Hello, and welcome to the Melexis full year 2020 results. My name is Judy, and I'll be the coordinator for today's event. Please note that the call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you'll be connected to an operator. I will now hand you over to your host, Françoise Chombar, CEO, to begin today's conference. Thank you. Thank you, operator. Dear audience, I sincerely hope that you and your close ones are all healthy and well. Thank you for joining the Melexis fourth quarter and full year 2020 earnings call. Next to new hopes for the vaccine, the new year is bringing new opportunities, and together with Karen Van Griensven, our CFO, we'll be glad to talk to you about both the past and the future and answer any question you might have. During the pandemic, the Melexis values were and are our best vaccine, and that shows in our 2020 results. Thanks to the proactive supply chain and inventory management that Melexis adopted and that allowed us to already sequentially grow 21% in sales for the third quarter, we added another 21% sequential growth in the fourth quarter, despite a tiny negative euro/dollar exchange rate impact. Q4 came out at EUR 147.4 million, the best quarter ever in the Melexis history. This made us conclude the rollercoaster year with a 4% year-over-year sales growth. Considering worldwide car production contracted by an estimated 15%, this is no small accomplishment. Based on 2020 data, we can now state that on average, every new car worldwide carries 13 Melexis chips on board from 11 the year before. Another record, showing that Melexis is well on the way on its road from 10- 20. Outperforming product lines in 2020 were temperature, pressure, and current sensors and smart drivers for fans and pumps. There was also significant growth for our magnetic latches and switches and for embedded lighting drivers. Already at our previous earnings call, we estimated customer inventories to be at low levels. Today, it looks like everyone in the industry is meanwhile delivering hand to mouth. There is heavy restocking going on, and the bullwhip effect in supply chains is hitting the industry more vehemently than ever before. The root of the matter is that the downstream customer base waited for too long to reorder, and most didn't sufficiently take into account that it takes a physical cycle time of months to reignite a semiconductor supply chain. We believe that there's overheated hoarding in our markets today, which we expect to continue into the second quarter . While remaining cautious about the evolution of market demand in the second half of the year, the Melexis outlook for a 15%-20% sales growth in 2021 is a combination of three favorable factors. Automotive end demand has returned, particularly in China, where car sales has rebounded since June. Customers worldwide are now replenishing their inventories at an astonishing rate. Two is content growth. Melexis and its customers won several new programs that are now ramping up, some also at an unexpected speed. Cases in point are embedded lighting and many new applications for electric vehicles and hybrids. Last but not least, and as mentioned already at several occasions last year, the adjacent portion of our sales grew more than 50% versus 2019, in line with our strategic intent. Also in 2021, the creativity and engagement of our people will allow us to thrive, and I want to thank all Melexians for showing the high level of customer support they're demonstrating every day. In these on/off pandemic times, our business creation teams have been remarkably prolific too. 2020 marked another record, namely in total product launches. During the fourth quarter alone, we launched no less than eight new products all of which are specifically conceived for adjacent markets, such as two/three wheelers, home applications, and Industry 4.0. Newly launched automotive products include current sensors, a smart tire sensor, and a novel motor driver for mechatronic applications, all of which serve the future car, carbon free and intelligent. Before I hand the stage to Karen, please allow me to point out another announcement we made this morning, right after the publication of our full year results, and that concerns the change in the board and management. I'm thrilled to announce that Marc Biron will take over my role as CEO as from August 1st. I will take over the chair from Roland Duchâtelet on the same day. Roland will remain a member of the board. Marc will also be joining our board, subject to shareholders' approval in May. These changes in no way mean a change of strategy. On the contrary, Melexis is in the starting blocks for the new decade, and Marc and I are looking forward to contributing to the best imaginable future with our technologies, and together with our people and our customers. It's with pleasure that I now pass on to you, Karen, for more color on the financials. Thank you, Françoise. Good morning, everybody. As mentioned already, Melexis sales came out at EUR 507.5 million for the full year 2020, an increase of 4%, and a small euro U.S. dollar exchange rate effect that was negative of around 1%. The gross result was EUR 198 million, or 39% of sales, an increase of 1% compared to 2019. R&D expenses were 15.3% of sales. G&A came out at 6.1% of sales, and selling was at 2.7% of sales. The operating result was EUR 75.5 million, or 14.9% of sales, an increase of 7% compared to EUR 70.6 million in 2019. The net result was EUR 69.3 million, or EUR 1.72 per share, an increase of 15% compared to EUR 60.3 million or EUR 1.49 per share in 2019. The fourth quarter came out at EUR 147.4 million, the highest quarter ever for Melexis. An increase of 16% compared to the same quarter of the previous year, and an increase of 21% compared to the previous quarter. Also here, we have a EUR U.S. dollar exchange rate effect that was negative for an amount of around 3%. The gross result was EUR 58.3 million, or 39.5% of sales, an increase of 16% compared to the same quarter of last year, and an increase of 30% compared to the previous quarter. R&D expenses were 13.7% of sales. G&A was at 5.9% of sales, and selling was at 2.5%. The operating result was EUR 25.8 million, or 17.5% of sales, an increase of 41% compared to the same quarter of last year, an increase of 64% compared to the previous quarter. The net result was EUR 24 million, or EUR 0.59 per share, an increase of 56% compared to EUR 15.4 million or EUR 0.38 per share in the fourth quarter of 2019, an increase of 61% compared to the previous quarter. The board of directors also took a decision towards the final dividend. The total dividend payable over 2020 is EUR 2.20. At least that is the proposal. EUR 1.30 was already paid out, EUR 0.90 per share is still payable after the shareholders' decision in May. The outlook for Melexis. Melexis expects sales to be in the first quarter of 2021 to be in the range of EUR 155 million-EUR 160 million. For the full year 2021, Melexis expects sales growth between 15% and 20%, with a gross profit margin around 41% and an operating margin around 19% at the midpoint of the sales guidance, and all taking into account a EUR U.S. dollar exchange rate of around 1.21. I would like to now propose to open the session of Q&A. Operator, please go ahead. Thank you so much. As a reminder, if you would like to ask a question on today's call or make a contribution, please press star one on your telephone keypad. To withdraw your question, please press star two. You would then be advised when to ask your question. Again, it is star one on your telephone keypad. The first question in the queue is coming from the line of François-Xavier Bouvignies from UBS. François, you are unmuted and now go ahead. Good morning, and thank you very much. I just wanted to say first, François, after all those years, I think it's a consensus to say that your execution and insight communication were highly appreciated in the investor community. I just wanted to say thank you for that. Even though you are still around, I still wanted to say that. I have a couple of questions. The first one is on your full year guidance. Could you give us the production that you have for the industry in 2021 by any chance? Thank you, François. Well, thank you first for your compliment. I would like to add that I didn't do that alone, of course. There are 1,500 Melexis around the globe that managed to put that good result on the table. I'm definitely not alone in doing that. Your question was about the future. Could you repeat it? I'm not sure I really get your question. Could you repeat the question, please? Yeah. in your full year guidance of 15%-20% for 2021- How much do you have for the production volume for the industry? What did you have in your forecast? For which industry do you mean? Car. You get the automotive industry? Yes. The point is that, of course, already in June last year, the car industry started to pick up again in China, and it has continued to pick up. I think you see also that there is some recovery in the U.S. Europe stays a bit behind for the time being. What we see is that mainly in Europe, we're doing well not only because of the recovery as a whole worldwide, but also because, and that is particularly in Europe, we have quite some new applications that are coming on board in the course of 2021 and have started already last year. That is, I think, the general perspective. If you look at the number of vehicles that are forecasted to be sold in 2021, it does not yet reach the volume that we had in 2019, let alone in 2018. I think the industry will sti ll need some time to recover further, particularly in the U.S. and in Europe. What is clear to us already is that on the one hand, we have, as I said, there are three factors to our guidance. The first factor is, of course, the recovery as such, which in our view, okay, you never know what the pandemic does, but with the vaccines coming, we think that recovery is underway, and people will be glad to be able to consume again and to pick up some of the normality of before. There is, first of all, the recovery. There is secondly, the restocking, which is of course, at a higher run rate at this time, than the real run rate of the end demand that is behind it. That is normal, let's say. That's pretty logical. As such, as long as it is not an overreaction, it's okay. There is secondly, the content growth, as I mentioned. Many new applications, a lot of embedded lighting drivers, and it's not just light for comfort or making your car look nice, but it's a lot of light also in combination with safety, with drivers warnings from, let's say, more static light to highly animated light that you find also in high-end cars more and more, also in China. We're particularly also growing there in China. We see a lot of new applications on the electric vehicles and hybrids, because, yeah, there are simply new applications as we've already mentioned in the past, and we're glad to be able to take those opportunities as well with all the new products that we've launched in the past year. Thirdly, the outlook. The third factor is that the adjacent markets have grown tremendously in 2020. We see that most of these wins or these awards are sustainable going forward. Okay, that's very clear. Maybe a follow-up on your drivers. When you speak about inventories as well of restocking, when I look at 2020 for automotive, at least, your growth was +1%, and you said the production was -15% for the year. Yeah significant, 16% outperformance. Of course, in 2019, you had this opposite, of a destocking. Yes. You mentioned the whip effect quite often. Yeah. My question is, this outperformance that you show in 2020, which is more than most of your peers in automotive, to which extent you had already a restocking of your products, not Melexis, but all your products in 2020? When I look at 2021 in this context, even if we assume volume slightly below 2019, it's still more than 15% of the production units. Your guidance of 15%-20% doesn't seem to reflect much of the content, or does it mean that you're conservative, or does it mean you have a destocking in 2021? If you see where I want to go. I don't think there will be a destocking, there will be some fluctuation, of course, on the market. We try to, as you know, Francois, we always try to be as realistic as possible in our guidance. The fact that we, as you say, did a bit better than most of our competitors in 2020 is because we are extremely proactive. We understand this bullwhip effect in supply chains. As you know, we've kept our inventories high and we started already new material way ahead of the orders that we got because the orders picked up a bit in September, more in October and went heavily up November, December and they are still pretty high. We had a head start in delivering to our customers in the fourth quarter already because of that proactive supply chain management. Some of the restocking our customers have already done last year because we allowed them to do that. This year, I can only say that certainly in the first half, we have quite good order behavior, quite good visibility. Of course, in the second half is still a question mark, and you may call it cautious, but we say what we see at the time that we make the statement. That is a statement that we are happy to make. If you look at the car production or car sales, let's say, prognosis, it is going from 74 million-84 million units, more or less, which is close to 14%. We say ours will be between 15% - 20%. I think that does include some of the additional volumes, taking into account that some of the restocking is behind us for Melexis customers already. I hope that answers your question. Yes. The last one for me is on the shortage that is very discussed in the industry at the moment. I was just wondering if you see any impact on your side. I know you have high inventories, you can handle that, but do you see any pricing increase at the foundry level or the packaging side that could impact the gross margin? How should we think about the gross margin in terms of underutilization charges or a negative impact this quarter? Quantified would be great. That's all for me. Thank you very much. On the gross margin, the impact in Q4 was, as we predicted, there was still a strong impact of 1.4% of the revaluation of the inventory. The U.S. dollar content in our inventory, the revaluation resulted in a decrease of the gross margin of 1.4%. It was more in Q3. It was more than 2% then. It reduced somewhat to 1.4%, still an important impact. Moving forward, there might still be some impact, but it will be small with the current U.S. dollar levels. The underutilization in general, there is still some underutilization, on the other hand, we will also start using our new facilities as from Q2 in Bulgaria, that will also additionally increase the cost base for our manufacturing. That all in all, we do not expect a lot of leverage from our internal operational costs in 2021. Is that sufficient answer? Yeah, that's very clear. The shortage, any impact on your side on the cost? Well, it's clear that there are some price increases that have been announced. We have raw materials that are more expensive. However, we have long-term contracts with most of our suppliers, and we always consider when we do negotiations, whether it's with our suppliers or with our customers, we always consider the whole business relationship in that long-term perspective. That doesn't mean that we will not have any price increases by our suppliers. Price increases towards our customer base, that remains very hard in the automotive industry because there are many elements impacting price setting. In some cases, we will indeed increase some of the prices if, for example, the underlying material cost has surged significantly. Melexis is loyal to its loyal customers. Great. Thank you. You're welcome, Francois. Thank you. Thank you so much, Francois, for your question. The next question in the queue is coming from the line of Varun Rajwanshi from JPMorgan. Varun, you're unmuted. You may now go ahead. Good morning. Thanks for letting me on. I have three questions. The first one is on the adjacent end market opportunities. This business is currently at EUR 60 million annual run rate. You've been introducing new products specifically to address this market. The design win momentum has also been good recently. How should we think about the revenue profile of this business in 2021 and going forward? The second question is around electric vehicles and hybrids. François, you mentioned in your comments that there are several new applications for EVs and hybrids that you're targeting with your products. The question is, do you track how much of your sales comes from EVs and hybrids? How has that business been growing? Can you also elaborate on the design win momentum for electric vehicle and hybrid applications? Finally, on your market share and magnetic sensor ICs. You mentioned that you're now addressing 13 chips on average per car. Can you also comment on your market share in magnetic sensors overall, and how has that trended through 2020? Thank you. Okay, that's a lot of questions, Varun. Let me start by the first one. The adjacent, yes, we have been, as you have noticed also, or may have noticed in our product launches for some time now, we are launching new products specifically designed and aimed at adjacent markets. You will find those mostly in temperature sensors, in magnetic latches and switches, in some position sensors, in smart drivers, and current sensors, not to forget current sensors as well for the server market, for the solar market, et cetera. That is one. It was a strategic intent, and of course, our business creation people have been, as I said, very productive in that area. We aim currently and are progressing currently in the following main markets. You mentioned the three-wheelers, the e-scooters, the e-bikes. What we recognize in our markets is that, one, our existing customers are also going there, because they know us, it's for them an easy transition, let's say, to use our products. They know us. Plus, in many occasions, the product is already there and can be used as is. Sometimes an existing product serves as a base for a specific adjacent product as well, which makes it pretty easy. What we also see is that there are new customers coming on board and using our automotive expertise. If you take also these last-mile connected vehicles that are coming on the stage more and more, or Industry 4.0 applications in warehouses or on campuses, in hospitals, et cetera. Even if they are industrial applications, they do need the safety levels that Melexis is used to from the automotive industry. For us, it is, I'm not going to say it's easy, but at least it might be easier than for other companies to transpose this knowledge and this know-how into specific adjacent products targeting alternative mobility, last-mile urban area connected vehicles, et cetera. I think that is one of the aspects that is extremely important. Secondly, it's a boost we got from the pandemic, but it's also very sustainable and has to do with health applications where particularly the temperature sensors, but also magnetic position sensors, latches and switches, smart drivers are very wanted. We see that really as sustainable for access control of buildings, for diagnosis equipment where you need, for example, a very stable temperature accuracy. That is the second one. The last one is everything that has to do with the fact that due to the pandemic, people are shopping online, meeting online, entertaining online, everything is online, and that has, of course, boosted the connectivity market, the server farms, and all these need energy and thermal management. Our products are really very well-suited and are in the sweet spot of that market as well. Those are the three markets that we're successful in today, where we have launched new products last year, and which will continue to come on board more and more in the coming years. We see that as a positive spot to be in. That's your first question. The second question was on EVs and hybrids. Giving you an answer on what percentage of our sales is in EVs and hybrids, that's really a difficult question to answer. If you take it for the powertrain, we've published, I would like to lead you to the presentation on our website where we have updated our view on the market versus the different areas. What you will see is that, for example, the hybrids have increased quite a bit. The sockets that we address there or can address there are also quite good and are continuing to increase. Of course, it's not only the powertrain. There are many more applications. I think we've added a Tesla example in the presentation. This is a new slide, an updated slide from the one we had already used two years ago, where you see that we have increased also the number of parts in the Tesla Model 3. That gives you also a sense of, it's not only the powertrain. There are many other applications in the body, in safety, in chassis that these new energy vehicles are taking on board. I honestly cannot give you any percentage because it's already hard to understand. It's a lot of work to understand which parts are used in which car, because that's a myriad of possibilities. What I'm very positive in is that we understand the systems behind it, and many of our technologies find their application in those new vehicles, whether it's in the powertrain or in the body, chassis, and safety systems. The third question was the market share of magnetics. I think the market share of magnetics is more or less unchanged. The magnetic sensors we have, if you look at our product launches last year, we've launched quite a number of new current sensors, of new magnetic latches and switches as well, position sensors, where we see that, and what we will see going forward is that we are bringing new parts on board that are specifically aimed at the electric vehicle and hybrid market. Why? Because you have a different environment. In electric vehicles, you have much more disturbance around. Hybrid and electric vehicles, you have more disturbances around. Our position sensors, we have slowly adopted, or gradually, not slowly. I don't think we were slow. We have gradually adopted our product to serve also those markets. I think our market share is steady, and we're gaining market share in the current sensor arena. Also thanks to new products and to specifically applications in EVs and hybrids. I hope that answers all your questions, Varun. Thank you for your answers. Yes, it does. Thank you. Thank you. Thank you, Varun, for your questions. The next person in the queue is Matthias Maenhaut from Kepler. Matthias, you're unmuted, now go ahead. Yes. Hello. Good morning. Also three questions from my end. First question is actually more surrounding capital expenditures. I recall that when we were coming out of 2017, at the start of 2018, you announced a pretty important investment plan of some EUR 125 million. I recall that a part of that has been postponed. A part of that has been executed. How should we think about this plan going forward? Will this now be executed? How should we think about CapEx and CapEx phasing, both next year and over the years to come? I have two more, but we'll ask them one by one. All right. On the CapEx, I don't think we ever had more than EUR 100 million as planned. Indeed, we had high investment levels in 2017, 2018, rather in the EUR 70 million-EUR 80 million range, I think. For this year, for 2020, it was clearly lower. It was rather around EUR 25 million. For 2021, we expect levels of around EUR 40 million. Definitely still way below the high levels we had a few years ago. Moving beyond that, we are not prepared to give guidance on that today. For 2021, we expect levels rather around EUR 40 million, of which EUR 10 million will still be for the Bulgaria facility. Okay. Thank you. Second question was actually on content growth. Indeed, very nice growth, growing in from 13 ICs from 11. How should we think about this going forward? Will this further accelerate over the coming couple of years, or is this pace pretty much the pace you're aiming for going forward? Content growth for us, Matthias, is definitely continuing. There are quite some new products in the pipe, as I mentioned. We've already launched quite a lot of them last year, and it will go on this year. I think our understanding of the market and of the new requirements is very good, and I'm positive about the ability of Melexis to serve the future transformed auto industry going forward. Is that an answer, or do you have additional questions, Matthias? Yeah, no. I recall there was a target to grow to 20, I think, by 2023. Is that target still valid? Do you still aim to grow to 20 ICs per car by 2023? It does kind of implies a significant acceleration. How should we think about that? I don't think we put a year on it when we announced this. That was even, I think, in 2018, if I'm not mistaken. The world was quite different at the time. We didn't put a year on it. Definitely, that continues to be our goal, and what we see is that with a pretty, let's say, depressed car industry in 2020, we were still able to increase our content in 2020 from 11- 13. I would say that is a good sign for the coming years, and definitely that would be nice to have this by 2023. Let's see what the world does in the coming years, and let's see what Melexis does. That's definitely a long-term target still, yes. Okay. Thank you. Very clear. Last question is actually on gross margins. How should we think about the gross margin in Q1? It's clearly going to be a quite significant sales uplift. Can we see gross margin decently up because there's also less impact from a weaker U.S. dollar? Also more midterm, how should we think about gross margins given the different growth projects and the shift in the portfolio, I would say, with adjacent clearly taking up a bigger share? Mm-hmm. Yeah. On Q1, indeed, with higher sales levels and also less impact of the U.S. dollar, we do expect our gross margin to be higher than in the fourth quarter. It's difficult to say at what level, because there are many elements that impact positively or negatively, among others, the product mix, the capacity utilization, the dollar, the yield loss. There are many aspects that add to this. Under normal circumstances, higher gross margin in Q4. Moving forward, midterm, we aim to gradually increase our gross margin because of better capacity utilization. The product mix adjacent is helping in the margin. Limiting price erosion, there are several ways to work on our gross margins. For the foreseeable future, we stick to rather the levels of the 41%, I would say. All right. Thank you very much. Thank you, Matthias, for your questions. The next person in the queue is Janardan Menon from Liberum. Janardan, you are unmuted and may now go ahead. Hi, thanks for taking the question. Good morning. Françoise, I'd like to echo François's comments earlier, to say what an exceptional job you've done in this company over your period here, and I think you're leaving it in exceptionally good shape. Congratulations. Thank you. on a great tenure. Thank you. Just moving on to the questions. My main focus is on inventory, to be honest, and your comments on inventory. You are saying that inventories for Melexis or your customer inventories for your parts have started rising before that for other semiconductor companies. Roughly when do you think the inventories for your parts at your customer or channel started increasing? Was that around September, October last year, or was it later than that? Okay. Well, maybe you recall in the previous earnings call, we stated that inventories at our customers were, at that time, low, at low levels. We had been warning our customers for their, let's say, low order behavior, already for months. We saw, because we're getting better and better at managing our supply chain, but it is still very difficult to completely match the order behavior. Even today, it's difficult. The visibility is, on the one hand, good because customers have ordered a lot, but on the other hand, it's not so good because we don't know how much of that is meant for restocking and how much of that is underlying real demand. That's an attention point. We know it for some, but we don't know it for all. We started, as you might have noticed in our inventories, we in fact kept our inventories high, because we know that the parts that we make, or at least most of the parts that we make, not all of them, of course, but most of the parts that we make have no risk of obsolescence. We know that these will be needed to build cars. For us, it was already clear, at the end of Q2, that it would change at some moment in time. When we saw the market pick up in China in June, and then sustainably in July, we already decided in August that we would, again, put new material in the flow. We are also very aware that the structural capacity constraints in the semiconductor industry, they are not gone. They are still there. They might even have exacerbated over 2020 because of the pandemic. We did not see the inventories of our customers replenish that fast. They were just quite late. Some of them were quite late in answering to that pickup. Because we were so proactive, we were able to match some of their orders already in Q3, starting Q3, but heavily in Q4 as well. That's a good thing because we did not, to my knowledge, yet stop any OEM from building cars, while, yeah, some of our peers, as you have read in the press, have. That makes Melexis quite a reliable supplier, as such, in the automotive industry. Inventories today are still low. Distribution channel is, for example, not high at all. That's not necessarily a sign of higher demand, but rather of, yeah, sometimes a bit of panic even, because some of our distribution customers might say, "Well, I might not need it, but with all these shortages around, with everything that I'm reading in the press, I better make sure that I have my orders, and that I have my parts in-house rather than at the distributor." There might be some panic ordering as well. I think we will see more and more clear as the quarter goes on, and that come our next earnings call, we will be able to give you more information about this. Today it's a bit difficult to. What is your assessment of inventories at OEMs right now? Would you say that's low, or is that sort of already come to a normal level? We don't have all the details yet. I believe that there was not too much change in the inventories of the OEMs at this moment. Of course, if you go and buy a car, definitely the EVs, or the new energy vehicles, EVs or hybrids, they take a long time to deliver. They don't necessarily have the right parts in stock, neither the right cars in stock. Let's say it like that. We don't see it as excessive, excessively low, or excessively high. I think it's pretty balanced from an OEM perspective. We don't have all the figures. Again, we don't have all the recent figures. It's too soon to say anything about that at this time. If I look at your guidance, normally in a normal year, you have a seasonal trend, which sort of ends up with the second half being above the first half. Your current guidance would clearly suggest that you are now assuming in that guidance that there is a fall in revenues into the second half, because if you do EUR 157 times four, you're at EUR 630, which is much, much higher than the 15%-20%, the midpoint that you're guiding at. You seem to be factoring in your mind, some sort of inventory correction by the second half by Q3 itself. Would that be the way to read your current guidance? A strong Q2 and then potentially the start of some normalizing of inventory levels in the second half? Well, yes, I think you made a good calculation. Again, as I said before, we are trying to always state what we see, and do the assessment based on the knowledge we have of the market. As the year will progress, I'm sure we will be able to give more color on this, and will understand more like everybody else will understand more. We do take into account that what customers are ordering today is a little too much versus the usual run rate that we should be seeing. Yeah. I think you made the right calculation and conclusion. Just my last question, but on the same point, but this time on gross margin. Can we assume that your guidance for 41% gross margin, also has the same pattern where within that you are assuming a higher gross margin in the first half and a lower gross margin in the second half, in line with your sort of baked-in assumptions on revenues within that guidance? Yeah, indeed. A higher loading in the first half and a lower loading in the second half has impact on the gross margin. Yeah. The more load, the higher the margin because of the utilization in our factory. That is correct. Understood. Thank you very much. I hope you prove to be way too cautious on your current guidance. Time will tell, I guess. Thanks a lot. Thank you. Thank you so much for your questions. The next question in the queue is coming from the line of Ruben Devos from KBC Securities. Ruben, you're unmuted and now go ahead. Yes, good morning. Welcome, too. Thanks for offering an update on the total addressable markets in the presentation. It looks like, compared to prior forecasts, that Melexis chips per car based on powertrain has remained about the same, about 43 chips by 2025. While the share of hybrid or electric cars will further improve relative to internal combustion engines. Just curious whether you could talk a bit about the development and whether that is sort of in line with your earlier expectations. Yeah, maybe I'll ask the second one after you answer. Okay. Ruben, no problem. Just to make sure that the interpretation of that slide is done in the right way. What we mentioned here, and I'm looking at slide 16 now of our presentation that is on the website. You see an estimation of the market compound annual growth rate per type of car, between 2020- 2025. That's one thing. That's an estimation. That's based on IHS and Melexis estimates, but we feel that is pretty realistic from today's perspective. On the right-hand side, you see the total addressable market for Melexis. What this means is we look at our technologies, we look at what we master, we look at the systems in the cars today and in the coming years, and we estimate how many of the potential sockets are there today that we could serve, that we not necessarily serve today, of course, because we have only 13 and not on a weighted average. If you look at the total, we don't have 115, we have 13 as such. I'm referring to the weighted average in slide 19 then. These are the total addressable markets with the technologies that we have, that we master, and that we decided to invest in. Some of them we might have had in the past, and we decided, well, we think we make a better choice by going to another product and we will not address that socket. We will address other sockets. Those are decisions that we make along the way, of course. What we want to convey with these slides is that in general, whether we talk about powertrain, and definitely when we talk about chassis, body, and safety systems, the market content growth potential is fantastic. It goes from EUR 28-EUR 43 total addressable market for Melexis in the powertrain. For the other systems, it goes even from EUR 87-EUR 137. In total, our market that we can address with our technologies and with our existing and future products is growing. That is what we call content growth. In that sense, because we understand what is required and because we do what we do well, and our customers trust us with their new cars, let's say, we do well in general. If I just can give one example because it might also help the understanding. Let's take current sensors. Current sensors are needed because of strong electrification. Whether you talk about EVs or hybrid cars or mild hybrids, so the 48-volt net, you need electrification in your car. That represents, for example, high-voltage board nets. 48-volt is high-voltage board net or high-power traction inverters. You need battery management. You need motor control, DC/DC conversion, even charging as well comes on top, and that all requires a multitude of current sensors for monitoring and controls. Even in internal combustion engines, you find current sensors, but the more you go to electrified cars, the more current sensors you will find. These are included in those sockets that we could address today, but we don't necessarily do, and we're winning new business there as well. More importantly, going forward, that market is still in evolution and in full evolution, in a nice evolution because of the content growth. Yeah, that's why we invest in those sockets where we think we have the best opportunities. I hope that answers your question. Yes. If not, just let me know. Yes, thank you. The second one, regarding the APAC region, and actually the strong growth numbers you've reported there. The sales share also well above 50% in 2020. I was just curious whether you could talk a bit about the trends in this region in the last few months, maybe on some longer-term view, how you think of future growth rates here relative to the other geographies where you're active in. Mm-hmm. Yep. Well, of course, it's not a secret that Asia has recovered from the pandemic much faster and much better than we did. I think they managed better. Their culture also manages better. China in particular, not only China, it's also South Korea, for example, has also recovered much better than Europe, for example. China definitely as a case in point, China has been our most important growth market for many years in the past and has been a major driver for our growth in 2020 and will continue to be a major driver for our growth in the coming years. Cars are getting more sophisticated, new energy vehicles, and in fact, what is maybe not known too much, but hybrids are really successful also in China, and that is, yeah, the best of both worlds. If you even look at the full hybrid, the possibility there for sockets for our technology is the highest of all. What we see in China is that their cars are getting more and more content growth as well, and they are very fast. That is particular for China. They're very fast at adopting new technologies, much faster than anyone else in the world. That, of course, is a good thing because usually it's there where Melexis scores the best is because our advanced product sensors and drivers are solving the problems they want to solve. I mentioned in my introduction embedded lighting, that was near zero maybe two, three years back in China, and now we see a boost of that coming forward, which, yeah, is a sign of their higher content growth going into the future. China is important for us. The Asia Pacific region in general is important for us, not only China. If you look at our growth in EMEA. There you also see growth. It is not only there, it's also in EMEA. In EMEA, it's mainly because of the innovation as well, because looking at whether you look at patterns or whether we look into our customer base, also Europe has a strength in innovation in automotive. Most of the innovation starts in Europe and then spreads over the world. Let's be a bit chauvinist about this and be happy about the fact that, yes, Europe does have quite a lot of strengths that we can build on. All right. Thank you very much, Francoise. You're welcome, Ruben. Thank you so much, Ruben, for your question. The next question in the queue is coming from the line of Marc Hesselink from ING. Marc, you're unmuted and now go ahead. Thank you. The first question is on a comment you made earlier, where you said you see that you have improved visibility on what's happening in your supply chain. Could you explain what you did to get that better visibility? Yeah. It's not necessarily visibility in the sense that we know what products will be wanted by which customers and when. That is not the type of visibility that I meant when I spoke about that, but rather the understanding of the bullwhip effect that many of our peers and most of our customers don't seem to grasp too well. The bullwhip effect, bullwhip is a whip, and the longer your whip is, if you actuate the whip, let's say, the longer your whip is, the more vehement your fluctuations will be. A very small tick on the whip downstream can create enormous waves upstream. The more you go upstream, the bigger the waves are. That means the longer your supply chain, the longer your cycle times, the longer or the more parties, more tiers are in your supply chain, the bigger these fluctuations will be. What we did is simple statistics. We said, well, if we want to be ahead of the pack in understanding how our market might evolve, because it's still and remains a prediction, then we have to model it. We modeled the past. Because all these data are available, so it's data-driven statistics in the end. We took all the data we could have from the past, from, for example, the crisis period where you had in the financial crisis 2008, 2009, and the heavy uptick end of 2009, going forward into 2010, we took that. We took the data from the years after. We had a high demand in 2018. It went down in 2019. Of course, it went down in 2020. We took all these data, put that into a model, and that model helped us to understand that it takes at least three, four months before our customer starts ordering according to the real demand. The tick you see down or up at the beginning of the cycle, that's where we looked at the real end demand. By looking at this data, we understood that we can act two, three months ahead of the change we see in the order behavior of our customers. Of course, it's knowledge about the obsolescence risk of our products that gives us then that helps us to decide which products we will already be starting, because we know they will need them. They might be on stock a little longer, and that was apparent from the inventory levels that you've seen in 2020. We know that at some point in time, those parts will be needed by our markets. Because of the fact that now 70% of our business is standard products that are delivered to several customers, that makes it quite easy for us to choose the right products and to have no obsolescence risk on those. That helps us then to level production, to be faster at delivering to our customers, and in the same way, we will also continue to monitor those data going forward so that we will see it coming a bit sooner than maybe many others, because the model, it's not rocket science. The data are there, everybody could do it. We learned a lot from the previous boosts and bust cycles that we have been in, and we use those learnings to steer our supply chain. Okay. That is very clear. The fact that you had that extra inventory, what does it mean for your long-term business? I can imagine that what you said before, being a more reliable supplier is a big advantage for new order wins, or is that too simple to think like that? I think definitely that customers do appreciate. They tell us they appreciate that we are so proactive. That strengthens our brand in the industry. Yes. Okay. A final question. In previous calls, you talked about keeping the R&D cost relatively flat and just have more leverage on it and focus the R&D on the products that are most promising. I noticed in the last quarter that it picks up a bit. Is that just a quarterly flick or seasonal, or are you going to invest a bit more in R&D, also taking into account that you have been very successful with your non-automotive R&D? Operational expenses in general, we expect them to grow slightly in 2021 versus 2020 or versus Q4. Including R&D, however, not at the same rate of the sales growth as it is expected today. We will have some leverage on operating margin from this effect. We will continue to invest. Also, we will increase investment, but not at the same rate as the sales growth. Can we also look at that for other years that you start investing again in R&D, given the payback of that? I'm not sure I understand your question. No, I think in the last two years, the absolute amount you spent on R&D has been relatively flattish. Before that, a period of increasing the R&D cost a bit. Karen, remember in previous calls, you said, okay, we first want to now leverage on what we already have before investing more again. Is that changed now? No, that's indeed the aim. We will invest still. There are many opportunities still in the market, so we continue to invest where we see it today, opportunistic, good opportunity to do. On the other hand, there is still a lot of efficiency that we can improve in our development, in our way of working. These two go combined hand in hand. Okay, got it. Thank you. Thank you, Marc, for your question. The final question in the queue is coming from the line of Robert Sanders from Deutsche Bank. Robert, you're unmuted and now go ahead. Yeah. Hi. I'll keep it quick. First question would be, Allegro last night talked about their xEV business being higher margin than their internal combustion engine business. That's interesting to me because the opposite would be true at STMicro, for example. How does the mix shift to xEV affect your gross margin as you look further out? I have a couple of follow-ups. Thanks. I don't think there is a big difference. That is because we make choices based on the business case, not necessarily related to EV or versus ICE. In the choices we make, of course, we choose for the future of mobility. That is definitely electrification in general. Now to say that EV has higher margin, okay, that's good for Allegro, maybe. We strive for a good EBIT margin on all the businesses that we take. There's a lot of elements that influence those choices. For us, it's more the choice of a combination of good sustainability of the product, its uniqueness in solving customer problems. Of course, margin is always a concern. If a product does not give sufficient hopes, let's say, because it's always a forecast, hopes for good margins, then we might just simply stop investing in that family of products. We do. We've made some choices in the past, all along, in fact, in the past few years as well, where we started maybe an investment into a product, and then while doing the first steps, you see, well, it does not fulfill the promises that we had thought it should fulfill in the beginning, and we just stop it. There are others where you start, and you see that it gets better along the way. I wouldn't say there is any difference between EVs or ICEs. It's about the product and about the solution it gives to the customer. Last question would be, I think the Wall Street Journal was reporting that General Motors is asking semi cos to hold 12 months of inventory. A lot of companies I speak to say that's not possible because of quality and change issues, and I think you've mentioned obsolescence. Is there any kind of realism to the idea that there could be a structural change in the amount of inventory that semi cos could hold, and what would that do to pricing? Well, I think, not particularly GM, but I think overall OEMs would love that, of course, as long as they don't have to pay for it. I think it would be welcome, and we have such good conversations with some of our customers that also understand the bullwhip effect, that also understand, for example, how ERP systems, which are mostly pull systems, how they react and how they in fact exacerbate those huge up and downs in supply chains. Luckily, we have a couple of customers who understand it the same way as we do, and then it's about getting into the conversation on indeed, like you say, what are the changes ahead? Are there any changes ahead? What is the obsolescence risk? In some cases, it's good to reserve capacity, whereas you don't know necessarily which type of products you will start. In some other cases, it might be, well, there's maybe a shortage of, I don't know, lead frames, substrates, or whatever, then you give your order ahead, but don't necessarily increase your inventory. There are many ways in which you can steer your supply chain, your ability to deliver faster. There are many, many ways in which you can do that. When you ask customers, most of the customers, if you would ask the question, "What is more important to you, availability of products or reliability of delivery?" They would choose the latter. In order to get there, you don't necessarily need to have 12 months on stock. You have to understand in the first place how your supply chain functions, what are the drivers, and the restraints in your chain, then have those conversations in good agreements. I would welcome a better understanding of this across the automotive supply chain because it will never go away. The investments in semiconductors, in semiconductor wafer fabs, in technology, in designs, it just keeps growing. The costs keep growing. There is always the balance to be sought between security and costs. I think if you can have that discussion, honest conversation with your customers, then you're on a good track. Luckily, we are with some of our customers because we can show also and demonstrate also that it works if you do that. Great. Thank you. You're welcome, Robert. Thank you, Robert. That was the final question in the queue. I will now hand you over to your host to conclude today's conference. Thank you for your valued questions and for your interest in Melexis. Our next earnings conference is scheduled on April 28th. I'd like to also point at the annual shareholders meeting to be held on May 11. I would be delighted to welcome you to our online analyst meeting now scheduled on June 1st, where you will be able to also meet with my successor, Marc Biron, and where we will update you on our strategy going forward. See you then. Meanwhile, please do keep safe and stay healthy. Bye-bye. Thank you, everyone, for joining us on today's call. You may now disconnect your handsets.