ChipMOS TECHNOLOGIES Inc. Q1 FY2024 earnings call

• Q1 revenue up 17.7% y-o-y but down 5.4% q-o-q. Gross margin 14.2% y-o-y up 180bps but q-o-q down 590bps. Net earnings more than doubled. - Utilization rates: overall 63%, assembly 62%, Test 60%, DDIC 67%, Bumping 61%. - Assembly: 25.6% of Q1 revenue. Mixed-signal and memory Testing: 20.4%. Wafer bumping: 21.3%. - Product-wise: DDIC 32.5%, gold bumping ~18.6%, DRAM/SRAM 16.3%, Mixed-signal 9.7%. Memory products: 39.2% of total revenue, up 1.6% q-o-q and 26.4% y-o-y. Flash revenue up 5.6% q-o-q, NAND Flash up 17.4% q-o-q. - Driver IC and gold bump revenue: ~51% of total Q1 revenue, up 14.3% y-o-y but down 11% q-o-q. Auto panels drove over 27% of Q1 DDIC revenue. - Silvia Su reviewed financial results: total revenue NT$5,419 million in Q1, net profit NT$438 million, EBITDA NT$1,544 million. Q-o-q revenue down 5.4%, gross profit NT$771 million, gross margin 14.2%. Operating expenses 7.9% of revenue, operating profit NT$363 million. - CapEx in Q1: NT$633 million, breakdown: 4.4% bumping, 22.4% LCD Driver, 46.8% assembly, 26.4% testing.

In Q1 2024, assembly represented 25.6% of revenue. Mixed-signal and memory Testing was 20.4%, and wafer bumping was 21.3%. DDIC product was 32.5% of total revenue, gold bumping about 18.6%. DRAM and SRAM were 16.3%, Mixed-signal products 9.7%. Memory products overall were 39.2% of total revenue, with DRAM at 15.8%, Flash at about 23% (NAND Flash 45.3% of Flash revenue). Driver IC and gold bump revenue was ~51% of total Q1 revenue. Auto panels drove over 27% of Q1 DDIC revenue. TDDI was around 20.7% of Q1 DDIC revenue, OLED 23.3%. Automotive and Industrial were ~22% of Q1 revenue, smartphones related 38.4%, consumer related 20.5%, TVs panel 15.8%, Computing 3.3%. Q1 revenue increased 17.7% y-o-y but was down 5.4% q-o-q. Gross margin was 14.2%, up 180bps y-o-y but down 590bps q-o-q. Net earnings more than doubled to NT$0.6. Utilization rates: overall 63%, assembly 62%, Test 60%, DDIC 67%, Bumping 61%.

• Q1 expected to be seasonal trough for 2024, expects improvement in Q2. DDIC to outgrow memory product momentum in Q2. - CapEx plan: support customers with careful additions, including DDIC high-end test platform in second half. - Dividend: Board approved NT$1.8 per common share pending shareholder approval at May 2024 AGM. - Expect broader market condition to improve in second half, inventory situation to improve, headwinds decreasing.

• Electricity price hike: modeled to increase segment price by ~14%, impact quarterly gross margin by about 0.5%. - Competition from China: China competition is a factor, company plans to increase value added products, invest in automation, simplify processes to reduce costs and maintain competitive position.

Q: Could you quantify your outlook for 2Q? Rank weakness and strength for your business during the quarter?

A: Jesse Huang said DDIC (OLED and automotive applications maintaining stronger demand, large panel TV DDIC demand getting better) and memory (DRAM and NAND demand improving, NOR flash customers picking up) with 1Q as bottom and results gradually improving, DDIC better than memory in 2Q.

Q: Do you think you can reach the high teens percent QoQ for 2Q as peers?

A: Jesse Huang said normally not providing guidance for following quarter, but 1Q is bottom and results should gradually improve with DDIC better than memory in 2Q.

Q: How is your 2Q margin outlook?

A: Jesse Huang said improving utilization will improve gross margin, Q2 has less additional cost adders like bonus and higher electricity cost, positive for cost structure and profitability.

Q: How may electricity price hike impact your business and cost structure?

A: Jesse Huang said price increase for segment would be ~14%, impact quarterly gross margin by about 0.5%.

Q: Outlook for 2H? Can you gain share from customers? How to think about revenue ratio for first and second half?

A: SJ Cheng said OLED and auto demand significantly increased for display area, logic, mix signal, sensor gradually increased, memory customers increasing capacity and loading; revenue ratio 1H:2H could be similar to last quarter's 47:53.

Q: Comments on competition from China?

A: SJ Cheng said China competition is for everybody, company will increase value added product, invest in automation, simplify process to reduce costs and improve profitability while maintaining competition position.

Q: How do you see the revenue ratio for 1H and 2H?

A: Jesse Huang said last quarter's earnings call had 47:53, thinks similar.

Q: Do you think the UT rate for the second quarter would reach 70%?

A: SJ Cheng said almost in the range.

Q: It looks like your depreciation didn't increase too much but operating cost increased a lot. Does it imply higher material cost pressure? Could it be transferred to customers?

A: SJ Cheng said gold material cost for bumping has a formula shared with customers, but assembly gold wire cost not.

Q: Further, you mentioned about capacity expansion in 2H. Would it be possible to have contracts with customers?

A: SJ Cheng said basically would move in that way as they have experience in such business model.

Q: You mentioned about stable demand from automotive in Q2. Please give more color about other applications.

A: Jesse Huang said smart mobile likely gradually bottoming out, TV demand favored by domestic and overseas customers.

Q: Based on current financial data, your Capex in Q1 is still relatively lower. Please give more color about whole year capex and depreciation.

A: Silvia Su said should have higher capex in 2H, percentage to annual revenue would increase from 15-16% up to 18-19% in 2024; depreciation rate would increase around 1% to 3% quarterly.

Q: How is your price pressure for currently and 2H?

A: SJ Cheng said generally stable, only concern is whether can transfer increased material cost to customers.

Q: Do you think you can still maintain your price position even under lower price competition from Chinese competitors?

A: SJ Cheng said China player competition is for everybody, focus on high-end product segment like OLED, automotive, high-end TV, and gain share from Chinese customers targeting market demand outside China.