ChipMOS Technologies, Inc. Q3 FY2023 earnings call

• Q3 2023 revenue increased 2.5% from Q2. Gross margin was 15.9%, down 140 basis points from Q2. Net earnings were NT$0.8, down from NT$0.86 in Q2. First nine months of 2023 EPS was NT$1.94.
• Overall utilization rate increased to 63% in Q3, with assembly at 47%, testing average at 60%, DDIC at 74%, and bumping UT at 65%. Inventories are bottoming out and long-term demand dynamics are healthy.
• Manufacturing business: Assembly 20% of Q3 revenue, mixed-signal and memory testing ~20.1%, wafer bumping ~22.7%. Product-wise, DDIC 37.7%, gold bumping 21.3%, DRAM/SRAM ~14%, mixed-signal 7.1%, memory products 33.9%.

In Q3 2023, assembly represented 20% of revenue. Mixed-signal and memory testing were around 20.1%, and wafer bumping was 22.7% of Q3 revenue. DDIC product increased to around 37.7%, with gold bumping at about 21.3%. Revenue from DRAM and SRAM was near 14% of Q3 revenue. Mixed-signal products were about 7.1%. Memory products accounted for about 33.9% of total Q3 revenue, with DRAM at 13.4%, Flash at 20% (up 10.5% from Q2), NOR Flash up 20.8% QoQ, NAND Flash up 13.3% QoQ and representing 30.2% of Flash revenue. Driver IC and gold bump revenue was about 59% of Q3 2023 revenue, up 2.7% from Q2, with gold bump revenue up 5.2% QoQ and DDIC revenue up 1.4% QoQ. More than 20% of DDIC revenue came from Automotive panels in Q3, up 6.8% from Q2. COF revenue was up 6% QoQ, representing 40% of Q3 DDIC revenue. TDDI was around 21.9% of Q3 DDIC revenue, with OLED at about 14.4% of Q3 DDIC revenue, up 3.7% from Q2. End-market-wise, Automotive and Industrial were up slightly QoQ at 20.3% of revenue, smartphones at 33.7% (up 2.5% QoQ), consumer at 23.6% (up 13.3% QoQ), TVs and Computing at 17.7% and 4.7% respectively.

• Expect operating momentum to be cautiously conservative in Q4 compared to Q3 due to market fluctuations.
• DDIC product UT levels of large panel, TV, and smartphone products impacted by end product demand softness, but Automotive panel and OLED demand stable. Will add new DDIC high-end capacity in Q4 based on customer demand.
• Memory product assembly and test UT impacted by destocking, but seeing increasing DRAM rush assembly orders in Q4 and rebounding NAND Flash demand, so memory product momentum better than DDIC in Q4.

• Near term lumpiness in results despite healthy long-term trends.
• Softness in end product demand impacting UT levels of large panel, TV, and smartphone products in DDIC.
• Continued destocking and softer demand at certain customers impacting memory product assembly and test UT.

Q: Firstly, would you please tell us why Q3 gross margin decreased while UT level improved? Secondly, color on the breakdown of net non-operation income?

A: Silvia Su said several factors in gross margin including mix and variable costs, with higher electricity costs in Q3. Net non-operation income primarily includes foreign exchange gains of NT$170 million, share of profit of associates accounted for using equity method of Unimos of NT$61 million, interest income of NT$41 million and interest expense of NT$68 million.

Q: Could you comment about the sequential QoQ growth in 2023?

A: S.J. Cheng mentioned customers impacted by broader market softness, with UT level of large panel, TV, and smartphone products in DDIC impacted by softness, but memory product momentum better than DDIC in Q4.

Q: Could you comment about DDIC price pressure currently?

A: S.J. Cheng said as high-end DDIC test platform UT remains high, will add new DDIC high-end capacity in Q4, expecting to maintain price level of high-end testers for OLED product, and taking low-end testers and COF on a customer-by-customer basis with flexibility in OEM price.

Q: Please give us the 2024 outlook and comment on our dividend policy.

A: S.J. Cheng said it's early to provide 2024 view, normally done after budgeting when reporting Q4 results; dividend policy based on payout ratio policy.

Q: It looks like the revenue from mixed-signal has declined a lot, could you explain the reason? Furthermore, for mid to long-term, is the Company developing new product lines for business other than memory and DDIC?

A: S.J. Cheng said within mixed-signal products, increased revenue QoQ from products like E-compass but product display peripheral chips revenue significantly declined; yes, the Company has been developing more business in areas like sensor, E-compass and flip chip package with bumping and assembly capabilities.