Himax Technologies, Inc.
Q4 2020 Earnings Call Transcript

Published: 4 Feb 2021

[Operator:]

Hello, ladies and gentlemen. Welcome to the Himax Technologies Incorporated Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mark Schwalenberg from MZ Group. Please go ahead.

[Mark Schwalenberg:]

Welcome everyone to Himax's fourth quarter 2020 earnings call. Joining us from the company today are Mr. Jordan Wu, President and Chief Executive Officer; Ms. Jessica Pan, Chief Financial Officer; and Mr. Eric Li, Chief IR/PR Officer.

[Eric Li:]

Thank you, Mark. Thank you and thank you, everybody, for joining us. My name is Eric Li, and I am the Chief IR/PR Officer. Joining me are Jordan Wu, our CEO; and Jessica Pan, our CFO. On today's call, I will first review the Himax consolidated financial performance for the fourth quarter and full year 2020, followed by the first quarter 2021 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 both IFRS and non-IFRS basis.

[Jordan Wu:]

Thank you, Eric. As we highlighted before on previous earnings call, our capacity shortage appears to be a long-term phenomenon. As we entered the year 2021, the shortage has become even more severe and has extended to backend facilities that include assembly and testing. As a leading industry player with superior resources and engineering capability to diversify and enlarge the vendor pool, along with long-term business relationships with both foundry and backend suppliers, we engaged early and have successfully in securing more capacity for 2021 as compared to the level of Q4 2020 when we reached the recent peak quarterly shipment. In addition, we are also optimizing capacity allocation among our diversified foundry suppliers by making the right products at the right fabs with an aim to fully utilize the capacity accessible to us. Among the product areas for which we have secured a meaningful capacity increase is automotive, where the global shortage for semiconductor supply is overwhelming. We expect the total capacity available to us to increase quarter-by-quarter in 2021 and will continue our efforts in securing further capacity. As far as we can see, the overall semiconductor industry supply will not have any significant increase any time soon while strong demand is likely to persist longer than expected. In such an environment, Himax is a preferred supplier to work with for our sizable scale, diversified vendor pool and extensive product offerings. Our strength in a number of high margin businesses will also help our ongoing margin improvement efforts. For example, with strong demand for tablet expected to remain, are being the preferred vendor for major Android names will ensure the high margin contribution continues. Likewise, our leading position in automotive display represents a solid support for our margins as we anticipate our robust sales growth in this high margin business for the upcoming years. Moreover, gross margin improvement can also come from new non-driver products, notably our high-end timing controller, WiseEye ultralow power AI, and 3D sensing. Again, gross margin expansion will always be one of our major business goals for this year and beyond. Now let us start with an update on the large panel driver IC business. For the first quarter, we expect large display driver IC revenue to increase by low teens sequentially. For notebook IC segment, we anticipate another impressive quarter of high growth in Q1, a continuation from previous quarters, increasing substantially from the previous quarter due to the extension of strong demand derived from persisting remote working and e-learning. As for monitor IC sales, on the other hand, we expect a sequential decline in the first quarter due to the capacity shortage as we are unable to meet all the demand. As TV sell-through remains strong and TV panel shortage increases, our TV segment looks set to end the first quarter with a better than seasonal momentum of around 10% sequential growth. Recently, we saw customers proceeding with aggressive promotion in high-resolution models that require high-end drivers and Tcons, in anticipation of sustained strong demand for home entertainment during the pandemic. However, our display driver IC and Tcon shipments are still capped by supply shortage in foundry and packaging, despite firm demand from customers. Now, let's turn to the small- and medium-sized display driver IC business. In the first quarter, we see continuous strong TDDI sales for both smartphone and tablet, with demand still surpassing supply. Foundry capacity remains a major issue that adversely impacts our shipping capability. With smartphone and tablet sharing the same foundry pool, we strategically allocate capacity in favor of tablet as we are the dominant supplier in the Android tablet market. For Q1 tablet sales, we expect another high-single-digit sequential growth fueled by consumer demand for home working and remote learning needs as well as higher TDDI penetration. We expect Q1 smartphone sales to slightly increase by mid-single-digit, in which smartphone TDDI revenue is projected to have consecutive mid-teens growth and smartphone TDDI would continue its declining trend. Tablet was one of our top sales contributors in 2020 thanks largely to the fast-rising TDDI penetration for Android names and the strong demand driven by the stay-at-home economy. To further broaden its product offering and solidify our market position, our tablet TDDI has moved toward higher frame rate, higher resolution and larger screen sized solutions. We have also enhanced touch accuracy through our leading active stylus design for better quality handwriting and drawing. As stated before, Himax is highly committed to AMOLED technology. Our development started from smartphone, and has extended to wearable, tablet and automotive. We have some encouraging progresses with leading Chinese panel makers and will report in due course. We believe AMOLED driver IC was soon to become one of the major growth drivers for our small and medium panel driver IC business in 2021. Turning to the automotive sector. The global shortage of semiconductor components has brought great challenges to the world's automotive industry. As most of the world's lockdown periods end, tightening foundry capacity, combined with sudden surge in orders due to pent-up demand, have left the industry facing an even more severe shortage compared to other sectors. Customers now rely on just-in-time delivery of IC components to preserve production and some reportedly already suspended production for days or even weeks. In consideration of unceasing sales demand amidst tight capacity shortage, we worked strategically with panel makers, tier-1s and end-customers, across different continents, and have secured an enlarged volume of foundry capacity while managing swift production adjustments to meet customers' production schedules. By offering supportive logistics, we hope to further our relationships with customers, who can in return help accelerate our new technology into their new models going forward. Limited by large-scale supply shortages, our automotive ICs segment is expected to deliver a mid-teens sequential increase in the first quarter. With electric vehicles quickly emerging as the next-big-thing, we see the car market embracing new display technologies and shifting towards larger, more sophisticated and higher performing displays like never before. Already the market leader in automotive display driver business, we foresee further market share gains in the coming years in this fast-growing market. We continue to sustain our competitive position with a comprehensive product offering for advanced new features such as TDDI for in-cell touch, local dimming, cascade-topology connection, point-to-point high-speed interface bridging functions, and LTDI for larger in-cell display. As a reminder, we launched the world's first TDDI design for automotive displays technology, which first started shipping in 2019 with meaningful volume anticipated starting 2021. As EV grows in popularity and autonomous driving develops, our technological prowess continues to separate us from peers for the next generation display for automotive. For the first quarter, revenue for the small- and medium-sized driver IC business is expected to increase by around high-single-digit, with demand continuing to surpass supply. Capacity shortage, again, remains a major factor as our production has been unable to respond quickly enough to the unexpected rapid growth. Now, let me share some of the progress we make on the non-driver IC businesses in the last quarter. First on timing controller. The aggressive promotion by major TV brands, that I mentioned earlier, will benefit our high-end Tcon business, as our 8K TV timing controllers, as well as display drivers, have been widely adopted by multiple leading end-customers. Our Tcon technology not only provides higher resolution, higher frame rate and better image quality, it can also enable lower power in products where power consumption is critical. Already over 5% of our total sales, timing controller products enjoy better margin and ASP than those of display drivers. And we expect this segment to be an extensive long-term growth area. Our Tcon revenue in the first quarter, while limited by capacity shortage in IC packaging, is expected to increase by high teens sequentially. Next is a quick update on WLO. The fourth quarter WLO revenue decline, that Eric reported earlier, was a result of lower shipments to an anchor customer. However, in the first quarter of 2021, sales are expected to increase substantially thanks to resumed shipments to fulfill the anchor customer's higher demand. The sequential shipment increase and the higher capacity utilization in our WLO factory will positively contribute to our Q1 gross margin. Meanwhile, with our leading nanoimprinting technologies and diffraction optics design capability, we continue to engage and collaborate with key customers and partners for their next generation products, with focuses on ToF 3D sensing, AR/VR gadgets, biomedical devices and others. Notably, we are seeing more ToF camera design activities among Android smartphone makers for 3D sensing and are making good progress by offering our leading ToF optical components, including diffractive DOEs, micro-lens arrays and diffusers to meet diversified demand from a wide variety of customers/partners, including VCSEL suppliers, ToF sensor vendors, ToF module makers and smartphone OEMs. Next, let me give you an update on 3D sensing for non-smartphone segment. As mentioned before, we provide customers who wish to design their own structured light-based 3D sensing solution with our proprietary 3D decoder IC. Our 3D decoder can accelerate local image processing for face recognition and offer best-in-class security authentication. It was already certified by the leading Chinese electronic payment standard with requirements of accurate data decoding, timely operation and strict privacy. We have started volume shipments in the last quarter with decent order pipeline throughout this year and further new design-in sockets on the way. On the other hand, for our structured light 3D sensing total solution, small volume shipments are expected for business access control and biomedical inspection devices in the first quarter. More design-ins and engagements are progressing and we continue to receive numerous inquiries with new ideas of applications that they occurred to us. Now, switching gears to the WiseEye smart sensing solution. As I mentioned several times, on previous earnings calls, in order for our WiseEye technology to maximize market visibility and satisfy demand for emerging applications, 2 business models are adopted, namely

[Operator:]

And are we ready to take questions at this time?

[Mark Schwalenberg:]

Yes.

[Operator:]

Your first question comes from the line of Jerry Su with Credit Suisse.

[Jerry Su:]

Hi, Jordan and Eric. Thank you for taking my question and congratulations on the good results. I think the first question is surrounding the industry-wide capacity constraint. Can you give us a little bit more color about what is your fulfillment rate right now? And then, I think for - in the next couple of quarters, do you think that the supply constraint can be eased for industry or for Himax? And how should we think about the pricing environment for the upcoming quarters? Thank you.

[Jordan Wu:]

Thank you, Jerry. Honestly, I rather not give specifics on our so-called fulfill rate, because I guess our customers will be watching and trying to compare their fulfilling rate against our average. So that is kind of a sensitive topic. But I can tell you, it's not very high. Although I have to say, sometimes you wonder if whether 100% of those demands are real demands, whether they are customers inflating their demands because of the shortage, right? And so, I mean, obviously, we try to screen them out. We try to support those demands with solid foundation. But we certainly have some doubts about some of the demands. As far as whether the situation will ease during the year, I think our view is that the industry-wide capacity shortage is going to last at least till the end of this year. Obviously, I'm not an economist, and I cannot really predict how the economy is going to evolve. During this year, with the pandemic and also the vaccination. So I'm putting that, I'm setting that aside, and I'm assuming we're not going to see a very strong rebound during this year. And even with that assumption, I think the capacity constraint is likely to persist for the simple reason that mature technology simply we are not seeing any meaningful increase in capacity, while there are just a ton of new applications queuing up to consume more of those capacities. And we are - I mean, our display driver IC, which always requires high output voltage, and i.e., we have to use mature technology. So, we are certainly one of the major users of those capacity and from our driver ICs' point of view, certainly we are not seeing any sign of the capacity constraint receded anytime soon, certainly not within this year. Having said that though, I think I have kind of touched base briefly on my prepared remarks. I think we are - I can say we are happy, but I think we are well prepared for the capacity of this year. And for that, I'm comparing our expected output, meaning capacity available to us, over to us, right, by our - the various foundry partners. So I'm comparing those numbers on quarterly basis to the number of last quarter, meaning Q4 of last year, when we reached our peak output, as we all know, right? So I'm comparing our - this year's quarterly output, expecting quarterly output to the highest output of last year. And even with the comparison, I think we expect to see increases from Q4 last year and we expect to have quarter-by-quarter increase during this year. And very notably, I want to emphasize our stronghold, in particular, is in automotive display driver IC, where we believe we are the world market leader. We have the number one market share and the pressure is the highest, obviously as a result. But also that is an area we have secured the most meaningful capacity increase compared to last year. So that's very good news for us, for our customers, including low-end customers, who very often has established direct dialogues with us, to get a better feel about the capacity increase. And not just that, we believe we have a good roadmap for next year as well, meaning the capacity you have continue to increase from that of this year. So I think that is very good news for us. That kind of ensures our continuous revenue growth for this year. And I can say pretty much the same for all other major product areas. Only that I can say, automotive display IC for Himax in particular, we have secured the most meaningful increase on capacity, and probably with the highest degree of certainty as well. So that's something I wish to highlight. So I'm sorry, I didn't exactly answer your question directly. But I hope I do try to give a good overall situation color of the capacity situation for Himax right now.

[Jerry Su:]

Okay, that's great. Thank you. And then, in terms of pricing, how should we think about the pricing going forward? And then, I think you guided gross margin to improve to 37%, 38%, which is about 6, 7 percentage point increase. How much of that is coming from ASP increase?

[Jordan Wu:]

It's hard - well, firstly, it's confidential. And secondly, it's really hard to compare, because you have to knock down the cost increase as well. I mean, bear in mind cost overall increase rather significantly, as you guys all know. So, without tracing directly, without giving you directly this number, I can share with you, how - why the margin improvement and how the margin outlook is going to be like going forward at least this year, right? So, firstly, in capacity constraint and that certainly means better pricing position for us, right? Meaning, we can very often transfer the cost increase to customers and a bit more. And, we talk about better product mix as well. And I want to probably elaborate a little bit on that, what do we mean by better product mix. It actually comes from several perspectives. Firstly, obviously, when you're facing shortage, you have a tendency to allocate more of your output to higher margin products to make more money, right, that's very obvious. So that's the first most obvious point. And secondly, for similar reason, we also have a tendency, our customers as well, when our total capacity is capped, we want to produce more higher-end products. And that applies to TV, monitor, notebook, smartphone, tablet, automotive, everything, right? And I think, I mean, Himax been the industry leader and our customer recognize that. So when our capacity is capped, they want us to focus more on those higher-end products, while they're probably leaving those low-end products to some of our lesser competitors. So that typically means better profit and better ASP for us. And thirdly, a few sectors which is already happening, which happens to enjoy better margin historically. They are growing our other businesses. And that on a weighted average - certainly, on weighted average basis, certainly, enhance our gross margin. So I'm talking about automotive, driver IC for one, that's very obvious, tablet TDDI and timing controller, higher-end timing controller. And automotive, I think there is - if you ask me across all different industries we are in, I will say, the sector with the highest confidence level for growth this year, I would say, it'll be the automotive, which is said to enjoy a good rebound from the very low of last year. So that is going to outgrow our other businesses, very likely. And it happens to enjoy the best margin from our products. Tablet TDDI as well. Now, tablet, for the tablet we enjoy growth this year is a big question mark, the pandemic and so on, right? I don't know. But I think, for us, it's about TDDI penetration to tablet market, right? So last year, our estimate is TDDI penetration is about 20% last year. And this year it's said to grow to about 30%. So with the same number of total units for the market you're talking about 50% growth for TDDI and that benefits us tremendously, because we are the dominant TDDI provider for tablets in Android market, especially more of those TDDI tablets will start to offer active stylus, which is to represent even more margin for us, right? Now higher-end timing controller, I'm talking about automotive, notebook, TV, certainly - and, gaming monitor and so on, right. Again, Tcon is suffering big time from IC packaging shortage. So, for that, again, both customers and us are better off allocating our limited resources to higher-end products. Right, so I think for those reasons, I feel pretty good about our gross margin prospect for this year. Longer term, I do warn you guys to focus on our - certain of our non-driver-IC-products, notably WiseEye, I think is really promising. I'm personally extremely excited about the progress we are making. We have our mass-production-ready sample out only in last September. And look at the engagement, the degree of engagement, the activities we already have. I have talked a lot about that in my prepared remarks. So I don't want to repeat that. But it's very exciting, so again, the important thing is we feel the mass production will commence towards the end of this year. And after that, I believe is a very long tail, low high-energy barrier, high margin high ASP products, where we are going to play a very unique role in terms of providing such AI for devices with ultralow power. So I think that is something I feel very good about enhancing our long-term gross margin overall. So I hope that kind of addresses your questions pretty thoroughly.

[Jerry Su:]

Yes. Okay. Thank you. Thank you, Jordan.

[Jordan Wu:]

Thank you, Jerry.

[Operator:]

Your next question comes from the line of Tristan Gerra with Baird.

[Tristan Gerra:]

Hi, good evening. Just following up on the prior questions about gross margin, clearly helped by mix and the supply constraint, how should we look at the potential timing of peak? Some companies have talked about supply coming back in the second half of this calendar year, which presumably would alleviate a little bit the constraint. There's also the potential at some point for automotive to slow down, given that there is probably some amount of double ordering, given that the tightness currently in the market. So when I'm trying to get a sense is, when do you think even as supply continues to be constrained? It actually gets less constrained than it is now. And when do you think supply will eventually catch up in automotive, meaning that you're starting to see a bit of a normalization of supply demand? Is there a way to assess whether that's something that may happen in the second half of this year? Or what timing do you have in mind potentially?

[Jordan Wu:]

I think, my visibility is different for different product segments. And again, I just want to carry on with my previous answer to Jerry's question, the highest degree of confidence for me, will be automotive sector, in which I think there's no sign of receding, and in fact, customers back by the end customers, or panel customers back by tier-1s, which are picked by end customers. They are prepared to place orders from orders, non-cancelable orders way beyond the year end. And now, rather than worry about double ordering, or demand disappearing. I mean, our worry is more on how do we make our shipments in order for the production line not to be suspended. It's pretty serious, honestly, pretty serious. We are talking about - because we don't want single driver IC that cannot ship a cup, because they will have no critical display, right. So for that, I think the visibility is very, very low. And we actually are - we are going through different schemes with different customers and our foundry partners, many of which are with contractual arrangements to secure that throughout the ecosystem. We know what we are doing in our customers, what they're doing and we can just focus on making more outputs and securing more capacities and making sure their production is not suspended. So for automotive, I honestly, I don't worry a bit, but it's certainly harder to say, for example, the IT demand, people are talking about the stay-at-home economy and all that right. So I don't have a crystal ball, I don't know, how that demand is going to evolve with the vaccination and the COVID-19 situation and all that. So what we do is, again, we follow the customer's production orders extremely closely. And one thing, our particular interest is that throughout different sectors, we are now having a much closer business and certainly shipment related discussions directly with end customer. Typically our direct customers are panel makers, right, who in different industry various but they are not the end customers. But now, there is notebook or TV or automotive or cell phone or otherwise, we have very direct frequent dialogues with leading end customers in their respective sector, and for that our visibility certainly gets improved, right. And sometimes you'll see the end customer stepping in to secure capacity and, self-education decisions. For example, certain of our ICs should be shipped to panel maker A rather than panel maker B, and so on, right. So we start - I think, again, we don't have a crystal ball, we just have to work very hard and make sure we are as close as possible to the end customers. And through end customers and through our direct customers, we will get to have a visibility about the backlog, the inventory level, the production status, even the demand status and all that, right. So we just have to watch very, very closely. But as far as we can tell right now, at this display driver IC is concerned. They're 3D. We've not seen any signs of the constraint receded. Because, again, I mean the demand is very strong across different sectors, but there's simply no meaningful capacity increase in the industry.

[Tristan Gerra:]

Okay. That's great color. Thanks for that. And then from a follow-up, a few years ago, you obviously had traction with some early but leading AR device and providers with very high content. You also talked about, and that was maybe up to a year ago about opportunities in holographic displays, given the potential for Apple to launch AR devices by next year, which presumably would trigger, a lot of companies to basically have similar devices over time. How do you feel your position? What type of initial engagement you think you have in both AR and holographic displays? And what's the potential timing and that's leveraging on both technology and also your LCOS technology?

[Jordan Wu:]

Well, thank you for the question, Tristan. A few years back, we talk about that a lot, because there were real major customers and real products. And unfortunately, the launch of those products and the business results is unfolding very well, as we all know, right. And certainly, we continue to play a critical role in terms of providing the micro-display and related optics for AR/VR gadgets, in particular AR, which requires these true feature rather than VR. With VR, your eyesight is blocked by the image, but we say ICs through. So when you see through our technology is needed. So I can say with a good degree of confidence that if this happened in the industry does pick up again - pick up momentum, again, we are going to play a role. But I don't want to be overly optimistic about this, because I think to be honest, I still see lots of both technical and business barriers ahead of us, for the AR goggles to become a real affordable and a real form product for people, in general to want to own. And certainly people are talking about Apple and I don't want to comment our customers whenever the other says in Apple. And so we'll see, but, I mean, certainly you are right, if Apple does launch something successfully, and then other people will follow certainly. But again, I can't comment in the specifics on any specific customers. But I think I want to give a warning that we are not too optimistic about it being the insider in the marketplace. Again, I've seen steel barriers both technically and technically been how to lower the price substantially. I mean, the lessons of the previous products are, they're just way too expensive, right. It's a way beyond anybody's - any usual consumer's affordability. And they are switching then that into industrial use, which means very low volume price. So for a company a large scale, it is not something, it cannot be something very meaningful, right. So the challenge is, how do you create the kind of image the size, the color, the power consumption, the processing power and so on, right, the kind of image that involves not just a metadata, but also a lot about optics. How do you create that kind of image that average consumer will find attractive, and yet you have to 3D substantially reduce the price? And if you can achieve that, then the next barrier is how do you create enough content, attractive content. So I think - 2 years, I think is overly optimistic, to be honest. But again, we remain to be a key player, people do come to us feel, we still engaging with customers for our projects. But we are just - we don't want to overspend on those - over investment and overspend on that sector until we feel we have a good relationship already and we just have to hand it down and wait for it to happen. And a lot of things is really beyond our control, we are just the display, panel display, and optics provider. We can't really cover the whole application and total costs and all that kind of issues.

[Tristan Gerra:]

Great. Well, thanks for the color. Very much appreciate it.

[Jordan Wu:]

Thank you, Tristan.

[Operator:]

Your next question comes from the line of Donnie Teng with Nomura Securities.

[Donnie Teng:]

Hello, good evening, CEO and Eric. Congratulations on the results. I think I have 2 quick questions. So the first one is that I think people are talking about how tight the capacity will be, and when will it be likely to be used. But in the reality, for example, if we break it down to like 8-inch or 12-inch capacity by different products, which one you think is most likely to be used in the future? For example, it's considering the node migration, as well as the capacity expansion return, what kind of products you think that will be most likely to be used in the future and which one will be the most difficult to be used? So this is the first question.

[Jordan Wu:]

Okay, Donnie. It's not an easy question. It's a good question. But it's not easy to answer, because I mean, other than automotive which will have makes, and I guess, for the entire industry as well, I'm talking about display driver IC, right, and automotive, which is still strictly exclusively on age for those are either totally 12-inch or combination of 8 plus 12 inches. Now, with automotive, we are moving into TDDI, in which we are the industry lead pioneer leader at the moment, good momentum expected for the next few years. TDDI automotive will be 12-inch as well. So now, so if we - and then 8-inch for automotive, I mentioned earlier. 8-inch is surely tight, but because of our earlier engagement earlier, both engineering and business preparations, we have been able to secure good capacity increase, although is 8-inch, which is super tight. So we all understand. And for 12-inch, if you talk about a 12-inch for Himax, I guess for industry as well. For smartphone and tablet TDDI, it's all 12-inch, because you required a lot of logic processes, right. And in certain cases memory as well. So you do need the 12-inch more advanced nodes. For large panel, though, it is a combination of 8-inch and 12 inch, and large panel has to move to 12-inch primarily, because of capacity constraint of 8-inch, right, and that has started to take place a few years back. So it's not like industry is starting to do this because of this capacity constraints now. A few years ago, the whole industry, Himax certainly is one of the pioneers has been moving very aggressively into 12-inch as a way to alleviate the capacity issue of 8-inch for large display drivers. So, then when we move to 12-inch, we typically represent the most mature process of 12-inch for large panel, right, for example. So we are talking about 110-nanometer, as a mainstream, as an example, for smartphone and tablet TDDI is now moving from 80-nanometer to 55 to 40 nanometers. Certainly there are technology reasons as well, but it's mainly to enlarge capacity. Now, as we move into different new nodes, we are competing against a new set of other applications, right. So for example, AMOLED for smartphone is going to be the next big thing for our display driver IC, AMOLED is now the mainstream and the mass production is 40-nanometer. But people has included are moving to 28. So with 28, where we're competing with a different set of other applications, right. So I think is kind of difficult to answer in a sense that we - if 28 is extremely tight, which is not the case, I've just seen, as an example, if 28 is extremely tight. They were probably then move on for the spectrum for be a bit more or vice versa, right. If 40 is super tight, while 28 appears to have more accessible capacity, then people move more aggressively into 28. Driver IC is a big consuming product - capacity consuming product for semiconductors. So our move does make a difference in terms of the tightness level of different technology knows. But are both, it's also reactionary, because when somebody is very tight, where they tend to move as well, right. So I think it's - but as far as I can see, I mean, even 28 right now is very, very tight. So you tell me which node is not tight, right? And people are talking about automotive, and see you for example, 40 or 50 nanometer logic process, they are so occupied, so occupied by automotive right now. And, I don't blame - I can't really blame them, but why don't you people out, they claim they are given more priority to those applications. So, 80 to 55, 40 and then 28, the 3 little sign of loosening in capacity situation, I mean, in my mind, But certainly, I mean, my comment, my response may change next quarter, I just have to watch the industry situation very closely. But the benefit of our preparation is that we tend to have products crossing different boundaries, even different geometries, different technology knows, just to hedge our bets, right. So we will be able to move with certain degree of visibility.

[Donnie Teng:]

So, just a quick follow-up, before I asked the second question. Are we able to quantify how much sales that we have right now is from 8-inch and how much is from 12-inch?

[Jordan Wu:]

I don't have the number in front of me, but certainly our 12-inch is much, much larger than 8-inch right now. I mean, again, other than automotive, which is probably still right now about 15% or less of our total revenue, although is outgrowing - is probably outgrowing the rest. So, that is totally 8-inch, and southern portion of large panel. And large panel represents - large panel in total 30% plus of our total sales, right. And a portion of that is 12-inch. And some other portion is 8-inch. So 8-inch is now relatively small for us. And, small panel they are almost exclusively 12-inch other than automotive, right. I'm talking about tablet and smartphone. And that is combined more than 50% of our sales already and then you have timing controller and all others. They are all 12-inch as well.

[Donnie Teng:]

Okay. Got it. And second question is on automotive display driver business. As you mentioned, about that, you have secured quite a meaningful capacity already. I think from - at this time point, I would say it's very impressive, because last year large order automotive then conducted companies that pushed all the capacity in the second half last year. So it looks like making a decision at this time point. So could you elaborate more on what kind of trends you are seeing on automotive display driver IC? As you just mentioned the value is migrating to TDDI or if you can give us more color on how structural the growth will be or like how much volume you will grow in every call in terms of the bigger screen size or even a combination of different kind of display inside of the car? Thank you.

[Jordan Wu:]

Very good question. Firstly, indeed, in the first half of last year, our customers are actually cutting back their orders and forecast. And I remember, we are all showing, and we are going around telling everybody, our tier 1, including even some end-customers, across Europe and U.S. that don't overdo that, because, guess what, you're going to be in such shortage that you're going to kill to get capacity, right. So - and, in fact, during Q1, Q2 last year, we actually are, although our customers are cutting back their forecasts, we didn't really slow down in our inventory preparedness, because it was very obvious to us that it is going to run into bad capacity shortage. And it was also during that time that we started to engage our key foundry supplier for long-term foundry arrangement. And that involves both new process developments, and also porting of certain of our products from fab A to fab B to increase our visibility, when the capacity is tied in individual fabs. And certainly also we enter into contractual arrangement to secure our capacity as well. So, I think we are - thankfully, we make those moves, and now we can go around telling our, even end-customers that we are pretty well prepared. Although we are still suffering from shortage, but I think our customers are very pleased to hear that we can actually enlarge our capacity quarter by quarter in a rather meaningful way all the way to next year. So, I think that is very important at this stage for us. And having said that though, our 8-inch capacity is very tight, and it is going to remain very tight. And I don't have the number exactly as far as the display driver IC content consumption per vehicle, how that trend is going to unfold. But I can share with you - now is common industry understanding that 8-inch is obviously tight. So, although we can secure more, and also automotive unlike large panel or smartphone or tablet, which are more feasible in terms of introducing new capacities, when it is needed. For automotive it is notoriously hard as we all understand. So rather than fighting to get the traditional discrete driver IC, moving into 12-inch, and having to deal with the barrier of qualification, and so on, right, it's almost not worth it. So, we are encouraging our customers to speed up their TDDI adoption. And guess what, TDDI is 12-inch. And also, the kind of capacity pool we are targeting for TDDI, again we have entered into a sort of a certain contractual arrangement with our foundry partners. The 12-inch TDDI, our primary, for example, 80 to 55, which are basically occupied by smartphone and tablet, but they are all on track to migrate into 40 and 28 as we all know, right. So - and, certainly, our total demand for automotive for TDDI would not - in terms of total amount is nothing compared to the demand for smartphone or tablet, right. So, I think, we will be pretty safe there in terms of 12-inch TDDI for automotive. So we are pretty well prepared for capacity over there as well. And so, that is the big trend. I think a lot of customers and customers included agree with us. So, I'm seeing the whole industry be mobilized to speed up the adoption and qualification for TDDI automotive. That is one thing. And second thing is the displays inside your cars are larger in size. With EV becoming more and more popular, the passenger space will be no more roomy, right? And when it's more roomy, you do need a larger screen for infotainments. And, when it's so - such large screen, typically you need your screen to be of the capability of freeform, meaning is not a stupid solid piece of flat glass, right. So when it's freeform, then in-cell becomes a necessity in order to achieve a reasonable production year rate for displays. And therefore, we are actually - again, we are the industry pioneer in terms of working with our panel makers, partners, selected partners, in introducing, hopefully very soon, the world's first large display - very large display TDDI for automotive. And I think it's going to be a very important trend, because again, whether the - the display needs to be larger, because your passenger room is larger. And when display is larger, then it needs to have freeform. And when freeform is required, then you need to have - you need to have in-cell display. And for in-cell display you need TDDI. But that requires a very special design as opposed to the ordinary small size display. So, we are leading the industry in terms of developing that kind of TDDI. So, we are - again, we are very happy with the progress. And again, because of all the reasons I mentioned, I think in all likelihood, this penetration of such touch screen display into automotives will also get speed up. So, overall, automotive, I think it's the most exciting business for us. We have industry-leader. We are leading in technology. And we are seeing the high growth potential. And we are now very deeply engaged with tier 1 and end-customers. All these are very good signs for us long term. So, thank you. Thank you, Donnie, for the questions.

[Donnie Teng:]

Yeah, thank you so - yeah, thank you so much, Jordan. Congratulations again.

[Jordan Wu:]

Thank you.

[Operator:]

There are no further questions in queue. I will now hand the conference back over to Mr. Jordan Wu for closing remarks.

[Jordan Wu:]

As a final note, Eric Li, our Chief IR/PR Officer, who have maintained investor and marketing activities, and continue to attend investor conferences. So we will announce the details as they come about. Thank you and have a nice day.

[Operator:]

Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.