so good and why aren’t you growing when others near you are growing?

Regarding to our DRAM business, I think you mentioned the U.S. customers. Actually, as we discussed before, they had a DRAM project that was established, so they were in our location from a long-term viewpoint. And the capacity we built is for LCD driver and other mixed signal areas. And we are trying to engage the China partner mainly aiming the future business in the memory.

So you’re building because you feel very optimistic about where things are going to go over time?

To answer your question, yes.

Okay. That being the case, I guess to build on the question some of the other callers asked earlier, I think David Steinberg has been an investor for 10 years and I’ve known you for 12 or 13 years. When your blackout is over are you looking at another $15 million buyback, or are you looking at a $100 million or a $200 million buyback? You stock has immensely underperformed, which you acknowledged when David asked that question earlier. You have very, very low cost of capital. You’re on the Board, so I’m curious when you go to your next Board meeting and can talk about buybacks how you’re thinking about it and how you would talk to you fellow Board members about a repurchase program.

To answer your questions, you can see our share records. We do a lot of buyback in the past and right now we know our stock price has underperformed. And we’ve got to see background market. Some investors take the cash position during the merger and sell some underlying shares, but I think this will be the short-term trading, so for long-term wise we hope that through our efforts to distribute dividends, revisit investors and grow our China strategy, and also revisit the buyback program, can improve our share price to a reasonable value compared with our peers in the Taiwan market. And I cannot give the answer right now, how big the -- that would depend on our cash position and we will discuss with our Board.

So I’m curious, again you’re saying that the stock is undervalued. I think many people on the call believe that the stock is undervalued. I’ve never seen an insider purchase from anyone on the Board. I’m curious as to why no-one on the Board actually steps up and buys the stock themselves. I’m also curious -- I’ve read all your proxies for at least a decade. It doesn’t appear from anyone’s biography that they have capital markets or financial markets experience. They seem to be engineers and scientists and things of that sort, but no-one with financial markets or capital markets experience. So, I’m curious. Maybe I’m missing something. What is their expertise in terms of determining the right size of a repurchase program? Why aren’t they stepping up and buying stock? Why do insiders own less than 2% of the Company and not buy any stock on something that you have said time and time again is undervalued stock?

I think the -- we did see issues from time-to-time, to be honest, we tried to do our best on doing this -- I think not only to buy shares from the markets. We tried to enhance the value -- the shareholder values from all the possibilities that we thought is logical. But today our discussion is only one thing; to buy back shares. But you know that we’ve been diligently working on the fundamental operation of the Company and we diligently simplify corporate structures and now we have closed this project. I understood that you are not satisfied with the terms and conditions that we put out to close the merger, but here we’re trying to -- we’re also trying to -- working very hard trying to bring in the investors at the Shanghai side. And I think that what we have done is purely for the Company, not for ourselves. Your question is very good. We need to review all of the subjects one -- from time to time and -- but here I would like to say that buyback is very important, but you know that spend money to buy back shares -- that’s only to satisfy certain shareholders’ wish. And the stock price will not be raised up. We have done this many times. When we buy more shares we have seen celebrations, so putting our money to purchase shares from the market may not help to bring up the stock price. That’s what we experienced in the past. But you know that we have a lot of financial results available for us. But you know that we still have a lot of opportunity to spend money to enhance the shareholders’ value. But as management we try to gauge all these possibilities one by one and it is -- I think we need to do decision very carefully. Be we understood that the buyback is the hot subject for today’s meeting. We will review this issue since -- right after November 27 to see whether or not we can get the Board’s approval to adopt a new one.

Okay, understood. But again -- and I haven’t had the privilege of meeting your Board members, most of whom have been on the Board for quite some time. I’m just curious. Maybe, S. J., your Chairman, could you tell me what their qualifications are outside of business or engineering expertise? What is their experience as investors, as capital markets experts? Is there something that I should know that’s not in the proxy, because based on the proxy it seems that you have a very unbalanced Board and one that has not created shareholder value.

Actually, we also -- we have five independent directors in our Board. Three are from engineering, one is from the CEO of the design company and our Chairman [indiscernible] has pretty good qualification in finance and accounting.

And do they have limitations on why they have never bought stock in the public market themselves?

I think S. K. already explained to you very clearly we are going to revisit this issue on November 27. Once we have the result we will let you know.

We have time for one final question today. It’s coming from the line of Jorge Rivas with Craig-Hallum. Please go ahead with your questions.

Good morning guys. Congratulations on finally closing the merger. First question regarding the guidance for next quarter. I wanted to take -- probably just get more detail on gross margin guidance. It appears to be conservative, given that your utilization levels are going up and also the mix is -- it’s turning higher towards small driver IC. So if you can just explain what are the drivers of the gross margins for next quarter, that’ll be very helpful.

Driver for the next quarter gross margin will be maintained almost the same level.

I’m sorry, what?

Almost the same gross margin level as the Q3.

I think the midpoint of your gross margin guidance is 18% and you did 19% in September, so I’m wondering, this 100 basis points difference, given that revenues are trending towards the small driver ICs, which I believe have higher gross margins, and at the same time your utilization levels are going up, it just seems a little contradicting that your gross margins are trending down. It would appear to be conservative to me, but I just want to hear what your assumptions are for gross margins.

Actually, the gross margin is due to the product mix difference. As I mentioned, we had a lot of big DRAM customers, which is, their requirement is pretty strong for us. That does bring turnkey business for us, which including wafer testing, assembly and final testing. So if the product mix is changed then our gross margin will be maintained at high level, even we see some utilization rates a little bit lower.

Okay, thanks. And then one last question. There’s a lot of optimism on what OLED and AMOLED can do for the market next year as it becomes a mainstream application. Wondering if you can provide some color as far as how many, do you have any color as to how many end customers will you be serving? I understand this will probably be done through Novatek or Himax, but I’m wondering if you have any idea of how many end customers, especially tier ones, would you be serving in that type of application.

We also had some recovery from Korean side.

Thank you. I will now turn the floor back to management for closing remarks.

Yes, thank you everybody for joining our Q3 conference call. Thank you. Bye, bye.