Himax Technologies Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

There are 5 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Himax Technologies Incorporated First Quarter 2024 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. At this time, I'd like to hand the conference over to your host, Mr.

Operator

Mark Schwallenberg from MZ Group. Please go ahead.

Speaker 1

Welcome everyone

Speaker 2

to

Speaker 1

the Himax First Quarter 2024 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 Lee, Chief IRPR Officer.

Speaker 1

After the company's prepared comments, we've allocated time for questions in a Q and A 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 the 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.

Speaker 1

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, for which we subject our annual consolidated financial statements and may vary materially from the audited consolidated 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. Eric Li. Eric, the floor is yours.

Speaker 3

Thank you, Mark, and thank you, everyone, for joining us. My name is Eric Li, Chief IRPR Officer at Himax. On today's call, I will first review Himax's consolidated financial performance for the Q1 2024, followed by our Q2 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 3

We are pleased to report that Q1 revenue, gross margin and the profits all exceeded the guidance issued on February 6, 2024, despite the seasonal downturn as well as ongoing macro headwinds. The better than expected financial result primarily stemmed from strong order momentum in our automotive and the TCAM product lines, coupled with cost improvements and a favorable product mix. 1st quarter revenues registered $207,600,000 a decrease of 8.8% sequentially, exceeding our guidance range of 9% to 16% decline. Gross margin came in at 29.3%, outperforming our guidance of around 28.5%. Q1 profit per diluted ADS was $0.071 surpassing the guidance range of $0.02 to 0 point 0 $5 Revenue from large display drivers decreased 7% sequentially to $31,300,000 due to seasonally soft macroeconomic conditions, compounded by ongoing production and inventory control measures by our leading panel customers.

Speaker 3

Consequently, our sales of TV and monitor ICs declined sequentially. However, notebook IC sales saw a nice double digit increase quarter over quarter as customers accelerated their purchases after several quarters of destocking. Sales of large panel driver ICs accounted for 15.1% of total revenues for the quarter compared to 14.8% last quarter and 21.7% a year ago. Small and the media size display driver segment revenue reached $144,300,000 a sequential decline of 11.5%. The better than guidance result was fueled by strong sales in DDIC for automotive and on late tablets.

Speaker 3

Driven by rush orders for traditional DDIC, Q1 automotive driver sales encompassing both traditional DDIC and TDDI experienced a single digit decline, outperforming the guidance of a mid teens decline. Meanwhile, automotive TDDI sales continued to defy the industrial downturn and increased sequentially, thanks to our robust pipeline of design win projects. The automotive business, including traditional DDIC, TDDI, TCOM and OLED cells, remains the largest revenue contributor in Q1, representing around 46% of total sales. Q1 smartphone IC sales declined sequentially, but exceeded guidance fueled by rush orders from leading customers. Conversely, tablet driver sales declined as expected, amidst the typical lower season characterized by sluggish demand.

Speaker 3

The small and the medium sized driver IC segment accounted for 69.5 percent of total sales for the quarter compared to 71.6% in the previous quarter and 63.3 percent a year ago. 1st quarter non driver sales exceeded guidance, reaching $32,000,000 an increase of 3.4% from the previous quarter. The better than expected performance is attributable to a resurgence in order for large site display TCOM products. In the realm of automotive TCOM, the adoption of our automotive local dimming TCOM continues to rapidly expand as evidenced by increasing number of project awards from numerous Tier 1s for the new vehicle project of their OEM customers around the world. This sets the stage for robust sales growth in coming years.

Speaker 3

Non driver product accounted for 15 0.4% of total revenues as compared to 13.6% in previous quarter and 15% a year ago. 1st quarter operating expenses were $50,700,000 a decrease of 3.1% from the previous quarter and a decline of 0.6% from a year ago. Given the persistent macroeconomic headwinds, we continue to be diligent with strict budget and expense control measures. 1st quarter operating income was $10,000,000 or 4.8 percent of sales compared to 7.2% of sales for the same period last year and 7.3% of sales last quarter. The decreases in operating margin were primarily driven by lower sales.

Speaker 3

The sequential decrease was also attributed to lower gross margin. However, Q2 gross margin is on track to rebound from Q1. 1st quarter after tax profit was $12,500,000 or $0.071 per diluted ADS compared to $23,600,000 or $0.135 per diluted ADS last quarter and $14,900,000 or $0.085 per diluted ADS in the same period last year. Turning to the balance sheet. We had $277,400,000 of cash, cash equivalents and other financial assets at the end of March 2024, compared to 200 and $23,800,000 at the same time last year and $206,400,000 a quarter ago.

Speaker 3

The increase in cash balance stemmed primarily from continuous debuffing effort across all major product lines. In Q2, however, cash, cash equivalent and other financial assets are set to decline primarily due to decrease in sales in the previous two quarters, resulting in lower Q1 receivables. In addition, accounts payable is expected to increase as a result of the rising Q1 wafer orders placed in preparation for higher shipment volumes starting in Q2. Other significant Q2 cash outflows include annual income tax payments as well as refund to certain customers for deposit made during the industry wide capacity supply shortage. As of the end of the Q1, we had $39,000,000 in long term unsecured loans, of which $6,000,000 was the recurring portion.

Speaker 3

Our quarter end inventory as of March 31, 2024, was $201,900,000 lower than $217,300,000 last quarter, yet another illustration of our successful distorting effort. Accounts receivables at the end of March 2024 was $212,300,000 down from 2 $135,800,000 last quarter and down from $252,200,000 a year ago. DSO was 93 days at the quarter end as compared to 91 days last quarter and 93 days a year ago. 1st quarter capital expenditures was $2,700,000 versus $15,100,000 last quarter and $2,800,000 a year ago. The 1st quarter CapEx was mainly for R and D related equipment and in house testers of our IC design business.

Speaker 3

Prior to today's call, we announced an annual cash dividend of $0.29 per ADS, totaling $51,000,000 in the payable on July 12, 2024. With a payout ratio of 100% of the previous year's profit, The high payout ratio is supported by our positive business outlook as we pursue business objectives and the strive for sustainable long term growth and shareholder value while maintaining healthy balance sheet. As of March 31, 2024, Himax has 174,700,000 ADS outstanding, unchanged from last quarter. On a fully diluted basis, the total number of ADS outstanding for the Q1 was 175,000,000.

Speaker 4

Dollars

Speaker 3

Now turning to our Q2 2024 guidance. We expect 2nd quarter revenues to increase 8% to 13% sequentially. Gross margin is expected to be around 31.5% to 33.5%, a notable increase from 29.3% of the previous quarter, primarily because of higher sales from automotive and the TCOM business, both of which enjoyed both better gross margin than corporate average. The final number may vary depending on product mix. The 2nd quarter profit attributable to shareholders is estimated to be in the range of $0.13 to $0.17 per fully diluted ADS.

Speaker 3

I will now turn the call over to Jordan to discuss our Q2 outlook. Jordon, the floor is yours.

Speaker 4

Thank you, Eric. Amid ongoing macroeconomic uncertainty, customer behavior in the display market remains conservative with panel makers continuing to implement strict output control measures amidst the cautious end brand panel procurement environment. Given the limited visibility, customers tend to maintain lean inventory levels and underestimate demand, thereby providing us with conservative forecast accompanied by last minute order increases. This trend has persisted over the last 7 consecutive quarters, including Q1, with our actual sales consistently at the upper end of or exceeding our guidance range. As we look ahead to the second half, even with lean inventory levels, we anticipate this conservative market sentiment will persist, causing customers to continue to prioritize agility in response to market dynamics.

Speaker 4

With that being said, we believe Q1 will be the low point for this year and see sales starting to pick up in Q2, especially in the automotive sector. With several other upcoming demand catalysts on the horizon, including major sporting events and festival shopping seasons, business momentum is expected to continue to steadily improve throughout the second half. Now let me elaborate a bit on the near term outlook for Automotive Business, our largest source of revenue. While many semiconductor vendors and their customers are still going through painstaking destocking processes. Our inventory position for automotive sector has become healthy since the end of last year with our panel customers also maintaining low stock levels at present.

Speaker 4

This is best illustrated by the large quantities of rush orders we received from panel customers over the last 2 months, for which we also had to place rush orders to our 1 g vendors. Therefore, notwithstanding the recent headwinds faced by the global automotive industry, our outlook for the automotive display IC business remains positive for the second half of the year. The automotive display market is experiencing the megatrend of expanding quantities, sizes and sophistication of displays with the vehicles. Expensive displays are increasingly becoming the major selling point for carmakers. As the leader in the automotive display IC business, Himax is poised to benefit from this trend, which implies higher content value per vehicle for display semiconductor vendors such as us, leading to sustainable growth stated for the next few years.

Speaker 4

Our confidence stems from our dominant design win pipeline in TDDI and lower DME T Con, both relatively new and cutting edge technologies for automotive displays with accelerated volume and momentum, which is expected to carry on over the next few years. This will further solidify our position in the market where we are already the leader in the traditional DDIC. Moreover, more customers are adopting Himax's logo dimming TCOM along with TDDI or LTTI as an integral part of their development platform for crafting new automotive displays, reflecting strong customer loyalty for our technology and service. Additionally, we are implementing cost optimization and supplier diversification strategies to enhance supply flexibility and cost effectiveness as exemplified by our recent strategic partnership announced with Next Chip for the Automotive market. As Eric mentioned earlier, we just declared our annual cash dividend with a payout ratio of 100% of last year's profit.

Speaker 4

Our decision for the high dividend payout ratio this year underscores our unwavering commitment to shareholder value even in the face of uncertain macroeconomic conditions. This not only recognizes the ongoing support of our shareholders, but also demonstrates our confidence in our financial stability. With that, I will now begin with an update on the large panel driver IC business. In Q2 2024, we anticipate a mid teens sequential increase in large display driver IC revenue, primarily bolstered by customer restocking following several quarters of muted demand, as well as increasing orders from customers preparing for the upcoming shopping festivals. Q2 TV and monitor ID sales are expected to increase single digit and nice double digit, respectively, quarter over quarter.

Speaker 4

In contrast, notebook IC sales are poised for decline following strong restocking in the previous quarter. In the notebook market, a burgeoning trend of AI PC is inversion, prompting demand for display upgrades to include touch enabled features and or adoption of OLED displays. Himax offers comprehensive offerings in both LCD and OLED technologies in capacity DDIC, TCAM and touch related products. As we look ahead to 2025, the anticipated beginning of replacement cycles, we are well positioned to capitalize on this opportunity, with numerous in sales DTI projects for mainstream LCD notebooks and DDIC and touch controller for OLED notebooks, some of which poised to enter mass production for leading brands in the second half of this year. We believe this will serve as an important growth catalyst for us in notebook and elevate our presence in the market.

Speaker 4

Turning to the small and medium sized display driver IC business. We anticipate 2nd quarter revenue to increase single digit sequentially. Automotive IC revenue is expected to grow high teens sequentially, with sales for both DDIC and TDDI poised for sequential growth despite recent reports of softening electronic vehicles demand. Our leadership position in automotive TDDI remains solid, underscored by the rapidly expanding adoption as demonstrated by more than 4 50 secondured design win projects and a continuous influx of new pipeline and design wins across the board. It's also important to note that only approximately 30% of awarded projects are currently in mass production.

Speaker 4

As an indication of the potential lucrative growth opportunity we believe is yet to be realized. Automotive TDDI sales are anticipated to represent more than 40% of automotive driver sales in Q2. In contrast, both smartphone and tablet sales are projected to decline quarter over quarter as consumers prolong their replacement cycles in response to the challenging economic environment. To mitigate these sluggish conditions, we have taken steps to improve our cost structure by diversifying our supplier base to position Himax for resurgence in demand. To elaborate further on our automotive IC business, where we have more than 40% market share, Himax offers the industry's most comprehensive LCD product lineup, which includes traditional DDIC and TDDI technologies alongside cutting edge LTDI and the modem and TCAN solutions.

Speaker 4

Moreover, we are actively expanding and bolstering our footprint in OLED. With a comprehensive range of products covering DDIC, TCAM and on sale touch controller, while forming strategic alliances with top panel manufacturers in Korea and China. This proactive approach aligns us with the dynamic transformation of the industry towards increasing adoption of OLED displays for high vehicles. The inherent visibility of all the displays to cater to foldable or curved shapes, Along with the outstanding visual performance and low power consumption opens new horizons for automotive interior displays. Notably, our meticulously engineered OLED on sale touch controller sets a new standard as it boasts an industry leading touch to noise ratio exceeding 45 dB and offers heightened sensitivity, accommodating challenging user conditions such as go up wearing and wet finger operations.

Speaker 4

Our comprehensive solution in automotive LCD and OLED displays address the broad spectrum of customer preferences and requirements, nurturing robust customer loyalty and fostering collaborations with global panel makers, Tier 1 suppliers and automotive manufacturers. We anticipate our automotive business will remain a significant catalyst for our growth moving forward. Next for an update on our OLED business. As I just covered, we have made significant progress in providing solutions for automotive OLED displays, an area with exciting growth potential. We also are expanding into other OLED applications such as tablet, notebook and monitor through collaborations with leading panel manufacturers in Korea and China, featuring a comprehensive offering covering DDIC, TCAM and touch controllers.

Speaker 4

Additional products with new feature enhancements are slated to enter mass production in the second half of twenty twenty four. Regarding smartphone OLED, the current slowdown in smartphone market demand has unfortunately necessitated adjustment to our initial timeline. Nevertheless, collaborations with customers in Korea and China persist with ongoing verification and partnership projects. I would like to now turn to our non driver IC business update. 1st, for an update on our TCOM business.

Speaker 4

We anticipate a notable sequential increase of more than 40% in T Con sales in Q2, prepared by escalating shipments for T Con in large size displays and locomotives. Himax has been devoted to developing panel driver ICs and timing controllers for decades. We stand as the industry leader in both monitor and automotive key cons, universally adopted by leading panel makers across the board. In the monitor T Con sector, Himax excels in the higher market, especially in gaming, where intricate designs are required for high resolution, high refresh rate and low latency display performance, crucial for achieving immersive gaming and entertainment experiences. In the automotive T Con domain, our leading position remains unchallenged, posting well over 100 design win projects, powered by our cutting edge global demand technology along with our industry leading proprietary algorithm.

Speaker 4

The incorporation of the global demand TCAM not only significantly enhances the displays contrast ratio, but also offers improved power efficiency, particularly crucial for EV and large size displays. Our industry leading global dimming TCAM solutions support super high frame rates and a wide range of resolutions from full HD to up to 8 ks. We are encouraged by the rapidly expanding validation and widespread deployment of our solutions initially in customers' premium car models, which have been expanded into mainstream models worldwide. In the Q2, automotive tea counts are anticipated to grow more than 30% sequentially, representing more than 3% rather of total sales. From a longer term perspective, the growing traction of our lower DBT card for automotive is on track to mirror the success of our automotive TDDI over the last couple of years.

Speaker 4

Switching gears to the WiSPine ultra low power AI sensing solution, a cutting edge endpoint AI integration featuring proprietary ultra low power AI processors, always on CMOS image sensors and advanced CNN based AI algorithms. In the rapidly evolving AI landscape, WiSA AI technology stands out for its expertise in all device tiny MRO solutions and unique ultra low power consumption measuring nearly single digit milliwatts. This opens the door for battery powered endpoint devices to incorporate AI sensing for intuitive and intelligent user interactions, something that would otherwise be impossible without such extremely low power consumption AI. For instance, in smartphone locks, which are typically battery powered device, China's leading high end door lock maker, Desmond, harnessing Himax's ultra low power, WiSA Air technology created the world's 1st smart door lock products that feature 20 fourseven century monitoring and real time event recordings. Our WiCy Total Solution for Desmond boasts an exceptionally low power draw of just 2.2 milliwatt, representing a novel and highly advantageous feature with minimal impact on battery life.

Speaker 4

The potent AI inherent in the Wi Fi allows the Goloka camera to capture snapshots periodically on a 20 fourseven basis and when detected human presence immediately start recording while concurrently waking up the door to the door loss much higher power consuming main processor. The result is a comprehensive event recording for seamless threat protection that better ensures security and crime mitigating potential breaches, all achieved with a battery powered door lock. By working with ecosystem partners and customers,

Speaker 2

we

Speaker 4

are expanding WiSA AI applications aggressively, covering new areas, including but not limited to smart home, smart agriculture, automotive, smart business AMR or automatic meter reading, health scale and a wide range of other AIoT applications. To broaden our market reach and help shorter customers' development cycles, We also offer seamlessly integrated plug and play WiSAI modules. AI development, while providing building context aware AI algorithms, which are reprogrammable for the customer. Within a few months after its launch, Wi Fi modules have been successful have seen successful adoption in battery powered parking systems across Asia, as well as applications in fleet management, occupancy sensing, pet tracking, people flow lending, etcetera, and others. Moreover, for companies with their own AI expertise, we provide hands on open source AI frameworks to change a robust AI models to streamline development efforts and reduce costs and lead time for AI development for AI product development for AI product introduction.

Speaker 4

This year at the ISC West, a leading U. S. Trade show for the security industry, Himax unveiled YSI PowerVed Technology and ultra low power contactless biometric authentication solution. Powered by the advanced WiSight 2 AI Processor, WiSight Pong WAN can swiftly authenticate an individual's identity in less than 100 milliseconds, while consuming nearly milliwatts of power. It boasts exceptional accuracy, enhancing security by minimizing the risk of duplication or spoofing through the distinct power and patterns unique to every individual.

Speaker 4

The solution targets battery powered access control devices for a small group of authorized individuals. Having only launched recently, YSI Power Man Technology has already attracted interest for applications such as automotive, door lock, surveillance, laptops and more. We are actively accelerating verification partnership projects in these areas and are enthusiastic about the potential for our YSIGHT powertrain authentication that marks a significant breakthrough in the industry. Next, for an update of our Aerocost Micro Display technology. At the upcoming Display Week 2024 in May in San Jose, California, Himax, where our various groundbreaking ultra luminous new generation color sequential from the AirCross micro display, capable of achieving a brightness of up to 250,000 nits.

Speaker 4

This represents a notable 2.5 fold increase from its predecessor announced at the Display Week 2023, while maintaining low power consumption of just 300 milliwatts. Additionally, thanks to its compact form factor of just 0.5 cc and routing, we're incorporating both illumination optics and the Aircos panel, stylish and everyday ready AR glasses are becoming a reality. Oil body commercialization of AR glasses targeted the general public may still take several years. We are proud that HiMass' new generation color signature from the ARCore stands as the sole viable solution in the marketplace for authentic see through AR glasses, delivering unparalleled brightness, power consumption, form factor, display quality and mass production readiness. Collaborations with leading tech companies worldwide are on the rise, solidifying Himax's position as the leader in the field.

Speaker 4

For non driver IC business, we expect revenue to increase double digit sequentially in the Q2. 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 you, Jordan. At this time, we will conduct a question and answer session. Our first question comes from the line of Frank Wang with Athena Capital. You may proceed.

Speaker 2

Yes. Hi. Good evening. My first question is on the auto business. Texas Instruments, NXP, UMC, TMCMC will indicate some softness in output

Speaker 4

We can't hear you, Frank.

Speaker 2

Okay. Can you hear me okay? Can you hear me now? Hello, can you hear me okay?

Operator

Frank, we can hear you. I'm going to actually remove you and then repromote you because it seems like, the team with Jordan and Eric are not able to hear you. So please stand by.

Speaker 2

Yes, good evening. So first question is on the auto sector. Texas Instruments, NHP, TSMC, UMCO indicated some softness in the auto sector. What is your view? And why are these leading semiconductor companies seem to be more pessimistic on the auto sector?

Speaker 2

Why are you expecting a decent quarter over quarter growth in the auto sector? Thank you.

Operator

Frank, it seems the team is still unable to hear you. So we're going to bring you back and then try again. We're going to prompt for questions. Hold on.

Speaker 4

Can you hear, Frank, Mr. O'Brien? Yes, I

Speaker 2

can hear you fine.

Operator

We can hear Frank and the rest of the people can. I don't know why the folks in your room are able to hear him.

Speaker 4

That is very weird.

Operator

Okay. We that's all right. I've got another person coming to assist on this. We're going to keep Frank in questions, please. Thank everyone for your patience.

Operator

Crystal, thank you for coming in to assist. Everyone can hear Frank except for Eric's line where the group is gathered.

Speaker 4

Mr. Operator, can you relay the question of Frank to us because we can clearly hear you And we are assuming you can hear us. I'm assuming everybody can hear us and it appears that everybody hear Frank except for us. I don't know why. So if you can pass on Frank's question to us, then we can respond to the question.

Operator

I can do my best. He asked a lot of information. Okay.

Speaker 2

So let me say that one more time. So the first question is regarding the auto sector. Himax is more optimistic, expecting a very good growth for the Q2, but other companies, semiconductor companies are expecting some softness. So what's the view? How is that different?

Speaker 2

Thank

Operator

you. So what is the view from Himax in terms of the auto sector? Frank asked some pieces about there were some softness. So I'm doing my best to relay information.

Speaker 4

Okay. I think I got the answer to the question. Yes, that's the that is the question. So I suppose the question from Frank, again, I apologize for some system reasons, we cannot hear it. But relay from the operator appears to be that the industry is going through softness in auto semiconductor business, where we guiding for a pretty strong outlook.

Speaker 4

So I guess Frank's question is why we are seeing this departure of directions. I think indeed, we have seen in recent earnings calls from cement conductor companies, both foundries and IDMs across U. S, Europe and Japan, where they are given rather cautionary outlook of the auto market demand. But if you retail for the above their comments, you will be able to see that they are not saying the auto industry's overall shipment is going to decline. What they are saying merely is that their stocks are perhaps too high and they are going through the stocking process.

Speaker 4

And that is the reason for their cautionary outlook. And if you look at the industry focus, most people are I mean, while we are not expecting a very strong auto shipment for this year, people are not focusing any decline either typically at least something like 3% or 5% or some forecast even perspective or higher gross outlook for the vehicle shipment volume this year. So the industry actually remains solid and we I mentioned in my prepared remarks that our inventory for auto market actually is very, very lean and so are our customers' inventory positions. And I particularly mentioned in my prepared remarks that we actually had to take a lot of Russia orders recently. Actually, I'm talking about very sizable quantities of Russia orders for our panel customers.

Speaker 4

And the reason why they are giving rush orders clearly is because they have run out of stock and they are they are in season stock cannot meet the customer demands. And with the rush orders, we also have to turn around and place our orders, rush orders to our foundry partners because again, for the same reason, our inventory is very low and our inventory simply cannot meet the demand of the customer. So I think I also explained in my prepared remarks, there has been a total of 7 quarters in a row when we see our inventory consistently declining very nicely. And that and also we announced end of last year that we believe our inventory level has become very healthy and that certainly covers the auto industry. And I think that is the major reason for departure, I suppose.

Speaker 4

And also, I think we continue to highlight the fact that auto industry is going through this megatrend to upgrade their panels in terms of quantity, features, sophistication, size, etcetera for vehicles panels. And that is very good news for panel makers targeting also industry because for each vehicle, the panel content value is increasing. And even more so for IC vendors because for each panel going to vehicles, the IC content value is increasing. So we are going through that mega trend right now and being market leader, I think we really are taking a nice stride and enjoy this mega trend. So I hope that explains the short term difference in our outlook as opposed to most semiconductor makers.

Speaker 4

Thank you, operator.

Operator

Thank you, Frank, for your question.

Speaker 2

Yes. Thank you, operator. Yes. Can I just ask you to relay one more question, please? Himach is a leader in LCOS.

Speaker 2

Can I talk about the chance for see through AR glasses to really happen? Thank you.

Operator

So I'm going to do my best to relay, they're asking about Himax as a leader about B2BR, like glasses or classes, and why don't you guys just speak to that scenario?

Speaker 4

Okay. Yes, I suppose Frank asking about AR glasses and particularly our Aerocost solution target in that market. And in my towards the end of my prepared remarks, we highlighted the major breakthrough in technology and our excitement of the about the breakthrough. And I suppose, not hearing the details of Frank's question, I suppose many people may wonder AR as a general of products has not seen great success so far. And Aerocost is just a supporting technologies for air in the air glasses industry.

Speaker 4

So is that is so what is our common is there really a future And the company over the many years seems to have been committed to the development of air conditioning or air conditioning technology for AR glasses. So I guess the many people may have questions about whether this strategy actually makes sense. And my response is, obviously, we believe there's a reasonable chance for AR glasses to become successful. And I will elaborate on the importance of micro display or across micro display for the success of AR glasses. And clearly, we are committed and frankly, bringing money to develop this technology for many, many years because of the simple reason that we have a very strong commitment for its success and we certainly believe that the chance of success is quite good.

Speaker 4

And I will also highlight the fact that simply because the technology is so difficult, when it's successful, it's going to be tremendous potential, tremendous business opportunity for Himax because very few people are involved simply because the technology is actually quite challenging. Now let me elaborate the background a little bit. One of the major technical challenges for see through AR glasses is the display system, which by definition needs to be totally different than the displays we are so used to every day for say smartphone or watch or even those for AR or MR cargoes. So basically, a see through display system is comprised of 3 things, a micro display, which generates image a web guide, which projects the image and the coupling lens, which channels the image generated by microdisplay to the web guide, Okay. Now because of the see through nature and the need to allow for outdoor use, the price needs to rise for displayable glasses needs to be significantly higher than those for the usual displays, which typically ranges between 250 to 300 nits around.

Speaker 4

I'm talking about your usual notebook displays or stay home displays or TV displays, right, typically between 250 to 350 nits. In comparison, our customers are now demanding for the brightness to eyes for the AI glasses to be at least 1,000 nits, which is quite a number of times higher than our usual displays. Now the trouble is the optical efficiencies of both the waveguide and the coupling lens are quite low, especially the waveguide, which is typically as low as 1% or less, while for the coupling lens is around 50%, 60%. So what this means is that more than 99% of the brightness generated by the micro display is wasted after traveling through the optical system and before the image is projected onto the eyes. And this is the reason why we are now offering our new generation Frontier Coast with super high brightness of 250,000 Nits 250,000 Nits.

Speaker 4

So on a full part basis, if the waveguide efficiency is 1%, then our 250,000 NIS air cost can create about 1500 NIS knees to eyes, which is going to meet the demand of our customers for AR glasses. So while we will continue to work towards even higher brightness, we believe for the first time ever for the first time ever in the industry, we are finally seeing a micro display, which offers a legitimate level of brightness for AR glasses, targeting the general public. So to complete the story, in addition to the major breakthrough in brightness, our new front of around 200 milliwatts, as I mentioned in my prepared remarks, and the form factor of just 0.5 cc in total volume. All of these are very critical for the success of AR glasses. Last but not least, our ERCOT solution is way beyond laboratory level and is actually now quite ready for volume production.

Speaker 4

I would just add one last point, which is the only competing technology for AR glasses for display is microLED, for which the industry has put in tremendous resources over the last few years to develop 1,000,000,000 of dollars of resources. In our view, our proprietary front end of the Air Force provides much better power efficiency than microarray D, I. E, given the center model power consumption, our solution actually produces much better brightness than the LED, the micro LED, micro display. So as far as we can tell, what we have achieved so far in our color sequential front end of the call solution is far better than the performance delivered by any micro LED, micro display. Further, we are offering comparable form factor with much better readiness for mass production.

Speaker 4

So I and this is a pretty lengthy response, but I hope that kind of addresses the issue for our long term commitment to the development of our cost for our AR glasses industry. Thank you.

Operator

Thank Our next question comes from the line of Tyler Bomba with Baird. You may proceed. Tyler, your line is open. You may proceed with your question. Our next question comes from the line of Nathan Xie with Morgan Stanley.

Operator

You may proceed.

Speaker 4

We are still not hearing the question. Operator, I was wondering whether you can hear the question.

Operator

So we tried 2 people that were supposed to take questions. We did not hear them. This concludes the Q and A. We're going to hand it over to you, Jordan, for closing remarks.

Speaker 4

I apologize for the system issue, but as a final note, Eric Lee, our Chief IRP Officer, will maintain investor marketing activities and continue to attend investor conferences. We'll announce the detail as they come about. Thank you and have a nice day.

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