Hello, ladies and gentlemen. Welcome to the Himax Technologies Inc. Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Eric Li, Chief IR/PR Officer at Himax.

Welcome everyone to the Himax Third Quarter 2024 Earnings Call. My name is Eric Li, Chief IR/PR Officer at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer, Jessica Pan, 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 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 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, 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, 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, I will first review…

Thank you, Eric. Looking ahead to Q4, the macro environment remains challenging. Panel customers are reducing production to stabilize panel prices in response to the current market conditions. At the same time, end brands are also taking a cautious approach to panel procurement and maintaining low inventory levels. Taken together, these factors have suppressed IC demand, leading to our conservative outlook for the fourth quarter. Against this backdrop, we continue to strictly manage expenses and implement various cost optimization measures, including enhancing manufacturing and operational efficiency, as well as leveraging a diverse range of vendors in foundries and backend suppliers. Looking ahead, while the global economy still looks uncertain, we are confident in the business outlook of several key areas, namely automotive, AI, WLO, and OLED, and expect these product lines to drive significant growth of our business. First let me elaborate on the automotive sector, our primary revenue contributor. We remain optimistic in our long-term outlook as the automotive display market continues to expand through innovation and technological advancements. Our confidence also stems from our comprehensive offering and leading position in the market, particularly in the areas of LCD TDDI, OLED, and Tcon, all of which are relatively new and cutting-edge technologies for automotive display. These technologies are expected to see continued adoption, providing us with sustainable long-term growth opportunities. It’s worth noting that there have been significant fluctuations in automotive market demands in recent quarters, particularly from the Chinese market, which accounts for over 30% of global vehicle sales. Government policies, subsidies, and aggressive discount campaigns by car manufacturers have made supply and demand less predictable, creating new challenges for automotive IC suppliers. Automotive ICs, unlike consumer electronics products, feature rigorous safety and reliability standards, resulting in longer production lead time, which poses greater challenges in handling customers’…

Now we’ll have our first question. Donnie Teng, Nomura. Go ahead, please.

Thank you, Jordan, and Eric, for taking my question. My first question is regarding to your automotive business. So based on your guidance, automotive driver IC sales in fourth quarter will be growing like single digits sequentially. But when we look at some of peers’ announcements, like, for example, Novatek, like Raydium, they all mentioned about that automotive driver IC sales in fourth quarter may decline a little bit sequentially. And also, I remember that back in the past few months, it seems like the automotive business was pretty volatile. You know, customers adding orders and cut orders within a couple of months. So, what makes this kind of volatility that big? And how confident we are to outperforming our peers in terms of automotive business into fourth quarter? Thank you.

Thank you for the question. As you know, we are always very confident and always, for somehow, we are always on the conservative side when we provide our guidance. So when we say the Q4 automotive overall business is likely to, is projected to grow, I mean, we certainly, we mean business. And similar to the last quarter, we are seeing a lot of rush orders, which, you know, fortunately, we are able to fulfill because of the reasons I mentioned earlier in my prepared remarks. And I think the customers appreciate that, the fact that Himax, you know, has the leading market position and also is fulfilling our responsibility, right, you know fulfilling such rush orders, for being the leading market share player. And I think that the main reason for the Q4 is really a continuation of the last-minute Q3 rush orders. You know, China is renewing its stimulus plan, and that is rushing the car makers and, to a great extent, consumers to make their purchases before the incentive plan expires. And I think that is what we’re seeing. Having said that though, so again, we are very confident about our projection for Q4. We are, however, less confident on the prospect of Q1. So perhaps, you know, a more important question is, what is our prospect for 2025? I know you didn’t ask that question, but I think it’s probably a good opportunity for me to elaborate a little bit on our prospect here. So again, we are very confident about our continued market share leadership and close engagement with our customers across the global automotive supply chain. However, we don’t have good visibility, to be quite honest, for our automotive business for 2025. And this is mainly because of the uncertainty related to the macro…

Thank you, Jordan. Another follow-up on this, as I mentioned, some of the peers mentioned about fourth quarter may sequentially decline a little bit. So other than the overall customer situation seems like getting better towards the end of this year, is there any specific company reason to drive our automotive sales to be, outperforming of peers?

I certainly don’t know what is happening with our peers, but we are seeing these rush orders actually coming from not just one or two single customer. It is actually widespread from almost across the board, various panel makers and covering both DDIC and TDDI and Tcon actually. And I recall very vividly, with our automotive Tcon, which has actually very, very long production lead time, and we are scrambling to meet the customer’s demand, which luckily, we are able to achieve. However, in the meantime, we are complaining to the customer that this should not happen anymore because, you know, partially by luck, we are able to make the delivery for Tcon, and with its long production lead time. If it happens next time, we can’t really guarantee it. But anyway, what I’m trying to say is the rush orders actually came from not just Chinese, also other countries’ panel makers, Tier1s, and automotives.

Understood. My second question is regarding to the CPO progress. I’m wondering if you, okay, firstly, it looks like non-driver IC sales growth in fourth quarter was primarily driven by Tcon. So, is CPO playing any role there in fourth quarter yet? Or how should we look at the update progress there for CPO?

The answer is no, not in Q4. In Q4, we do see some small amount of revenue from this, starting from Q4. These are early, very early, very small quantity shipment for customers, engineering verification and trial production purposes. So WLO for CPO doesn’t really contribute to our non-driver growth for Q4.

I see. Do you have any update on the future progress? I mean, when exactly we will see more meaningful progress or sales contribution from CPO? Is there any update on the schedule and the industry dynamics as well.

Okay, good question. Let me probably elaborate a little bit. In our prepared remarks, we talked about working on next generation technologies and products. Right, and so you may wonder what exactly those are and its timeline, and therefore your question about contribution potentially for next year or the year after. So, the short answer is we are trying to squeeze more and more optical fiber lines into a very, very limited space, right? And that is a very tremendous engineering challenge. Now, as we all know, one of the main purposes of using LPO/ CPO technology is to substantially raise the data transmission rate, or what we call bandwidth, of the advanced multi-chip module, which, as you know, is essentially the bundling of multiple chiplets into a single module through so-called advanced packaging, right? The module, after such “bundling”, can therefore process a very large amount of data. But to make the module useful, the module also needs to have sufficient bandwidth to transmit that data with the outside in both ways. And we all know optical fiber is being used to replace the traditional metal wire for such a high-bandwidth data transmission. However, the bandwidth of each optical fiber line is still fixed, is still limited, right? And therefore, to up the overall bandwidth of the whole multi-chip module, the simple idea is to have multiple optical fiber lines working in parallel. And that is exactly what we’re working on when we talk about technology roadmap. We are trying to squeeze more and more optical fiber lines into a very limited space. We are targeting some phenomenal increases over the next few years to cope with the projected increase of data amount that need to be transmitted by the advanced multiple, multi-chip module. So, to achieve that, among…

Thank you, Jordan, it’s helpful.

Ladies and gentlemen, we are still in Q&A session. [Operator Instructions] Thank you.

As a final note, Eric Li, our Chief IR/PR 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.