Himax Technologies Q3 2023 Earnings Call Transcript

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November 9, 2023

There are 5 speakers on the call.

Operator

Hello, ladies and gentlemen, and welcome to Himax Technologies, Inc. 3rd 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 As a reminder, this call is being recorded. I would now like to hand the conference over to your host, Mr.

Operator

Mark Schwellenberg from MZ Group. Sir, you may begin.

Speaker 1

Thank you. Welcome everyone To the Himax Q3 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.

Speaker 1

Eric Lee, Chief IRPR Officer. After the company's prepared comments, we have allocated time for questions and a question and answer session. If you have not yet received a copy of today's results release, please email himx atmzgroup.us, access the press release on financial portals or download a copy from Himax's website at www.hymax.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.

Speaker 1

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 would now like to turn the call over to Mr.

Speaker 1

Eric Li. Eric, the floor is yours.

Speaker 2

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 Q3 2023 followed by our 4th 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.

Speaker 2

We are pleased to report that Himax's 3rd quarter revenues And the profit both exceeded our guidance, while gross margin came in at the upper end of the guidance range issued on August 10, The better than expected results are attributable to the resilience of our core business in the face of Macroeconomic Challenges. 3rd quarter revenues registered $238,500,000 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 percent of last quarter and at the upper end of our guidance range of 30.5 percent to 32%. The Q3 gross margin improvement reflected the absence Of the one time expense incurred in the 2nd quarter related to the strategic termination of Drive driven by the remarkable performance of our automotive product line, which maintains a higher margin profile than corporate average.

Speaker 2

Q3 profit per diluted ADS was 0.0 $0.064 exceeding the guidance range of 0.015 dollars to $0.06 Revenue from large display drivers came in at $43,700,000 a decrease of 3.7% sequentially, but up 5.9% year over year. TVIC sales declined as expected as customers already replenished their inventory in previous quarters and suspended further pull ins. Monitor and Noble IC sales were up single digit and a nice double digit respectively in the 3rd quarter, predominantly driven by rush order from key customers. Large panel driver IC sales accounted for 18.3% of total revenues for this quarter compared to 19.3% last quarter a year ago. Moving on to our small and the media sized display driver segment.

Speaker 2

Revenue was $161,100,000 An increase of 7.2% sequentially and up 13.9% compared to same period last year, Surpassing the guidance range due to better than expected sales performance, particularly in automotive sector And TDDI products. Q3 automotive driver sales saw a decent double digit sequential increase, Thanks to a strong uptick in both TDDI and the traditional DDIC as clients worldwide Resume order replenishment. Smartphone and the tablet driver sales, on the other hand, decreased double digit and mid teens sequentially, reflecting continued soft market demand. In the Q3, the automotive business remained our largest revenue contributor, accounting for nearly 45 percent of total sales. One notable highlight during the quarter was our commencement of the world's first mass production of LTDI.

Speaker 2

This further demonstrates our leadership position in the lucrative automotive display battlefield. Jordan will elaborate in a few minutes. Small and the media size driver IC segment accounted for 67.6 percent of total sales for this quarter compared to 63.9% in previous quarter and 66.2 percent a year ago. 3rd quarter non driver sales Also exceeded guidance with revenue of $33,700,000 down 14.4% from a quarter ago, but up 9% compared to same period last year. The better than expected performance was a result of higher shipment of WLO and the CMOS image sensor.

Speaker 2

TCOM Business Represented over 8% of our total sales in the 3rd quarter, yet experienced a low teen sequential decline, Hampered by decreased demand for both large display panels and AMOLED display for tablet. On a positive note, we continue to solidify our leadership in automotive T Com market With local dimming technology adoption rising rapidly by leading panel makers, Tier 1s and carmakers across the board. With numerous project awards already in hand, we expect a strong growth trajectory for Automotive TCOM In next few years, non driver products accounted for 14.1% of total revenues as compared to 16.8% in the previous quarter and 14.5% a year ago. 3rd quarter operating expenses were $63,700,000 An increase of 19.8 percent from the previous quarter, but down 12.5% from a year ago. As a reminder, we grant annual bonuses to employees at the end of September each year, including ISU and cash awards.

Speaker 2

Our 2023 annual bonus compensation of $10,400,000 was in line with guidance, out of which $9,700,000 or $0.444 Per diluted ADS was immediately exhausted and expensed in the 3rd quarter. In comparison, Bonuses for 2022 and 2021 were $39,600,000 and $74,700,000 respectively, of which $18,500,000 24,800,000 We're vested and expensed immediately. The changes in Q3 operating expenses We're mainly associated with the way we expense the employee annual bonus grants based on IFRS accounting. To clarify, the Q3 bonus expense includes 2 portions. First, as mentioned above, $9,700,000 for the immediately lost and recognized portion of the current year bonus grant that is of the prior year's bonuses.

Speaker 2

As a reference, the amortized expense of the prior year employee bonuses For full year 2023, it would be as high as $21,800,000 due to substantially high profits in 2021 2022, leading to a significantly increased bonus Carryover amortization expense. This has caused the volatility in our IFRS figures for 2023. While for the annual bonus grant, Himax has always followed a consistent compensation Policy and the rules for employees. Amidst the prevailing macroeconomic headwinds, We are currently exercising strict budget and expense control with full year 2023 OPEX posed to decline compared to last year. 3rd quarter operating income was $11,100,000 or 4.6 percent of sales, compared to 1.8% of sales for the same period last year and the minus 0.9% last quarter.

Speaker 2

The sequential increase was primarily a result of increased sales and gross margin, partially offset by higher operating expenses in the Q3. The year over year increase was primarily A result of lower operating expenses brought by lower annual bonus compensation, partially offset by lower gross margin compared to same period last year. 3rd quarter after tax profit was $11,200,000 or $0.0604 per diluted ADS compared to $900,000 or $0.05 per diluted ADS last quarter and $8,300,000 or $0.048 in the same period last year. Turning to the balance sheet. We had $155,400,000 of cash, Cash equivalents and other financial assets as of September 30, 2023, Compared to $2027,900,000 at the same time last year and $219,500,000 a quarter ago.

Speaker 2

3rd quarter cash flows were impacted by primarily by 2 cash payouts, $83,700,000 for annual dividend and $29,500,000 for employee bonus. The employee bonus It's comprised of $9,300,000 for the immediately vested portion of this year's Award and $20,200,000 for vested award granted over the last 3 years. Despite the substantial payouts in Q3, we delivered strong positive operating cash flow of $16,000,000 again due to the ongoing destocking process across major product lines with inventory experiencing a meaningful reduction compared to the past quarters. We had $42,000,000 of long term unsecured loans as of the end of the 3rd quarter, of which $6,000,000 was the current portion. Our quarter end inventory as of September 30, 2023 were $259,600,000 Marketedly lower than $297,300,000 last quarter, accounts receivable At the end of September 2023 was $248,500,000 up from $239,000,000 last quarter and down from $253,300,000 a year ago.

Speaker 2

DSO was 95 days at the quarter end as compared to 90 days last quarter and 74 days a year ago. 3rd quarter capital expenditures were $2,600,000 versus $2,900,000 last quarter $3,400,000 a year ago. The 3rd quarter CapEx was mainly for our IC Design business. As of September 30, 2023, Himax has 174,700,000 APS outstanding, little changed from last quarter. On a fully diluted basis, total number of ADS outstanding for the 3rd quarter was 174,800,000.

Speaker 2

Now turning to our Q4 223 guidance. We expect 4th quarter revenues to decline 5% to 11% sequentially. Gross margin is expected to be around 30% depending on The final product mix. The 4th quarter profit attributable to shareholders is estimated to be in the range of 0 point 9 to $0.13 per fully diluted ADS. I will now turn the call over to Jordan to discuss our Q4 outlook.

Speaker 3

Thank you, Eric. We expect our 4th 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 short term forecast and more frequent last minute orders. Having said that, our longer term 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 LogodominTecon, both relatively new technologies for automotive sector, Are slated to commence mass production during the next 2 years, thereby further fortifying Our market share leadership amidst growing competition, when coupled with The megatrend of increasing quantity, size and sophistication of displays inside vehicles, Himax It's poised to enjoy sustainable growth in the automotive market for years to come regardless 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 backend sources.

Speaker 3

The recently announced partnership alliance with Next Chip in Automotive It's 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, favorable product mix and our emphasis on higher margin, higher value added areas like T Con, OLED and AI, We are well positioned to deliver sustainable long term revenue growth and profitability.

Speaker 3

With that, I will now begin with an update on the large panel driver IC business. For our Q4 Our Q4 2023 large display and driver ICs revenue is projected to decline by Double digit sequentially, reflecting the absence of festival season shopping this year and intensified China logo competition. In the TVIC business, leading end brands continue to implement stringent production control measures amidst Soft demand and our maintaining low inventory levels, low inventory levels rather. Consequently, we expect a double digit Quarter over quarter decline in Q4 TV IC sales. Notebook and monitor IC We are also facing a challenging business environment where we expect sales for both product lines to decrease by double digit sequentially.

Speaker 3

Turning to the small and medium sized display driver IC business, 4th quarter revenue is expected to decline single digit on the backdrop of a muted Festival season where demand for consumer electronics remains sluggish. Smartphone sales are projected to decline double digit, While tablet sales are expected to increase single digit sequentially in Q4, automotive revenue is expected to be Flat or slightly down sequentially following a surge in orders resuming for both traditional DDIC and TDDI during the previous quarter. Q4 Automotive TDDI sales are poised to continue to increase by low teens sequentially, Fueled by strong customer orders across the board and supportive governmental policies, especially in China and the U. S. Aimed at incentivizing new vehicle purchases.

Speaker 3

Secured design win projects for automotive dddi continue to expand Across the board and now total nearly 400 significantly ahead of our peers. Remarkably, Automotive TDDI sales are expected to account for almost 40% of total automotive driver sales in Q4. As Eric mentioned earlier, automotive driver sales are now our largest And if combined with automotive TCON is set to represent almost half of our total sales in Q4. Moving on to our industry leading LTDI, As we recently announced, Himax is the 1st in the world who took a mass production of LTEI for certain customers' NEVs starting in Q3 this year. We expect LTE adoption to further proliferate as it gains traction in car models featuring Large size displays as carmakers look to distinguish their vehicle products.

Speaker 3

Additionally, we are seeing an increasing number of customers choosing to adopt our integrated IoTDI and lower dimming TCAM solution as the standard platform for their ultra large automotive display development. This newly designed automotive displays are typically larger than 30 inches deliver a sharp High density cost functionality, which typically necessitates The utilization of 6 or more LTE DI chips together with at least 1 level dimming TCAM representing much higher content value for us on a per panel basis. This not only ramps up the new revenue stream, But also reinforces our leadership position in the automotive display market as we move into 2024. Himax stands at the forefront of the automotive display IC market with a diverse Our product portfolio covering the full range of specifications and technologies, including DDIC, TDDI, level dimming T Con, These holistic offerings cater to a wide range of customer preferences and needs fostering strong customer loyalty and collaborations with global panel makers, Tier 1s and car makers. We expect our automotive segment to continue to be a key growth driver for us.

Speaker 3

In terms of our smartphone And tablet product lines, we continue to see lackluster demand in the market. On a positive note, Our inventory has substantially rebalanced to a satisfactory level after consecutive quarters of inventory depletion. With the stocking process nearly complete, we placed waferstars for select Products starting in Q2 this year and continue to work on improving our cost structure with the aim of improving our efficiency for when demand returns. Next for an update on our AMOLED business. By partnering with leading panel manufacturers in Korea and China, we are accelerating our AMOLED driver IC advancements, covering various applications from automotive and tablet to smartphones, notebooks and TVs.

Speaker 3

In the automotive and wireless sector, our design wins are steadily increasing from both traditional car manufacturers and NV vendors worldwide. For smartphone AMOLED display driver, Sluggish demand in the smartphone market has resulted in a slight delay from our original on targeted timelines. Nevertheless, we continue collaborations with customers from Korea and China We're ongoing verification and partnership projects are in progress. I would Now I would like to turn to our non driver IC business where we continue to make steady progress. First, for an update on our TEGAN business.

Speaker 3

We anticipate Q4 TEGAN sales to decrease double digit sequentially, hampered by reduced shipment for large size displays and OLED displays for tablets As customer inventory offloading continues due to subdued end market demand, despite the soft market sentiment, We are actively developing the next generation TCON IC for OLED tablet, notebook and automotive, aiming to diversify our offerings and strategically position ourselves for a resurgence in demand. Moving on to our automotive T Con business for LCD panels, our position remains unchallenged in novel dimming T Con, Evidenced by growing validation and widespread deployment globally in both premium and mainstream New car models. We plan to roll out a series of TCAN for Automotive to expand our product offerings One emerging use case is in head of display or HUD. Thanks to our TCON's Unique ability to deliver a high contrast ratio for selected content, along with slow Heat dissipation and minimal power consumption. Our Noble Dimin TCOM can effectively eliminate the frequently occurring So called postcard effect in SUV application caused by Backlight leakage in TFC LCD panels that shows a square shaped display image On the windshield, our automotive T Con business is poised serving as one of our major growth engines.

Speaker 3

Switching gears to the WiFi Smart Image Sensing Total Solution, which incorporates Himax's proprietary ultra low power AI Processor OS Long CMOS in sensor, a CNN based AI algorithm. For notebook, We continue to support the mass production of Dell's notebook, given the growing prevalence Of the human presence detection feature in notebooks, our engagement with global notebooks names for their next generation products are progressing nicely. Our YSci solution is also in broad adoption across a range of endpoint AI applications, including video conference device, automotive, access control, shared bike parking, door lock and Smart Agriculture among others. Notably, YSIGHT adoption is also going smoothly In door lock application, where we joined forces with leading door lock players in China With smart production expected to commence starting the end of this year. Moreover, the latest Smart door lock design surpasses the existing human presence detection feature and takes A step forward to support an additional camera set, enabling dual camera functionality.

Speaker 3

The secondary camera can be oriented downward for ground level status monitoring for events such as Parcel delivery or place indoors to enhance security detection. More innovative features Also under development together with key customers in the field targeting their next generation smart door lock. We anticipate that Wi Fi adoption in surveillance will significantly increase starting in 2024. Next for an update on our WE2 AI Processor. Compared to WE1, its predecessor, The WE2 processor offers further advancements in inference, speed and natural low power.

Speaker 3

In context aware AI, WE2 enables detailed real time computer vision object analysis such as facial landmark, This enables sophisticated human expression detection for smart notebook and broad AI applications. Alongside our ongoing collaboration with end customers, we have also made significant progress in partnerships with major CPU and AP SoC players in preparation for their target markets in Next generation smart notebooks, surveillance and a host of other endpoint AI applications. We will provide more details as they come about. In addition to the Wise Eye Total Solution. We are also focused on expanding our IntelliSensing module business, targeting users that may be less familiar with AI or wish to incorporate AI capabilities into their applications We don't see significant development effort.

Speaker 3

This particularly applies to small volume or early stage The module offerings incorporating wide side technology Provides clients with a series of highly integrated plug and play module boards, which are extremely compact in size, user programmable and loaded with our pre trained AI models for straightforward system integration. This can effectively shorten customers' time to market and reduce development costs. To broaden market reach, a series of IntelliSensing modules will be rolled out to cover more diverse markets that catered to various AI needs. The IntelliSensing module solution will also be made available through online resellers like DGT and other SI partners. Throughout recent quarters, our IntelliSense module has received excellent feedback with adoptions for various applications.

Speaker 3

One particularly successful adoption is in parking systems, which has been deployed by several vendors in different regions of Asia. Our module offers Precise real time motion and occupancy detection to streamline the billing procedure for vehicles. Additionally, our module operates efficiently with ultra low power, making it a viable choice for battery powered parking systems, thereby greatly simplifying the installation process and reducing maintenance costs. Moreover, our AI functionality can include vehicle type recognition, which enhances the effective utilization of parking spaces. We own the parking solution, There is a growing interest in applications for our IntelliSense module in areas such as retail shelf management and Human Flow Monitoring among others.

Speaker 3

We are excited about the upcoming growth prospects for this product. Our leading position in ultra low power AI processing And image sensing for endpoint AI applications demonstrates our commitment and conviction to the ongoing development and growth of Wiseye AI Business. By leveraging broad ecosystem partners and customers, we aim to maximize market reach and While adoption is still at an early stage, we believe our Wise Eye AI Business will serve as a multiyear structure growth driver for Himax. Lastly, for an update on our optical related product lines. With over a decade Our optical and, optical electronics know how and capabilities under our belt, Himax has been offering various technologies including WRO, 3 d Sensing and LCOS, Driving continuous advancements in diverse fields related to emerging metaverse applications.

Speaker 3

Additionally, we have other innovative solutions under development to further expand our technological portfolio. The recent introduction of Zixdawn Graph Display Technology Unveiled by Himax's subsidiary, Dixdoll Technology, is one illustration of Himax's capability to provide more diverse offerings To the industry, the liquid crystal based optical product provides one of a kind technology That defines imagination through the display of personalized and color content on the exterior lens of glasses for external viewers to enjoy, while also providing wearers with unobstructed Visibility. We expect Nextdoor Graph display technology to create a broad array of application possibilities for all of our devices in the future. Next on our progress on LCOS, Following the unveiling of our cutting edge color sequential from linear cross micro display at the Display Week in May, Several tech giants in the industry have shifted their focus This shift is demonstrative of our exceptional achievements in both performance and functionality, Marked by breakthroughs not only in the luminance performance in full RGB color, but also in terms of superior optical efficiency, tiny form factor and actual lightweight design. These factors are critical and represent technological advancements that can readily meet rigorous requirements to support next generation see through goggles.

Speaker 3

Next, an update on WOO. As previously mentioned, we initiated volume production of our WLO technology to a leading North American customer in the Q2. The WLO solution is integrated into the customers' new generation VR goggles to enhance to enable our 3 d gesture control. A decent shipment was made in the Q3 in preparation for the upcoming seasonal shopping sales. For non driver IC business, we expect revenue to decline mid teens sequentially in the 4th quarter.

Speaker 3

That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today's call And are now ready to take questions.

Operator

Thank Please standby while we compile the Q and A roster. Our first question comes from the line of Donnie Ting with Nomura. Your line is open.

Speaker 4

Hi, Jordan and Eric, can you hear me?

Speaker 3

Yes, lovely, clear.

Speaker 4

Hey, thank you, Jordan, for taking my question. My first question is regarding to your guidance. If I look at your guidance across different product lines or by applications, I feel it's a little bit opposite To the current market condition, for example, smartphone and PC looks like to be recovery, while automotive, If you look at the IDM Company's recent guidance, it seems like the auto demand in non China market has been weakening. But your guidance shows that PC notebook and monitors being slowing down into the Q4 as well as smartphone, While automotive looks like still quite resilient, so could you kindly explain Why there is differences between the current market dynamics versus your guidance? Thank you.

Speaker 3

Thank you, Tony. To be honest, I'm not sure I have a very good explanation to that. I agree with your view that our guidance seems to indicate towards a different direction, right. As you said, auto overall, the consensus seems to be Pessimistic, whereas smartphone and PC seems to be in early stage of rebounding. I think The explanation I can offer perhaps is that for automotive display market, We really dominate the market.

Speaker 3

And as you recall, The Q1 for this year, there was a sudden drop in demand for automotive display ICs when China started Implement this rather stringent COVID control mandate, right, which causes a lot of factories to get shut down and so on. And in Q2, there was a widespread industry wide EV Price competition, which kind of led to a lot of customers suspending their orders to us. So 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 is for our customers to restock From where they probably were behind in the 1st and second quarter. And I think the momentum Continues into this quarter for us, although certainly the rebound would not be as strong.

Speaker 3

So we are guiding for automotive Business for this quarter to be flat to slightly down. So I think that reflects our leading market position Well, 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 smartphone and PC, our position was not certainly 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 Q4 Demand to be run strong, which I mean, if you think about it, it shouldn't be a big departure from the demand for PC, Monitor against PC.

Speaker 3

1 would not expect a major departure, but from our perspective, Our focus book or order book, we do see different picture. I think this again can be explained by Our different position in these different markets.

Speaker 4

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

Speaker 3

Yes, slightly, yes.

Speaker 4

Understood. And my second question is regarding to the ASP trend across the different product lines. Are you seeing ASP stabilizing or by different products, there could be still some different And another thing is that you previously announced that you have more cooperation with Next Ship. And I feel recently the driver IC companies are more aggressively shifting They're foundry capacity away from the foundries with higher price to the lower price. So If that will be helpful to your gross margin improvement going forward if the SP is not further declined that much while the foundry cost can be further

Speaker 3

First on ASP trend, compared to the last few quarters, certainly SP is definitely stabilizing across the board because The overall industry inventory position is now Healthier than before. And certainly, our customers, I. E, panel makers, Either just starting to make money or some of them are still under the water in their P and L, right. So And certainly we are aware the macroeconomic condition has not been looking very positive. So I think price For sure.

Speaker 3

Because of lack of demand and also because our customers are Not being very profitable, I think price pressure will persist. Although I don't see The similar kind of price pressure that we experienced in the last few quarters. And I think the comments kind of applies across different sectors. I can't really tell One sector from another, a very different picture. And certainly, that picture may vary as time as we move along into next year, but we're not We'll report in due course, but for now, we don't see a very different picture across different sectors.

Speaker 3

You mentioned foundry China foundry in fact also began And our collaboration with Next Ship, I mean, certainly, we have a joint press announcement for our strategic alliance. And that is focused on automotive display. And with Netship, actually we have kick started collaboration on both DDIC and TDDI With mass production for both expected to be around Q4 next year. And 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, we're in automotive, especially EV as we are aware is Very, very important. And I think there are our Chinese customers will certainly favor welcome this move That we paid with Netship.

Speaker 3

So yes, so both in foundry And probably a bit more so for back end, where possible, we will look to diversify our customer base our Supplier base and expand further into China and longer term surely that I think will help us With our cost and hopefully, alleviates pressure For full price.

Speaker 4

Understood. Maybe just one last follow-up from me. If you look at your 4th quarter guidance, Your EPS is in between $0.09 to 0 point 13 Surprisingly, I feel the upper range of $0.13 looks like to be higher than my previous If considering your sales is going to decline like 8% quarter on quarter in the mid range, so do you have lower tax rate in Q4 or you have lower OpEx in the Q4?

Speaker 3

Yes, indeed. I mean, thank you to For this question, and I appreciate you've been very diligent In looking at our financials and building your model, yes, there will be Some tax benefits that we were enjoying because of certain tax plan that we made earlier In Q4, I wouldn't elaborate on details right now over here, but yes, tax is one of the reasons. And basically, we also run our financial position 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 pick up this fine detail.

Speaker 3

And indeed, there will be Some tax benefits that we expect to enjoy in Q4. Okay. That is due to earlier tax planning that we did.

Operator

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

Speaker 3

As a final note, Derek Li, our Chief IRP Officer will maintain investor marketing And continue to attend investor conferences. We will announce the details as they come above. Thank you and have a nice day.

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