Himax Technologies, Inc. (NASDAQ:HIMX) Q1 2024 Earnings Call Transcript

Himax Technologies, Inc. (NASDAQ:HIMX) Q1 2024 Earnings Call Transcript May 9, 2024

Himax Technologies, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Himax Technologies, Inc. First Quarter 2024 Conference Call. [Operator Instructions]. Please be advised that today’s conference is being recorded. And at this time, I’d like to hand the conference over to your host, Mr. Mark Schwalenberg from MZ Group. Please go ahead.

Mark Schwalenberg: Welcome, everyone, to 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 Li, Chief IR/PR Officer. After the company’s prepared comments, we’ve allocated time for questions in a Q&A session. If you have not yet received a copy of today’s results release, please e-mail himax@mzgroup.us, 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 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. 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. Eric Li. Eric, the floor is yours.

Eric Li: 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 Himax consolidated financial performance for the first quarter 2024, followed by our second 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. We are pleased to report that Q1 revenue, gross margin and profit all exceeded guidance issued on February 6, 2024, despite the seasonal downturn as well as ongoing macro headwinds. The better-than-expected financial results primarily stemmed from strong order momentum in our automotive and the Tcon product line, coupled with cost improvements and a favorable product mix.

First quarter revenues reached $207.6 million, 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 $0.05. Revenue from large display drivers decreased 7% sequentially to $31.3 million due to seasonally soft macroeconomic conditions compounded by ongoing production and inventory control majors by our leading panel customers. 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 associated their purchases after several quarters of the starting. 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 medium-sized display driver segment revenue reached $144.3 million, a sequential decline of 11.5%. The better than guidance result was fueled by strong sales in DDIC for automotive and OLED tablets. 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 define the industrial downturn and increase sequentially, thanks to our robust pipeline of design win projects. The automotive business, including traditional DDIC, TDDI, Tcon and OLED sales remained the largest revenue contributor in first quarter representing around 46% of total sales. Q1 smartphone IC sales declined sequentially by exceeded guidance, fueled by rush orders from leading customers.

Conversely, tablet driver sales declined as expected earnest the typical low season characterized by sluggish demand. The small and medium-sized driver IC segment accounted for 69.5% of total sales for the quarter compared to 71.6% in the previous quarter and 63.3% a year ago. First quarter nondriver sales exceeded guidance reaching $32 million, an increase of 3.4% from the previous quarter. The better-than-expected performance is attributable to a resurgence in order for large size display Tcon products in the realm of automotive Tcon, the adoption of our automotive local dimming Tcon 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. Non-driver products accounted for 15.4% of total revenues as compared to 13.6% in previous quarter and 15% a year ago. First quarter operating expenses were $50.7 million 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. First quarter operating income was $10 million or 4.8% 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. The sequential decrease was also attributed to lower gross margin. However, Q2 gross margin is on track to rebound from Q1.

First quarter after-tax profit was $12.5 million or $0.071 per diluted ADS compared to $23.6 million or $0.135 per diluted ADS last quarter and $14.9 million or $0.085 per diluted ADS in the same period of last year. Turning to the balance sheet. We had $277.4 million of cash, cash equivalents and other financial assets at the end of March 2024 compared to $223.8 million at the same time last year and $206.4 million a quarter ago. The increase in cash balance stemmed primarily from continuous destocking effort across all major product lines. In Q2, however, cash, cash equivalents and other financial assets are set to decline primarily due to decreasing sales in the previous 2 quarters, resulting in lower Q1 receivables. In addition, accounts payables 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 first quarter, we had $39 million in long-term unsecured loan, of which $6 million was the recurring portion. Our quarter end inventory as of March 31, 2024, was $201.9 million, lower than $217.3 million last quarter yet another illustration of our success for disrupting effort. Accounts receivables at the end of March 2024 was $212.3 million down from $235.8 million last quarter and down from $252.2 million a year ago. DSO was 93 days at the quarter end, as compared to 91 days last quarter and 93 days a year ago. First quarter capital expenditures was $2.7 million, versus $15.1 million last quarter and $2.8 million a year ago.

The first quarter CapEx was mainly for R&D-related equipment and in-house testers of our IC design business. Prior to today’s call, we announced an annual cash dividend of $0.29 per ADS, totaling $51 million and 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 retaining the healthy balance sheet. As of March 31, 2024, Himax has $174.7 million ADS outstanding, unchanged from last quarter. On a fully diluted basis, the total number of ADS outstanding for the first quarter was $175 million. Now turning to our second quarter 2024 guidance.

We expect second 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 Tcon business, both of which enjoy both better gross margin than corporate average. The final number may vary depending on product mix. The second quarter profit attributable to shareholders is estimated to be in the range of $0.13 to $0.17 per fully diluted ADS. I will now turn the call over to Jordan to discuss our Q2 outlook. Jordan, the floor is yours.

Jordan Wu: Thank you, Eric. Amid ongoing macroeconomic uncertainty, customer behavior in the display market remains conservative with panel makers continuing to implement strict outlook control measures amidst the cautious and brand panel procurement environment. Given the limited visibility, customers tend to maintain lean inventory levels and underestimate demand, thereby providing us with a conservative forecast accompanied by last many 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 activity in response to market dynamics.

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. This is best illustrated by the large quantities of rush orders we received from panel customers over the last two months, for which we also had to place rush orders to our 100 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 mega trend 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. Our confidence stems from our dominant design win pipeline in TDDI and local dimming Tcon, both relatively new and candidate technologies for automotive displays with accelerated volume, a 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 local dimming Tcon along with TDDI or LTDI 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 Nexchip for the automotive market. As Eric mentioned earlier, we just declared our annual cash dividend with a payout ratio of 40% of last year’s profit. 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 now only organizes 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 newly demand as well as increasing orders from customers preparing for the upcoming shopping festivals. Q2 TV and monitor IC sales are expected to increase single digit and double digit, respectively, quarter-over-quarter. In contrast, notebook IC sales are poised for a decline following strong restocking in the previous quarter. In the notebook market, proportioning trend of AI PC is operation, prompting demand for display upgrades to include touch-enabled fishers and/or adoption of OLED displays.

Himax offers comprehensive offerings in both LCD and OLED technologies encompassing DDIC, Tcon and touch related products. As we look ahead to 2025, we anticipated beginning of replacement cycles, we are well positioned to capitalize on this opportunity with numerous in-sales LDTI projects for mainstream LCD notebooks, and DDIC and touch controller for OLED notebooks, some of which poised to anti-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. Turning to the small and medium-sized display driver IC business. We anticipate second 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 remained solid, underscored by the rapidly expanding adoption as demonstrated by more than 450 secured 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. 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 devices 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 local dimming Tcon solutions. Moreover, we are actively expanding and bolstering our footprint in OLED with a comprehensive range of products covering TDIC, Tcon and on-cell 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 flexibility of OLED displays to cater to affordable or curve shapes along with the outstanding visual performance and low power consumption opens new horizons for automotive interior displays.

Notably, our meticulously engineered OLED on-cell 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 glove-wearing and wet finger operations. Our comprehensive solution in our commodity LCD and OLED displays address the growth 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 commodity 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 TDIC, Tcon and touch controllers. Additional products with new feature enhancements are slated to anti-mass production in the second half of 2024. Regarding smartphone OLED, the current slowdown in smartphone market demand has unfortunately necessitated adjustment to our initial time line. 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. First, for an update on our Tcon business. We anticipate a notable sequential increase of more than 40% in Tcon sales in Q2, prepared by escalating shipments for Tcon in large size displays and automotive.

Himax has been devoted to developing panel driver ICs and timing controller for decades. We stand as the industry leader in both monitor and automotive Tcons. Universally adopted by these panel makers across the board. In the monitor Tcon sector, Himax excels in the high-end market, especially in gaming, where intricate designs are required for high resolution, high refresh rate and low latency display performance. Crucial for streaming, immersive gaming and entertainment experiences. In the automotive Tcon domain, our leading position remains unchallenged, both — were over 100 design win projects powered by our cutting-edge local dimming technology along with our industry-leading proprietary algorithm. The incorporation of local dimming Tcon not only significantly enhances the display content ratio but also offers improved power efficiency particularly crucial for EV and large-sized displays.

Our industry-leading local dimming Tcon solutions support simple high frame rate and a wide range of resolutions from full HD to up to 8K. 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 second quarter, automotive Tcons are anticipated to grow more than 30% sequentially, representing more than 10% — around 3% rather of total sales. From a longer-term perspective, the growing traction of our local dimming Tcon for automotive is on track to mirror the success of our automotive DDCI over the last couple of years. Switching gears to the WiseEye ultra-low [indiscernible] 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, once the AI technology stands out for its expertise in all device timing and [indiscernible] solutions and unique ultra-low power consumption majorly nearly single-digit many was. This opens the door for battery-powered endpoint devices to incorporate AI sensing for intuitive and intelligent user interaction, something that would otherwise be impossible without such extremely low power consumption AI. For instance, in smart door locks, which are typically battery powered device, China’s leading high-end door lock maker DESMAN, polishing Himax’s ultra-low power WiseEye technology, created the world first smart door lock products that feature 24/7 century monitoring and real-time event recording. Our smart door lock solution DESMAN, both an exceptionally low power draw of just 2.2 milliwatts representing a normal and highly advantageous features with its minimal impact on battery life.

The pulp and AI inherent in WiseEye allows the door lock camera to capture snapshots periodically on a 24/7 basis and when detected human presence immediately started recording or concurrently working up the door lock much higher power consuming than processor. The result, it’s a comprehensive event recorded for seamless threat protection that better ensures security, require mitigated and potential breaches, all achieved with the battery power door lock. By working with ecosystem partners and customers, we are expanding WiseEye applications aggressively covering new areas, including, but not limited to smartphone, smart agriculture, automotive [indiscernible], MR or automatic meter region, health care and a wide range of other IoT applications.

To broaden our market reach and help shorten customers’ development cycles, we also offer seamless decisions integrated park and play WiseEye modules. These modules enable no-code/low-code AI development, while providing building context-aware, AI algorithms, which are reprogrammable for the customer. Within a few months of this launch, WiseEye 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 or [indiscernible] asset function among others. Moreover, for companies with their own AI expertise we provide hands-on open source AI frameworks, tool change and robust AI models to streamline development efforts and reduce cost and lead time for AI development or AI product introduction.

This year at the ISC West a leading U.S. trade show for the security industry. Himax unveiled WiseEye parent technology and ultra-low power contactless biometric authentication solution, powered by the advanced WiFi 2 AI processor, Wi-Fi [indiscernible] authenticate an individual’s identity in less than 100 milliseconds while consuming nearly milliwatts of power. In both exceptional accuracy, enhancing security by minimizing the risk of duplication or spoofing through the distinct [indiscernible] presence unique to every individual. The solution targets specially powered access control devices for a small group of authorized individuals. Having only launched recently, WiseEye [indiscernible] technology has already attracted interest for applications such as automotive, door lock, surveillance, laptop and more.

We are actively accelerated verification partnership projects in these areas and are enthusiastic about the potential for WiseEye [indiscernible] authentication, that marks a significant breakthrough in the industry. Next, for an update of our LCoS [indiscernible] displayed in March. At the upcoming display week 2024 in May in San Jose, California. Himax, were unveiled is groundbreaking ultra-illuminance new generation Color Sequential Front-Lit LCoS microdisplay, capable of achieving a brightness of up to 250,000 needs. This represents a notable 2.5-fold increase from his predecessor allows [indiscernible] week 2023 while maintaining low power consumption of just 300 milliwatts. Additionally, thanks to its compact form factor of just 0.5 cc in volume, when incorporating both illumination optics and the LCoS panel, stylish and everyday ready AR glasses are becoming a reality.

While volume commercialization of AR glasses targeting the general public may still take several years. We are proud that Himax’s new-generation Color Sequential Front-Lit LCoS 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. For non-driver IC business, we expect revenue to increase double digit sequentially in the second quarter. 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: [Operator Instructions]. Our first question comes from the line of Frank Wang with Athena Capital.

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Q&A Session

Frank Wang: My first question is on the auto business. Texas Instruments, NAT, UMC, TMMC or indicate some softness in all…

Jordan Wu: We can’t hear you, Frank.

Frank Wang: Okay. Can you hear me now?

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 unable to hear you. So please stand by. Frank, we have brought you online again. Please proceed and confirm that the team with Eric and Jordan and team can hear you.

Frank Wang: The first question is on the auto sector. Texas Instruments MXP, TMMC, MCO indicated some softness in the auto sector. What is your view? And why are these leading semiconductor companies seems to be more pessimistic on the auto sector, while you are expecting a decent quarter-over-quarter growth in the auto sector.

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.

Jordan Wu: Can you hear, Frank?

Frank Wang: I can hear you fine.

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

Jordan Wu: That is very rare.

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

Jordan Wu: Well, Mr. Operator can you relay the question of Frank to us because we can clearly hear you. And we are sure you can hear us. I’m assuming everybody can hear us and he appears that everybody or Frank, except for us. I don’t know why. So if you can talk 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.

Frank Wang: So let me set up on the time. So the first question is regarding the auto sector. Himax is more optimistic, expecting a very good growth for the second quarter, but other companies — semiconductor companies are expecting some softness. So I want the view — how is that different?

Operator: So what is the view from Himax in terms of the auto sector, Frank asked some pieces about there was some softness. So I’m doing my best to relay information.

Jordan Wu: Okay. I think I got the answer to the question. Yes, 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 are guiding for a pretty strong outlook. 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 semiconductor companies, both foundries and IDMs across U.S., Europe and Japan where they are giving rather cautionary outlook on the auto market demand. But if you retell for about their comments, you’ll be able to see that they are not seeing the auto industry’s overall shipment is going to decline.

What they are saying really is that their stocks are perhaps too high and they are going through destocking process. And that is the reason for the cautionary outlook. And if you look at the industry forecast, 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 perspective for higher growth 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 another rush orders recently.

Actually I’m talking about very sizable quantities of rush orders for our panel customers. And the reason why they are giving rush orders clearly is because they have run out of stock and their existing stock cannot meet the customer demand. And with the rushed 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 existing 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. And also, I think we continue to highlight the fact that auto industry is going through this mega trend to upgrade their panels in terms of quantity, feature sortification, sites, et cetera, for vehicles panels. And that is very good news for panel makers targeting our 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 be market leader. I think we really taking the next drive and enjoy this mega trend. So I hope that explains the short-term difference in our outlook as opposed to more semiconductor makers.

Back to you, operator.

Frank Wang: Thank you, operator. Can I just ask you to relay one more question, please. Himax is a leader in LCoS. Can I talk about the chance for see through AR glasses to really happen.

Operator: So I’m going to do my best relay. They’re asking about Himax as a leader about B2BR AR classes or glasses and want you guys to speak to that scenario.

Jordan Wu: Okay. Yes, I suppose, Frank, asking about AR glasses and particularly our LCoS solution tapping that market. And in my — towards the end of my prepared remarks, we highlighted the major breakthrough in technology and our excitement about the breakthrough. And I suppose we’re not hearing the details of Frank’s question. I suppose many people may wonder, AR as a general of our products has not seen a great success so far. And LCoS is just a supporting technology for AR glasses industry. So what is our comment is there already a future. And the company over the many years seems to have been committed to the development of LCoS industry or LCoS technology for AR glasses. So I guess many people may have questions about whether this strategy actually makes sense.