Welcome everyone to Chroma's 2021 Third Quarter Earnings Conference C all. All lines will have been placed on mute to prevent background noise. After the presentation, there will be a question- and- answer session. Please follow instruction given at that time if you would like to ask the question. For information, a webcast replay will be available within an hour after the conference is finished. Please visit www.chroma.com.tw/investor/index under the Investor Relations section. I'll now introduce CFO Paul Ying. Mr. Ying, you may begin. Thank you, Mark. Hi, everyone. This is Paul Ying from Chroma. Welcome to the third quarter financial release for Chroma Group. I think everybody already got our presentation from the website. Let's start it with the slide number six, which is a new page for the third quarter condensed consolidated income statement. For the third quarter, we can look at the numbers. The third quarter, the top line, Chroma Group, we make somewhere in TWD 4.276 billion. Compared to last quarter, it's a 4% drop. It's a 3% growth on a year-over-year base. If we look into the mix, you can see that it's pretty flat for the test and measurement and for the test equipment business. Also, there's a strong growth on the others, which is combining all those other Chroma consolidated entities contribution. In there's a strong growth. Combining with the MAS drop on the top line of 34%, that makes the quarter-over-quarter drop by somewhere like 4%. If we look at the gross profit due to the product mix change, especially for those high margin portion, still maintain or even grow. You can look at the gross margin ratio from 40%-something to 50% on the third quarter, standing alone. We resulted in somewhere like TWD 2.144 billion. Compared to last quarter, it's a 4% growth. Compared to last year, it's a 7% growth as well. On the OpEx side, for the third quarter, you can look at the operating income, which is somewhere like TWD 864 million, and this is a 47% growth compared to last quarter and a 22% growth on the year-over-year base. For the last quarter's higher OpEx is due to the write-off of the bad debt for MAS. I think we mentioned that in our last financial release conference. For the income before tax, it's somewhere like TWD 1.013 billion. Compared to last year, it's a 37% growth and 36% growth on a year-over-year basis. For the net income, it comes to the TWD 822 billion, and this is a 61% growth compared to last quarter and 40% growth compared to last year. In here, for the third quarter standing alone, the EPS we make is somewhere like a TWD 1.89. Compared to last year, it's a 36% growth. Compared to last quarter, it's a 66% growth. This is the third quarter standing alone consolidated income statement. If we go back to see the page number 5, we can look at the accumulation for the first three quarters of 2021 consolidated income statement, stated as the for the sales revenue, we made somewhere like nearly TWD 13 billion. Compared to last year, this is a 414% growth. For the testing equipment business, it's a 13% growth standing alone. Quite flat for the MAS and for the others, it's also a 44% growth. In here, you also can look at the growth process for the first three quarters. It's somewhere like TWD 6.316 billion. Compared to the last year, it's a 13% growth. For the operating income, it come to TWD 2.344 billion. Compared to last year, first three quarters, this is a 16% growth. For the net income, you also can see that we make TWD 3.590 billion. Compared to last year, it's a 115% growth. For the first three quarters, earnings per share, we make somewhere like TWD 8.39, compared to last year. Again, this is a 114% growth. Basically, even without the capital gain we make in the first quarter for the selling of the original headquarters, we think we still make a very good record on the bottom line. For the highlights for the financial ratios and the balance sheets, you can see from the next slide on slide number seven. If you look here, you can see that the total assets is pretty flat, but some changes in the inventory, which is growing, but for the debt, it's decreasing due to the increasing of the cash status. For the inventory turnover is a bit higher due to the shortage or slow delivery for the material. Also for the higher end of the selling kind of forecast. In here, the return on equity is somewhere similar to last year, 15%. Return on assets is nearly at 9% and compared to last year, 7%, which is a growth. In EBITDA in the first three quarters, we make somewhere like TWD 4.838 billion. Compared to last year, it's also a 94% growth. The cash flow from operations is also growing by 29%. The free cash flow, it's a big chunk of that growth. This is the consolidated financial status. Let's go into the highlights for the third quarter for the parent company. The sales revenue for the third quarter, the highlights will be as follows. The sales revenue is approximately TWD 2.774 billion. This is a 13% growth on a quarter-over-quarter basis, and 16% growth on a year-over-year basis. Gross margin still maintaining upper than the 50%, which is a 51%. The operating margin is approaching 25%, which is pretty much up with the management forecast or expectations. Net income approximately TWD 793 million. This is a 65% growth on a quarter-over-quarter base and 36% growth on a year-over-year base. For the third quarter, the major growth sector this quarter is contributed from the Test Instruments and ATS. This is pretty much like 15% growth on a quarter-over-quarter basis and a 23% growth on a year-over-year basis. In the third quarter, standing alone, I think for the parent company, we make another historic high. I think not too long ago, at the first quarter, I think we made our historic high by then, but now we break the record and then make another peak for quarterly numbers at the third quarter of this quarter. We go to the next page. You can see that, standing alone for the third quarter, the parent company, the sales revenue TWD 2.774 billion. It's a 13% growth on a quarter-over-quarter basis again, and 16% growth on a year-over-year basis, maintaining higher than the 50%, which is 51% for the first quarter gross margin and reaching somewhere like TWD 1.419 billion. Quarter-over-quarter, this is a 7% growth, and year-over-year, this is 9% growth. For the OpEx, on a quarter-over-quarte basis, maintain pretty similar kind of numbers on a quarter-over-quarter basis. Compared to last year, it's pretty much like a 9% growth, and mainly it's coming from the salary adjustment for this year. We make a strong structural adjustment and also kind of inflation adjustment for the salary increase. For the operating income for third quarter, standing alone, we make somewhere approximately TWD 700 million and stands for 15% growth on a quarter-over-quarter basis and 8% growth on a year-over-year basis. For the annual income, we make somewhere like TWD 793 million. Again, this is a 65% growth compared to the quarter-over-quarter basis and year-over-year basis, this is also a 36% growth. For the third quarter, standing alone, the EPS is somewhere like TWD 1.89. Again, the next page will be the first three quarter accumulation for the income statement for the parent company. For the first three quarters, the top line we made somewhere close to TWD 8 billion, which is TWD 7.789 billion. Compared to last year, it's 17% growth. For the three- quarter accumulation of the gross margin, we still maintain somewhere like a 53% compared to last year. On the absolute amount, it's approximately TWD 4.149 billion, and it's a 14% growth on a year-over-year basis. Well, on the OpEx side, compared to last year, it's a little bit growth for selling and general SG&A. On 11% for the research and the R&D expense, it's a 14% growth, where mainly that will be coming from the salary adjustment, just like I said. The operating income is somewhere like TWD 2 billion, and compared to last year, it's a 17% growth. Overall, it occupies pretty much like a 25% compared to the top line, which is the one we expected. For the non-operating items, you can see that mainly a big chunk of that, which is approximately before tax that it will be TWD 1.7 billion, is coming from the capital gain at the first quarter. Even if we take that away, we still make a very good record for the growth in the top line and also a very strong growth on the operating margin. For the first three quarters accumulation of the EPS, it's TWD 8.39. Compared to last year, it's not even double. It's 114% growth compared to last year. Regarding the balance sheet highlight and the financial ratios, again, you can see from here that the cash status is improving and also the debt ratio is decreasing. Inventory is still growing due to the forecast for the following months and the backlog and prepare for the long lead time for the delivery of those materials. The inventory turnover will be a little bit higher. Return on equity, which is at 16%, and the return on assets, it's 11%, a little bit improving than last year year-end. For EBITDA and also free cash flow, I think the status is pretty healthy and mainly that will be the highlight from the financial side. Well, for the next page of the operating highlights, I will let Jennifer take the lead to report to everyone. Okay. Good afternoon, everyone. Let's move on to operations. On slide 13, this slide will present overall our product mix breakdown and also our consolidated entities. Let's go through each product sector. First sector comes with the Test Instruments and ATS. We have a great result in the third quarter due to the strong EV demand. In third quarter, Test Instruments and ATS quarter-on-quarter growth rate is about 15%. Year-on-year increased by 23%. I think this is the highest quarterly sales for the Test Instruments and ATS. The first three quarters for this sector increased by 10%. As we guide in last first half earnings release, that we're expecting this sector to reach about low double digits. I think the whole year includes the fourth quarter. I think this sectors will be maintained these growth rates just like the first three quarters. Okay. Let's move on to Semiconductor sector. Semiconductor sector is better than last quarter, which is increased by 16% quarter-on-quarter and year-on-year basis increased by 11%. First three quarters, we were increased by 18%. As we guide in beginning of year, we expect this sectors to maintain having another 20% growth this year. I think we're able to made up in the fourth quarter, which is maintained what we guide in the beginning of the year. Okay. Turn-key Solutions, I think this year will be a bit weak. Okay. I think this sector will be dropped compared to last year's. Revenue will be lower than last year, TWD 460 million. This is due to several components having the long and short lead times. Several projects that we will start to deliver from early next year. Due to a long lead time for the Turnkey Solutions, it is hard to have a strong growth in the fourth quarter. Service and Others, I think due to increasing the Semiconductor sector, we start to have the better sales for the service and others by selling, providing the service and also selling extra components that were or spare parts. This year, I think every quarter is around TWD 250 million-TWD 270 million for the quarter. I think this will be similar in the fourth quarter. I think overall this year, I think we'll be still maintain the double-digit growth on our top line. This will be consecutively the second year despite the pandemic, we increase the top line by, I mean, for the Testing Equipment business by double digits. I think the bottom line last year, we increased by like 20%. I think this year, the bottom line is supposed to, I think will be also maintain this kind of growth rate for the whole year. The consolidated basis of, if you look at all our consolidated entities, I think these two years, the most of growth drivers actually come from our testing equipment business. The other two factors include the MAS where new material will remain the same. This is about our updates regarding to our product mix as our consolidated entities. We are happy to open up the question- and-a nswer session. Yes. We're now beginning our question- and- answer session. If you have a question for any of today's speakers, please press zero one on your telephone keypad, and you will enter a queue. After you are announced, please ask the question. If you find that your question has been answered before it is your turn to speak, please press zero two to cancel the question. Our first question is coming from Jeffrey Ohlweiler from Macquarie. Go ahead, please. Yeah. Hi, Paul and Jennifer. Thanks for the call. My first question, on page 13, Jennifer, that you just went over, the line about sales from overseas operations and related subsidiaries had a big drop quarter- on-quarter and year- on- year, which was, you know, very strong in the first half. Can you talk a little bit about that line, the TWD 541 million? Overseas sales. This is because the pricing that we pass on to subsidiaries. I think we just said, because in order to reflect some of the components of price increase, so we just are starting from the second half this year, we start to adjusting prices to our customer pass on. Maybe some overseas is not yet to reflect these kind of the changes. Maybe have temporary, this kind of, you know, the differences have been, you know, slightly lower than last quarter, or the markups is slightly different to what we have seen before. There's no particular reason for that, just because we start to do some price adjustments just to reflect the raw material price increase. Okay, great. This is my last question. Can you talk a little bit about fourth quarter momentum by, you know, each product group? Thank you. Hi, Jeff. I already delivered the whole year's guidance. I think if you do a little bit calculation, should come out with the fourth quarter. We couldn't really give you the exact number regarding the fourth quarter. Okay. Thanks. Thank you. Thank you. Thank you. We are now in question- and- answer session. If you have a question for any of today's speakers, please press zero one. Thank you. The next question is coming from Jerry Su, Credit Suisse. Go ahead, please. Hi, Paul and Jennifer. I just want to ask on the Semiconductor business. I think in the third quarter, you know, or year to date, the growth is a little bit lower than your full year target or your target of 20%, although you think you can make it up in Q4. Can you give us some color on why your Semiconductor business, you know, in the first three quarters is a little bit, you know, tracking behind, and what is the issue around there? You know, why you think that Q4 could be better? That's the first question. Second question is, you know, regarding the EV business, you had a very strong growth for your Test Instruments and ATS. How should we think about that, into next year, you know, for both, this segment and maybe perhaps on the Turnkey side? Thank you. Let's start with the first question, the Semiconductor sector. I think first quarter, we're still pretty much in line, and we do have a high confidence level to be able to, you know, reach the growth rate guidance that we got in the beginning of the year. This is based on our order on hand, the delivery schedule. I think based on what we're going to deliver in October and November, roughly estimate, it will be similar to the third quarter. I think based on calculation, it's supposed to meet up to the growth rate. I think we also mentioned before that the first half photonics was kind of low due to the long lead time components that we already mentioned in the last quarter. I think probably give you this kind of impression that we are able to meet, you know, kind of backlog. Regarding the Test instruments and ATS, just like regarding last quarter that we start to see the picking up or growing the demand from the EV sector including the EV components as well as the battery related sectors. They all have pretty strong CapEx plan in the coming years. We do see that, you know, just like as we did the last time, the Test Instruments and ATS increased by double digits that was up to five years ago when we met this kind of strong EV cycle. As you already see the signs from second half this year, we do have confidence that the Test Instruments and ATS will continue to grow in next year. Okay. Just one follow-up on the Photonics side. You said, you know, how has the longer lead time components supply has that improved in the third quarter? Regarding the raw material, I don't think that's a shortage just because it's kind of mixed bag. We're still having like long and short lead times issues regarding the components we adopt. Not to talk about those Turnkey Solutions, which is most of lead time projects up to four months. We're actually planning to deliver most of the orders starting from early next year. There's no particular issue. Okay. Thank you. Thank you. Thank you. As a reminder, press zero one on your keypad if you would like to ask the question. The next question is coming from Gerry Tai from JP Morgan. Go ahead, please. Yeah, thank you. I think I have two quick questions. First of all, I think, given the strong demand from EV, I think in the third quarter, can you give us some idea about the potential, like the, what's the geographic breakdown of these customers who saw the recent pickup? That's my first question. Also, I think for the second question is regarding the Semiconductor and Photonics. I think you answered some of that before, but I'm wondering, if it's possible to compare the potential growth for the Semiconductor- related, kind of, growth momentum for next year versus like a Photonics- related, product lines for next year. Thank you. Hi, Gerry. First question, EV markets. The guide that we start to see, you know, several countries. I think this time the EV CapEx cycles is not limited to only China, but also including other countries like United States and Europe, as we also see India start to build up or adopt, having more exposure to EV industry. Like, second half this year, or maybe I should say the coming quarters, we have one delivery to India regarding EV battery module and pack. You could see, like, investment not only to China but also India and other countries starting to increase the exposure to EV markets. Okay. This is not specific just to one country. Regarding Semiconductor and Photonics, I think I could elaborate a little bit more. I think to be honest, this year, I think IC testers account for the biggest portion for Semiconductor and Photonics sectors. I think every quarter, like over 60%. Last year overall, I think Semiconductor and Photonics sectors break down about 45% Photonics, 55% IC testers. This year, most of I would say over 60% actually comes from IC testers. One of the factors I already mentioned because the long lead times, especially for those of Photonics sector related. Regarding the IC tester this year, mostly related to mature around 28 nm, around the related type IC, including power and power management IC. That's because the increase comes from not only to China, but also other countries demand. I think this is the biggest growth drivers comes from. I think Photonics contribution last year actually sliding down. Coming to the first half next year, as we start to see the picking up from the so-called like SLT and also Photonics sector, especially, you probably heard from the market that our customers probably will have a new design for big socket next year. Now it's already moving to the building of the capacity, and this will start to contribute from the first half of next year. I think maybe next year, the Photonics and SLT sectors will become the biggest growth driver to support our Semiconductor growth. I see. Thank you. Yeah. I think maybe, I think you spoke about a very strong demand from the more mature semiconductor tester- Yeah. ...To being a strong driver for this year. How is that looking for next year? That's why I ask this. I'd like to understand. Also, maybe I think in general, can you also comment on the recent power supply issues happened in China and what does it do to the overall demand of your business. Like I think it could be related to, you know, ATS or even other segments. Just wondering how does that impact your business? You mean the China power shortage issue? Yes. Okay. Yes. Yes, yes. This year, actually 28 nm related actually contributes quite a decent growth for our, you know, legacy type of IC testers. I think this year probably is about twice the growth versus the years before. How to support that, of course, we do have other solutions coming out. For example, ORS will be integrating into ATE system or SLT testers. This will be further supporting. I don't think, you know, in coming years will be, you know, still that much, and then, you know, continue to grow from these testers. I think still we have maintained a certain degree of solid contribution for this legacy. As I said, next year, the growth driver will come from Photonics sector and SLT. You know, we are dealing with CapEx funding. You don't expect the customers buying the same or building up the same capacity every year. Okay? Okay. This is just to answer, what do you think of this low-frequency or legacy type of IC testers? Okay. Thank you. Last one, power shortage. Okay. Most of the industry we covered are... Maybe I should say China, the industry, they want this or support. If you look at the Semiconductor sector, we don't see the power cut, the shortage influence on the Semiconductor sector. Mm-hmm. Okay. Okay. Sure. Thank you. Thank you. Thank you. The next question is coming from Arthur Lai from Citi. Go ahead, please. Hi. Congrats management for strong quarter three result. I have two questions. The first question is a follow-up with what Gerry asked, the power shortage issues in China. I wonder if that will further extending the inventory turnover. The reason is because we actually do the channel checks with China, the automation maker. They say a lot of project got delayed because their client doesn't want to you know certify their equipment at this moment. I wonder do you share this view? Especially we saw the inventory turnover days right now is 191. I understand it's not entirely from the client side, but were you concerned that client actually also push out the new machine? Thank you. Currently, we didn't see this kind of situation. Actually, the reason why you ask this question is because you see our inventory turnover increased or other issue? No, no. I just wonder because I know that. Yeah, go ahead. Yeah. No, actually, for the coming orders or the order we received. All right. We don't, we haven't seen the situation you have mentioned. Yeah. Okay, perfect. The second question actually is on the photonics. Yeah, I am actually quite surprised that, you know, you say photonics tester would be, you know, also doing quite good in next year. I think that's a good surprise. If we recall in the year 2017, actually, you know, that year, do you think the, you know, the equipment demands in next year will be as big as the demand was in the 2017? Arthur, I think back to year 2013 when the customers first adopted VCSEL, of course, the building out the so-called standard assembly line, it started from process levels down to module levels. We all participated, including the process level and the module levels. Later on, I think most of the module level is no need to change or further upgrade. Mm-hmm. You couldn't assume every time that they change or upgrade or adopting the new design of the VCSEL means they have to change all the testing equipment from process down to modules. Regarding these times, the new VCSEL designs, I only could say, you need the new testers for process level. That's why we think the photonic testers will start to picking up. I mean, will be better than this year. Another issue is because China still have this kind of ambitious roadmap, you know, plan to increase exposure, especially for 5G, so in the infrastructure. Mm-hmm. We believe this kind of year where customer will be better than this year because some of the inventory they built up last year is already starting to fully go into production. However, I think for overall factors, for next year, I think the outlook for Taiwan will start to be better than this year. Yeah. That's great. Thank you. No question at this moment. Thank you. The next question is coming from Jerry Su from Credit Suisse. Go ahead, please. Hi. Thank you. Just one follow-up on the SLT side. Can you give us some update on, you know, on SLT's status for this year? For next year, I think you mentioned that business will see some better growth outlook. Can you elaborate a little bit on, you know, the key drivers behind that? Thank you. SLT this year is pretty much in line with what we have seen. Next year, current order I think still mostly comes from the 5G application or AIoT applications. I think still comes from business of our existing customers, mostly target on. It's very hard for me to say, "Oh, this is GPU," because now it's no longer simply a GPU. If you look today at those Google glasses, those image processors, and then those image processors need to combine with silicon image sensors. Next year we have seen that silicon image sensor numbers, not only on their car, but also on consumer devices will be doubling. I think it's very hard for us to say, okay, if I just say GPU, then you probably think, oh, that's same story. Actually, I want to say it's more application on the this kind of image processing related design of chips will be driving the SLT demand. Okay, got it. How about the HPC, high performance computing? I think that's exactly what NVIDIA doing, but just no longer as simple as a GPU. Yeah. Okay. Got it. Okay. Thank you. Thank you. Thank you. The next question is coming from Kevin Wang from Mizuho. Go ahead please. Hello. Thanks for taking the question. I have two questions. One is regarding the turn-key solution. I think that we have some new project with U.S. and Japan customers for EV battery. How should we expect that for this year and the next year? I think that will be bigger for next year. How should we expect that? The second question is regarding that we have more customers in foundry space, and this could be maybe also more this year. How should we expect that for next year? Thank you. Hi, Kevin. Regarding turn-key solution, I think turn-key is meant for next year the loading times. Most of the order counting schedule is next year. I think you'll, I think able to see some, I mean, no need to wait for like a many quarters later. I think starting from next year, we will start to deliver like the driving that should come from the EV battery cell testers. Okay? It's not limited to the China adoptions. Just like what we mentioned, you can refer to last EV cycle, which is back to 2016 and 2017 levels that we have achieved. Okay? Regarding the foundry customers, I think everything's in progress, and they're also interested because, you know, these customers also dealing with numbers for HPC customers, you know, the fabless. They are also interested in some of their, those fabless customers who, what they purchase from our side. After some of the discussions and the reviews, they already also start to buy in some of our other, I mean, I was thinking for like, especially for SLT sector. I think one of the key factors that I wish and I hope to deliver is thermal control. I think because if you could see, you know, we watch market for 5G, EV, fabless, those are all cross with kind of applications, especially for EV and then more fabless related, these kind of projects. They are very not related to so-called thermal control. This one of... This has become one of the major drivers for several foundry and semiconductor customers. They are interested, and they would like to, you know, start to see the picking order from this side. Got it. Thank you. Thank you. Thank you. Thank you. The next question is coming from Arthur Lai from Citi. Go ahead please. Hi. Thank you for taking my question again. I have a really quick follow-up. A lot of analysts already ask like, you know, EV actually looking pretty strong in the pipeline and also the SLT. I kind of wonder how do you think of your automotive exposure at this moment and the trend of revenue from the smart car or EV car? You mentioned about the auto means the traditional one, the gasoline one? Yes. It's actually an EV and smart car. Oh, okay. We believe those were the EVs also includes the smart EVs. I think that there are two critical components that we involve very much, and then we also cover. One is the EV battery cell, and the other one is sensor, which is silicon in the sensors. Mm-hmm. I think these two part actually account for if EV battery is still strong, we're able to reach like maybe 10%-20% from these two products. We're talking about chargers, charging stations, and this and that, so. Yeah, include charging station, yeah, absolutely. That's always good. good. Yeah. Sorry, can you say again? The growth? You mean the future growth? The revenue exposure, including those three parts. Including sensors and everything, I would say around 30%-35%. Because actually sensors, the capacity continues to add. No matter you talk about some proximity sensor or silicon sensor, actually they all have pretty strong CapEx plans from the second half to first quarter next year. Mm-hmm. So, mm. Got you. Thank you. Sure. Thank you. We're now in question- and- answer session. Please press zero one on your telephone keypad if you would like to ask a question. There are currently no questions, and I will hand it over to CFO, Paul Ying, for closing remarks. Mr. Ying, please proceed. Thank you, Mark. Hi, everyone. Thanks for your time. If we look at the third quarter standing alone, we hit a record high on the top line and also still maintaining our profitability. I think we make a pretty good record. Looking at for the rest of the quarter of this year, we still have the confidence that we will maintain the commitment, keep on our pace and trying to bring the next five year benefit for all the investors and expecting to see you again on the next quarters. Thank you for your time and bye-bye. Thank you. Thank you for your participation in Chroma's conference. There'll be a webcast replay within an hour. Please visit www.chroma.com.tw/investor/in-depth under the Investor Relations section. You may now disconnect. Goodbye.