Hello ladies and gentlemen and welcome to Himax Technologies Inc. third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star-one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star-one-one again. As a reminder, this call is being recorded. I would now like to hand the conference over to your host, Mr. Mark Schwalenberg from MZ Group. Sir, you may begin.

Thank you. Welcome everyone to the Himax Third Quarter 2023 Earnings Call. Joining us from the company are Mr. Jordan Wu, President and Chief Executive Officer, Ms. Jessica Pan, Chief Financial Officer, and Mr. Eric Li, Chief IR/PR Officer. After the Company’s prepared comments, we have allocated time for questions in a question and answer session. If you have not yet received a copy of today’s results release, please email HIMX@mzgroup.us, 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. A list of risk factors can be found in the company's SEC filings, Form 20-F for the year ended December 31, 2022 in the section entitled Risk Factors, as may be amended. Except for the company’s full year of 2022 financials, which were provided in the company’s 20-F and filed with the SEC on April 6, 2023, 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 Mr. Eric Li. Eric, the floor is yours.

Thank you Mark, and thank you everyone for joining us. My name is Eric Li, Chief IR/PR Officer at Himax. On today’s call, I will first review the Himax consolidated financial performance for the third quarter of 2023, followed by our fourth quarter 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 an IFRS basis. We are pleased to report that Himax third quarter revenues and profit both exceeded our guidance, while gross margin came in at the upper end of the guidance range issued on August 10, 2023. The better than expected results are attributable to the resilience of our core business in the face of macroeconomic challenges. Third quarter revenues registered $238.5 million, an increase of 1.5% sequentially and up 11.6% on a year-over-year basis, exceeding the guidance range of a 7% decline to flat sequentially. This can be credited to positive order momentum across all business segments. Gross margin came in at 31.4%, a substantial increase from 21.7% of last quarter and at the upper end of our guidance range of 30.5% to 32%. The Q3 gross margin improvement reflected the absence of the one-time expense incurred in the second quarter related to the strategic termination of certain high cost foundry capacity agreements, in addition to a favorable product mix primarily driven by the remarkable performance of our automotive product line, which maintains a higher margin profile than corporate average. Q3 profit per diluted ADS was $0.064, exceeding the guidance range of $0.015 to $0.06. Revenue from large display drivers came in at $43.7 million, a decrease of 3.7% sequentially but up 5.9% year-over-year. DDIC sales declined as expected as customers already replenished their inventory in previous quarters and suspended further…

Thank you Eric. We expect our fourth quarter sales growth to be relatively subdued compared to typical seasonal trends, primarily due to sluggish end market demand as well as cautious inventory management and rigorous procurement scrutiny by our customers. Additionally, ongoing macro headwinds are limiting our visibility as panel customers remain tentative about demand prospects, leading to a short term focus and more frequent last minute orders. Having said that, our midterm outlook for the automotive business, our largest revenue contributor, remains positive as we maintain a dominant position in the sector. The majority of our design wins in TDDI and local dimming Tcon, both relatively new technologies for automotive sector, are slated to commence mass production during the next two years, thereby further fortifying our market share leadership amidst growing competition. When coupled with the megatrend of increasing quality, size and sophistication of displays inside vehicles, Himax is poised to enjoy sustainable growth in the automotive market for years to come, regardless of other industry headwinds or macroeconomic challenges. Amidst the prevailing challenging economic conditions, we continue to implement a range of measures to reduce costs, including improving manufacturing and operational efficiencies and leveraging diverse partners in foundries and back end sources. The recently announced partnership alliance with Nexchip in automotive is an illustration of Himax’s foundry supply diversification strategy. The collaboration expands Himax’s foundry supply while optimizing cost structure for the thriving automotive market, especially in China. In terms of inventory, the destocking process is progressing nicely with Q3 seeing a meaningful reduction. Currently, we are nearing historical average levels after several quarters of aggressive inventory depletion. Thanks to accelerating growth in our automotive business, improved cost structure, normalized inventory levels, variable product mix and our emphasis on higher margin, higher value-added areas like Tcon, OLED and AI,…

Thank you. [Operator instructions] Our first question comes from the line of Donnie Teng with Nomura. Your line is open.

Hi Jordan and Eric, can you hear me?

Yes, loud and clear.

Thank you Jordan for taking my question. My first question is regarding your guidance. If I look at your guidance across different product lines or by application, I feel it’s a little bit opposite to the current market conditions, for example smartphone and PC looks like to be recovery while automotive, if you look at the IDM companies’ present guidance, it seems like the auto demand in non-China markets has been weakening, but your guidance shows that PC, notebook and monitor has been slowing down into the fourth quarter, as well as smartphone, while automotive looks like still quite resilient. Could you kindly explain why there is differences between the current market dynamics versus your guidance? Thank you.

Thank you Donnie. To be honest, I don’t--I’m not sure I have a very good explanation to that. I agree with your view that our guidance seems to indicate there was a different direction. As you said, auto, overall the consensus seems to be pessimistic, while smartphone and PC seems to be in early stages of rebound. I think the explanation I can offer perhaps is that for automotive display market, we really dominate the market, and as you recall, the Q1 for this year, there was a sudden drop in demand for automotive display ICs when China started to implement this rather stringent COVID control mandate, which causes a lot of factories to get shut down and so on. In Q2, there was widespread industry-wide EV price competition which kind of led to a lot of customers suspending their order to us. In Q3, we saw a very, very strong rebound, and that rebound is not entirely a reflection of market sentiment as such, rather I think it’s for our customers to restock from where they probably were behind in the first and second quarter. I think the momentum continues into this quarter for us, although certainly the rebound will not be as strong, so we have guided--we are guiding for automotive business for this quarter to be flat to slightly down. I think that reflects our leading market position, where we have a very comprehensive and thorough market coverage and customer coverage, so when customers need to restock for their production, I think we are probably their first point of call, while in comparison for our smartphone and PC, our position was simply not strong - quite the opposite. Actually, I would highlight for monitor, for example, where our market share was relatively strong, we also saw--we are also seeing in Q4 demand to be rather strong, which--I mean, if you think about it, it shouldn’t be a big departure from the demand for PC, monitor against PC. One would not expect a major departure, but from our perspective, our focus for the order book, we do see a different picture. I think this, again to me, is explained by our different position in these different markets.

Understood. Sorry Jordan, so you mean the monitor momentum from your side is better than notebook?

Slightly, yes.

Understood. My second question is regarding to the ASP trend across the different product lines. Are you seeing ASPs stabilizing, or by different product there could be still some different kinds of ASP erosion trends in the coming months? Another thing is that you previously announced that you have more cooperation with Nexchip, and I feel recently that driver IC companies are more aggressively shifting their foundry capacity away from the foundries with higher price to the lower price, so if that would be helpful to your gross margin improvement going forward, if the ASPs not further decline that much, while the foundry costs can be further reduced?

First on ASP trend, compared to the last few quarters certainly, ASP is definitely stabilizing across the board because the orders, the overall industry inventory position is now healthier than before. Certainly our customers, our e-panel makers are either just starting to make money, or some of them are still under the water in their P&L, right, and certainly we are aware the macroeconomic conditions have not been looking very positive. I think price pressure because of lack of demand and also because of customers not being very profitable, I think price pressure will persist, although I don’t see a similar kind of price pressure that we experienced in the last few quarters. I think the comment kind of applies across different sectors. I can’t really tell, you know one sector from another, very different picture, and certainly that picture may vary as time--as we move along into next year, but--and we’ll report in due course, but for now, we don’t see a very different picture across different sectors. You mentioned foundry, China foundry [indiscernible] and also the cooperation with Nexchip. I mean, certainly we have a joint press announcement for our strategic alliance, and that is focused on automotive display. With Nexchip, actually we have kickstarted collaboration on both DDIC and TDDI with mass production for both expected to be around Q4 next year. I think price aside, which certainly is always welcome, price aside, I think having a strong partner in China also helps us in dealing with Chinese customers and covering Chinese markets, where in automotive, especially EV as we’re all aware is very, very important. I think our Chinese customers will certainly favor, welcome this move that we’ve made with Nexchip. Yes, so both in foundry and probably a bit more so for back end, where possible we will look to diversify our supplier base and expand further into China, and longer term, surely I think that will help us with our costs and hopefully alleviate pressure for price.

Understood. Maybe just one last follow-up from me. If we look at your fourth quarter guidance, your EPS is in between $0.09 to $0.13. But surprising, I feel the upper range of $0.13 looks like to be higher than my previous expectation if considering your sales is going to decline, like 8% quarter-on-quarter in the mid range. Do you have a lower tax rate in fourth quarter or do you have lower opex in the fourth quarter?

Yes, thank you for this question. I appreciate you’re being very diligent in looking at our financials and building your model. Yes, there will be some tax benefits that we will enjoy because of certain tax planning that we made earlier in Q4. I wouldn’t elaborate on details right now, obviously, but yes, tax is one of the reasons, and basically we also run our financial projection model, right, so the EPS range certainly is directly the outcome from those models based on our revenue and gross margin guidance, among other things, and yes, you picked up this fine detail and indeed there will be some tax benefits that we expect to enjoy in Q4, and that is due to earlier tax planning that we did.

Understood. Thank you Jordan, I’ll go back to the queue.

Appreciate that, Donnie.

Thank you. At this time, I would now like to turn the call back over to Jordan Wu for closing remarks.

As a final note, Eric Li, our Chief IR/PR Officer, will maintain his 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 your participation. You may now disconnect.