Hi. Good afternoon, everyone, and thank you for joining us today for Yageo's first quarter result webcast. Yageo is the world's largest supplier of chip resistor and tantalum capacitor, as well as a top three supplier for MLCCs and inductors. My name is Howard Kao, and I'm the coverage analyst here at Morgan Stanley. We are very honored again to have Mr. David Wang, CEO, Mr. Eddie Chen, CFO, and Mr. Claudio Lollini, head of global sales and marketing of Yageo here with us today, and we look forward to their insights and comments on the company as well as the market. The management team will first guide us through Yageo's first quarter results and also provide some forward-looking commentary. After that, we will open it up to questions. At any time during the webcast, you can send in your questions in a text box on your screen. I would now like to turn it over to Yageo's management team for opening remarks. Please go ahead. Let me kick off the first quarter financial recap. Good afternoon, dear investors. Thank you all for participating in this results conference call. Our net sales for first quarter 2023 came in at TWD 46 billion. If you could have the page ready, please. Next page. Great. Okay, here's a recap on the first quarter income statement. As you can see, the net sales came in at TWD 26 billion for first quarter. That compared to the previous quarter is a 9.5% decline, as we sort of alluded to in our last call, basically due to seasonality and the shorter working days in first quarter. The net sales compared to first quarter last year is a 13.4% decline. The first quarter margins came in at TWD 3.6 billion, with gross margin percentage at 33%. I think we're experiencing a slight worse off with the product mix, and the demand in first quarter remained subdued. So that 33% compared to the last quarter is a 3.5 percentage points decline. Compared to first quarter last year, at 38.1% is a 5.1 percentage points decline. Operating expenses for first quarter came back to a more normal level at about TWD 3.7 billion. Note, in our last quarter, there were some one-time expenses on some M&A-related activities. In first quarter, the OpEx of percentage of sales is at 14.1%, came up from almost 16% in fourth quarter last year. Of course, compared to first quarter last year at 13.3%, I think, the OpEx dollars are less, but then percentage still higher because of lower sales. The operating income first quarter is at TWD 4.9 billion or close to 19% operating income margin, down from 20.6% in fourth quarter last year. Our non-ops fairly stable. We are seeing TWD 514 million non-operating income in first quarter this year, pretty flat from fourth quarter last year. Pretty comparable performance compared to first quarter last year as well. Net-net, the net income for tax is coming in at TWD 5.4 billion for first quarter or 20.8%, down by about 1.5 percentage points from fourth quarter last year. After tax, net income to the parent group is at TWD 4.1 billion or TWD 9.9 per share EPS. Next. Here's our revenue mix for first quarter. As you can see in on the product mix, basically you're seeing a little bit of the decline of the tantalum down to about 18%. It was at about 20%-21% in previous quarter. The rest of the product mix actually moved marginally. If you look at the region mix, we're seeing some weakness in the U.S. and European markets, and the Japan and Asia actually are increasing its pie a little bit here. Next. By channel, it's again the decline in first quarter sales are mostly seen in our direct sales activities and EMS. The global distributors are showing signs of stability in first quarter. If you look at the segment, the note that the auto market remains fairly resilient compared to the rest of the applications. Consumers are holding okay, and computers are holding okay as well, and we're seeing communications increase a little bit. Next. Here's a quick look at the balance sheet. Basically, I think we still maintain a fairly strong balance sheet if you look at the liquidity and gearing. Basically, the cash level for first quarter stays at TWD 65 billion. That's up about 12.3% from the previous quarter. Inventory amount came up a little bit by about 6.5 percentage points at TWD 25 billion compared to TWD 27 billion last quarter. External days increased a little bit in first quarter, though, probably about 135-136 days in first quarter. So that inventory digestion activities keep going on. The liability increased a little bit. You'll note that the net financial debt to equity or net financial debt to EBITDA all increased marginally. That's due to the settlement or the preparation for the settlement of the acquisition of Heraeus Nexensos or the subsidiary of Heraeus. Transaction was closed off 1st of April. That was a quick recap on the financial performance for the first quarter. Next, I'll turn to David for some guidance in the market. Okay. Thank you, Eddie. The next quarter guidance concerning the revenue from the current booking we have also when we see the market demand. We see next quarter revenue, we see that will be flat or slightly improved better than the last quarter. If I look at the Q3 last year. Actually starting at the third quarter last year until the last quarter and the first quarter of this year, we saw the quarter-on-quarter decline. Next quarter, the outlook will be the first one that we see flat. Hopefully, this should be a good sign. People often ask us, "Will this be the bottom or do we see the rebound in the second half year?" To be honest, the visibility for the second half year is still low. What we see here is, first, the inventory correction in the channel still continues. Second, since the inflation since China opened up, it's just still there. The situation is not that clear yet. Maybe the second half, usually traditionally that's the seasonal pattern, will be slightly better than the first half. Altogether, we think that today, the second half, the visibility is still low. We do foresee that in quarter two, we see, for us it's, quarter on quarter flat. In gross margin, we see this will be slightly better than last quarter. Majorly, this is from the cost and the product mix improvement. Concerning the utilization, the plan is that we'll keep the same utilization rate in quarter two comparing with the quarter one. Two reasons. One is that we still want to control our own inventory level very carefully. That's why we are controlling this utilization. Secondly, we believe that we have enough inventory on hand, so if there's anything we see the rebound from the market in the second half year, we have enough time to react. We also have enough inventory to support the business. Consequently, from this revenue and gross margin, we see the second quarter operating profit will be slightly better than last quarter. Thank you. Thank you, Eddie and David. Now I think we will enter the Q&A session. Again, just a reminder, please send in your questions into the text box on your screen and we will get to them shortly. While we wait for more questions to come in, maybe I can ask the first question. My first question is on the timeline or updated timeline on the deal closures for Heraeus Nexensos and Telemecanique Sensors. Can you guys give us an update on when we can expect these two companies to be consolidated into the Yageo Group? Thank you. I think like I said, the settlement of the Nexensos acquisition has been completed earlier this month. So starting second quarter, we should be including that Nexensos performance into our consolidated report. The other one, the Schneider acquisition is still ongoing. As you know, it's a carve-out process in play to come, so we're still working very hard executing that transaction. It'll hopefully by end of the year, we should be able to close the transaction. Got it. A follow-up on that. Now that Nexensos is, the deal has completed, will we expect from Q2 onwards in terms of product mix to have a standalone sensor category? Or will you guys wait for Telemecanique Sensors to complete before carving out a standalone product category for sensors? Yeah. Well, as you know, however, the Nexensos is not a huge business yet. It's EUR 80 million-EUR 90 million type of revenue business. We do intend to establish a product business group within the company. To sell the sensor business on a standalone basis is probably not the policy. But it'll grow into our product mix. Going forward, I think starting next year when it becomes sizable, we'll have a more disclosure on the sensor revenue and performance, et cetera. I see. I guess, you know, I thought because you guys for your existing business, you guys already have some sensor revenue. Maybe, you know, that could start from Q2 onwards. I guess you guys will be waiting for Telemecanique Sensors to come in. Yeah. Yeah. Howard, I think the integration will take a bit of a time. Obviously, we need to profile those related products and try to group them together and, you know, there's a lot of integration efforts internally. Before we are ready for that, I think it's probably premature to get out with any information on that. You're gonna see the performance contributing to the company's top line or bottom line. Got it. Thank you. Now we'll move to questions from the queue. Maybe just knock out two housekeeping questions, basically. One is on utilization rate. Can you repeat what the utilization rate for Q1 and Q2 is? The second question is on inventory days. What was it in Q1, and how does that compare to Q4? The utilization in the quarter one for the commodity product, it was around 40%-50%. In the quarter two, we will maintain that at the same level. In the premium product in the quarter one, that was around 70%. The same thing, we will maintain it at the same level in the quarter two. Basically, the utilization rate will be maintained in the same level. Yeah, Howard, on the inventory turnover days, first quarter is around 136 days, and fourth quarter last year about 127 days, if I recall. It does go up a little bit. I see. Thank you. Just to follow on inventory, there's a question here on asking about the inventory level of your distributors. How is that trending in Q1, and how do we see that going into Q2? Howard, I can address that. We tend to look at that separating the global distributors and the mostly local China-based distributors. I would say that in both cases, the trend is, it's been positive. We've seen a slight improvement for the month that closed in March compared to February. The level of inventory overall remains quite high, especially in the global distributors, and slightly better overall in the China market, which is encouraging for us. Got it. Thank you. The next question here is on your outlook for Q2. Would you be able to provide more color and details in terms of the demand by end market and by application? Yeah. Howard, I still can address this one as well. In general, broadly speaking, we continue to see in Q2 very similar trends segment-wise than what we saw so far, meaning consumer, computing, and networking related segments, in particular consumer, in particular out of China, still a bit soft. The overall demand for personal electronics, be that a smartphone, laptop, notebook, it's still not to the level that it used to be. On the other hand, we continue to see encouraging signs from our industrial and automotive customer base. That's still a growing segment year-over-year, even in Q1. For Q2, we see pretty much the same, the same mix, the same trend. Got it. Thank you. There's one question here on pricing. Do you see intensified pricing competition for commodity grade passive components with your Chinese competitors? We don't tend to comment much on competitors' pricing, but I can say that from what we see, we see a relatively stable pricing for commodity products. Although, yeah, there is some pressure out there in some areas from some players. That is always the case. For us overall, fairly stable for commodity and also premium products. I see. Thank you. There's a question here on automotive demand. What is your view on the Chinese EV MLCC demand, and do you have any penetration rate or revenue targets for this segment? I think it's safe to say that, regardless of the region, the content of electronics, which is dominated by MLCC in the EV and EV related segments will increase. Not so much by the number of units, but in terms of content itself. I think everybody see that. Everybody is modeling this growth in the same way. Specifically for China, yeah, we are involved in that market with a number of players locally. We participate in that growth as well. Exciting time for whoever is involved in EV, that's for sure. Got it. If I recall, just, you know, adding in a question myself. You guys had this medium-term target for automotive to reach about 23%-24%. It seems like in Q1, you guys are already pretty much there. Any kind of update on where we can see this number go higher over the next two to three years? As a reminder, I would also say that in this quarter we had quite a low level of revenue from computing and consumer, right? That kind of skewed the percentage towards the automotive. As those segments pick up, there might be some internal shift. I think as a company, we believe automotive will be, it continues to be a very important segment for us. I would say the percentage is surely not gonna drop below what you see today, and hopefully continue to be more than anything, a healthy market that we support. We will not give up on other segment side. Got it. Thank you. Just coming back to your 2Q top line guidance, there's a question here asking if it includes the new sensor business, and how much does that contribute to your Q2 top line guidance? Yeah. Actually, that will be the sensor business will be included in the top line guidance. They are small, so we are talking about in terms of the total revenue, they are between 1%-2% of our total revenue. Again, this is also the outlook for them. This is the first time that we include their outlook into our guidance. Got it. Thank you. There's a question here on tantalum capacitors. It seems like Q1 tantalum capacitor revenue has declined by quite a bit. When can we expect this segment to see a rebound? Is Q1 the bottom? Tantalum capacitor is vastly utilized in personal electronics like notebook, laptop, and solid state drive. When you think about those segments and the demand we're seeing as we mentioned earlier in the call, we believe Q2 will be pretty much a flat quarter versus Q1. As David mentioned, we look at second half being an improvement versus first half. Following that trend, we believe the tantalum piece will be experiencing a flattish Q2 and some improvement in the second half of the year. A more robust growth will be linked to end customer and end user demand for laptop, notebook and computing related devices. I see. Thank you. Can you talk a little bit more about the margin guidance you guys provided for Q2? Aside from the cost component where you guys said you guys will be looking to drive cost improvement, you guys also talked about margin improving because of product mix. Any color on what application or what segment? Is it MLCC or is it R-chip that is driving this product mix improvement that is driving your Q2 margin guidance? The improvement mainly actually is from the cost improvement. Certainly, there's a certain portion from the product mix. Because we gave the outlook is slightly better, there won't be a huge difference of the gross margin percentage. I would still say that the major improvement will be from the cost and some mix improvement, but there's no huge difference. I see. Got it. Thank you. There's a question here on a medium-term outlook kind of by your different product segments, MLCC, R-chip, etc. Whether if you are able to provide kind of a ranking in terms of what segment you expect to see stronger growth versus the other segments. Product-wise or segment-wise? Product-wise. For both MLCC and a resistor, we have a very good coverage segment-wise, meaning that if you think about automotive and EV in particular, which we all tend to agree is the one that is growing now and will continue to grow in the midterm. We participate with both the resistor with the Yageo who has the Yageo brand has a very strong roadmap of resistor in automotive. With our MLCC mostly, but not only, mostly with the KEMET brand. I would say product-wise, the mix and the exposure to automotive is very similar. Certainly if you compare this with the tantalum capacitor we discussed before, that product is a bit more exposed to the consumer and computing type of segment. The rebound might be more dependent on that. If I move very quickly to our film and aluminum electrolytic, and even magnetics portfolio, those are more related to industrial and automotive, so certainly more exposed to European segment, in particular our film and aluminum electrolytic. We have a bit of a better trend there so far. Got it. Thank you. There's a question here asking about your industrial segment, and what is the key growth driver behind this product segment? You know, I think industrial has been still at the early stages of digitalization and usage of electronics in it. There have been a lot of talks about a new era where there is much more connectivity between machines and between factories and I think we are now actively participating in some of that. More in general, we see a demand for more harsh environment type of product. Part of that is to do with a general trend where you have more localized server, where you have more localized edge computing type of devices. As you go through that transformation, you need to have products that are more capable to sustain those types of environmental conditions, and the demand is also growing because of that. When we address the industrial market, we see a combination of all of these things combined, including automation. Industrial automation continues to be a trend and a growth driver. I see. Thank you. Since you mentioned servers, I think earlier, you know, TSMC mentioned that they're seeing increased demand for AI related demand. For you, I guess the question is do you have exposure to AI servers, and how should we think about the amount of passive components that goes into an AI server versus a normal server? How, you know, whether there's any color on how we can quantify that? We certainly have exposure, but to be honest, it's not something that we feel it's very quantifiable for us. We don't have an internal model that attempt to quantify that level of exposure. We don't see that. We have exposure just like we have exposure to any kind of server. Got it. Is it fair to say that there are indeed more passive components required for higher performance servers or AI servers than a normal server? Anytime you move from one generation of devices, anytime you move towards a more performance-demanding product, or anytime you are challenged with size and space constraint, then it's fair to say that there is an increase in passive components. Yes. I see. Sorry, just one last one on this. Would the kind of increase be similar between inductors, capacitors and resistors, or will there be a significant or a meaningful difference between the three? No. We see, if I look at the increase we've seen in other areas, the mix of product, the usage of the product seems to be pretty much maintained between, resistor, capacitor and inductor. You still need all three for any circuit board out there. Right. Okay. Got it. Thank you. The next question here is on your recent announcement on the investment in North Macedonia. Any further details you can share with us on this? Yes, Howard. Thank you for asking these questions. First, investing in Macedonia or production in Macedonia for Yageo is not new. Yageo using KEMET brand operation, we have been operating in Macedonia for more than 10 years. Over the 10 years, we developed the talented people there. We also have the technical skills there. Today we are hiring more than 400 people in producing a couple of product line. Recently, we further discussed with the Macedonia government that we like to invest in next 10 years and with around $205 million in investment. That's including many production sites or equipment. So far, the plan is that whatever we are going to produce here, basically will be supplied to the first priority will be European market and then also to the North American market. The industry we will serve basically will be, again, the automotive, which is strongest part in Europe, also industrial part. We are working on the detail with the Macedonia government, so the execution might start in July 2024. I see. Is there any preliminary thoughts about what kind of products would this investment be mainly for? Would it be capacitors, resistors, tantalum? Currently, we already have a product portfolio there that we are producing, mainly to serve the automotive or industrial product. The first step, we will be enhancing in that kind of production. Because this is a 10-year spread, there's a lot of room and time for us to further think what kind of areas that we would produce there. I see. Got it. Thank you. Okay. The next question is back to inventory. There's a question here asking about your inventory and whether you can provide color on where you see higher inventory versus others in terms of end applications. No, I think, Howard, I think we generally don't disclose to that level of details by different product groups. You get a big picture about how the inventory turnovers over the period of time in the past several quarters. No. No, I don't have any additional information on that. No. Got it. Can you remind us what is your, you guys' target for, inventory turnover days that you guys consider a healthy level? I think 120 would be fair. I mean, we're probably there first half last year or even lower. That could be a good level to test. Got it. Thank you. This next question here is on MLCC. What is your self-supply ratio for basic powder and formula powder? Come again? I'm sorry. On what? The question is, what is Yageo's self-supply ratio for basic powder and formula powder for MLCCs? Oh, in powder. Sorry, we don't have such information in hand, so I cannot. Yeah, it's kind of specific. I'm sorry. I probably gonna need to get back to that if I could. I don't have that information on hand. Got it. No problem. Thank you. Okay. I have a question here on you guys used to provide a breakdown in terms of product mix between standard and premium. Is there an updated ratio for Q1? I think that's still in a similar level, so 25% and 75%. Not too much change there. Got it. All right. I think the last question from the queue right now is, again, back to inventories. When do you think your inventory days will be able to get back to the 120 days of healthy level that you guys talked about just now? I think that's pretty much depends on two things. One is certainly the market demand. Secondly, something that we can control is the utilization. That's why you see that although we see the revenue in the second quarter, this will be flat. People do have expectation in the second half because of the seasonal pattern. We still control the utilization in a low level, which means the same level as Q1. We hope that by these two factors, then gradually we can improve to the targeted 120 days that we guided. Got it. Thank you. Sorry, I lied. There's one more question that just came in. So the question here is asking if you can provide a little bit more details on the kind of cost reductions that you guys are expecting for Q2, and whether this is sustainable on an ongoing basis over the next couple of quarters. You're referring to the cost down efforts, second quarter? Yes. I think every quarter we have this kind of, this is continuous process. Every quarter we have the cost and also, the efficiency improvement. It's actually not on quarterly basis, it's on day-to-day basis. We think this kind of trend, this will continue. But certainly, margin, you have a lot of influence. You have also product mix and everything. Overall, we like to control the whole level, the cost and also mix to deliver a reasonable gross margin percentage. Got it. Thank you. Well, thank you so much for your time, David, Eddie, and Claudio. I think it's only been a very short amount of weeks since we last had you guys on. I think you know, the results and the guidance was very clear, and there's no more further questions from the queue as of this moment. Thank you again for joining us, and thank you everyone as well for joining us and we'll see you next time. Thank you. Thank you, Howard.