Good afternoon, everyone. Welcome to Realtek's 2021 Q1 earnings call. This call will be chaired by Realtek spokesman, Yee-Wei Huang. The presentation will be available on the company website before 6:00 P.M. today. At the beginning, our spokesman will report our Q1 results and give a management remark. After that, we will have a Q&A section. You are welcome to type your questions in the box at the lower right corner on the screen. We will answer the questions accordingly. During the call, you can browse through the pages of the presentation anytime. Now, I will pass the call to our spokesman, Yee-Wei. Good afternoon, everyone. You are now listening to Q1 2021 webcast earning release by Realtek Semiconductor Corporation. Well first, a brief note on the April results that was announced this morning. April revenue was TWD 7.81 billion, a 3.0% decline from March, but a 41% increase from the same month last year. We encountered some delay in factory output toward the end of the month, therefore, a slight month-over-month decline. Otherwise, the demand remains strong. Let us go through Q1 2021 operational results. On Q1 revenue, it was TWD 23.3 billion, a modest 5.7% quarter-over-quarter increase, but a significant 46.5% increase compared to the same period in 2020. The QOQ increase reflects the continuing strength in the demand for Realtek products. The large YOY increase is due to the low market performance in Q1 2020 from the COVID-19 outbreak first started. On Q1 gross margin, it was 34.8% compared to 43.0% in Q4 last year. The higher than normal gross margin is a result of product mix. Our operating expense in the Q1 was TWD 7.36 billion, or 32% of revenue. An increase in the OPEX ratio is a reflection of additional engineering efforts to move certain products to new process nodes and our foundry offsets in face of supply shortage. Q3 operating profit was TWD 2.99 billion or 12.8% of revenue. This is an improvement over Q4 due to better gross margin. The non-OP income in Q1 was TWD 190 million, which has a net non-OP income in spite of the unfavorable foreign exchange rate for a strong New Taiwan Dollar in the Q1. The net profit in the Q1 was TWD 3.05 billion, or 13.1% of revenue. This is a 1.2 percentage point increase quarter-over-quarter. As a result, Q1 EPS was TWD 5.98. This is better than TWD 5.15 last quarter or TWD 3.21 in the Q1 of 2020. Regarding inventory, Q1 inventory turnover days were at 66 days compared to 61 days in Q4. A slight increase in inventory was mainly due to the uneven supply of raw materials, thereby giving rise to an increase in WIP, work in progress. We also have the balance sheet and cash flow statement for your perusal at your convenience. This concludes Realtek's Q1 2021 financial report. Forward looking, we see that the market demand remains strong and the prospect of operation is cautiously positive. In Q2 2021, although the semiconductor supply is still in shortage, we will also now run down the top five product lines at Realtek. On Ethernet, end market demands and customer orders remain strong in the face of supply shortage. The business growth comes from both directions: one, order increase, and two, product mix favoring 2.5 Gb Ethernet and Gb Ethernet. Main applications include PCs and IP-CAM for surveillance. For switch, we see steady growth in demand in both dumb and managed switches. The supply will be the limiting factor in the final 2021 result. 2.5 Gb switch presents a welcome spec upgrade, the deployment may delay to 2022 due to supply constraint. All things considered, we expect a growth for Realtek switches nonetheless. On Wi-Fi, we see strength across the board with the demand far exceeding supply. To this end, we have plans to place priority on PC, AP router, broadband, TV, and IoT. Wi-Fi 6 penetration continues its course, although supply shortage may favor 11ac or even 11n in some cases. On Bluetooth, the strong demand for Bluetooth comes from many directions. For example, BLE SoC for various types of wearable and BT NIC for remote controllers in many applications. The TWS market using BT SoC is also expected to grow in 2021. Realtek is one of the very few suppliers with a full range of Bluetooth solutions, which positions the BT product line well for growth this year. On TV, Realtek TV business is expected to stay at about the same level as last year. The market is currently challenged by supply shortage and price increase in Driver ICs and panels. Overall, the TV market is expected to stay flattish compared to 2020. For the smaller but growing product lines, we continue to see strong growth momentum for Automotive Ethernet, PON, and set-top box SoCs. This is my remarks for now. Thank you, Yee- Wei. Now we are entering the Q&A session. Please type your questions in the box at the lower right corner on the screen. We will reply accordingly. Now, the first question is from Daniel, Morgan Stanley. This question is related to the gross margin. Looking at your peers, MediaTek's gross margin guidance in Q2 has reached 45% range. Novatek also approaching your gross margin level. How do you see your gross margin trend onwards? Do you think the IP design houses should charge higher return from customer given the increasing value creation? Realtek Q3 gross margin increase comes from favorable product mixes. Low-margin products tend to have low priority during supply shortage. This tends to favor gross margin performance. We do not forecast gross margin per se. Nonetheless, we observe that the price increases at various parts of the supply chain may continue in the foreseeable future. We have to continue to work with our suppliers and customers to manage the impacts. Note, nonetheless, the impact to gross margin by price adjustment is minimal during supply shortage. Once supply catches up, the familiar market competition is expected to kick back in, thereby giving pressure to gross margin. Thank you. Next question is from Randy, Credit Suisse. This question is related to Q2 and H2 of the growth outlook. What's your sales outlook for the Q2? How much is the supply limited growth? What's your view on the H2 and how you see foundry and back-end supply improving in the H2 to grow further if demand is there? Okay. Q2 sales outlook is cautiously positive, although supply remains the key limiting factor. The supply shortage at both foundries and OSATs is not expected to go away, if not worsen, in H2 this year. Note, nonetheless, Realtek is improving its operational efficiency along with other measures to cope with the supply shortage. With strong demand but lean supply, the actual product shipment will be regulated by factory output. To this end, the seasonality this year may not be obvious. Okay. Thank you. Followed by the previous question, Randy also want to ask how management view on the OpEx to sales ratio in 2021. Okay. We will try to maintain the OpEx to sales ratio at above the one Q1 level. Comparing to the normal time, we are spending extra R&D efforts to evacuate certain products where applicable out of crowded factories. We also invest engineering resource to qualify additional foundries and OSATs. Such efforts to enable future capacity will result in additional operating expenses. Okay. Thank you. Next question is from William, J.P. Morgan. What's the visibility for 2022? What can Realtek prepare in advance for delivering growth in 2022? First, look at the demand side. The strength this year seems to continue in at least the front half of 2022. At the same time, on the supply side, though, we share the observation that the shortage may continue in at least the H1 of 2022. The technology migration such as 2.5 Gb Ethernet, Wi-Fi 6E, 10G PON, may speed up next year. To maintain growth, Realtek continues investments in, first, new product introductions for new as well as existing markets. Qualification for new foundries and OSATs. Note that new foundries will include new process at existing foundries. Actions taken to optimize the usage of limiting capacity include, one, improve operational efficiency. For example, reduction of part number or SKU. Two, give priority to longtime partners. Three, focus on products giving better operational results, top line and/or bottom line. Okay. Thank you. The next two questions is from Rick, Daiwa. His first question is about the foundry supply. Could you share us a rough idea of the increase of foundry cost? The second question is that compared to the competitors in Wi-Fi, Bluetooth, and TV areas, does Realtek have better capability to secure foundry capacity, and does it lead to market share gains? The capacity situations of the major players are similar? Please comment. Well, other than acknowledging price increase is happening in almost every part of supply chain, including foundries, we cannot comment on specifics. In terms of capacity secured by different players in the market, large companies tend to fare better. Realtek, though not the largest in the industry, is among the top players. The fact is that no one can secure all the needed capacity. Meanwhile, market trend is expanding where supply lags behind demand. Everyone is looking for second source during supply shortage, and acts aggressively in placing orders. Hard to tell the exact change in market share when market is very dynamic. The next question is from Randy Abrams. In terms of supply chain management, does Realtek prepare a higher price to secure the capacity support for the future? If yes, how does Realtek manage both the cost hike and the gross margin? Well, we tried to explain before Our supplier, in face of the supply shortage, is more than one way to do that. We prefer not to comment on specific means that we use, prepaid or otherwise. We will not comment on the specifics. I will only say many possibility to do that. We also commented before, all different means at the end translate to cost one way or the other, even if it doesn't go directly to the cost of goods sold. It may go to other column of the accounting report. They are all costs of various type. We already comment that how we cope with that, even though we do not dictate how we price our product, market will decide the pricing. We will acknowledge that in our pricing, we will take profit and gross margin into consideration. Okay. Thank you. The next question is raised by Bruce Lu, Goldman Sachs. He would like to ask what is the best index for Realtek's follow-up lead time. We understand that Realtek has numerous product lines with various lead times. Which product has the longest lead time, and what is the typical lead time now? The root cause of this problem is on capacity. When the available capacity is lean, people need to wait in a queue for service, therefore, a long lead time. The availability of substrates for certain IC packaging, for example, BGA in particular, seems to be a very big challenge nowadays from what we can see. For certain products using this particular packaging type, tend to have longer lead time. Also another factor, for example, maybe manufacturing priority. This can vary from month to month. Much to say that lead times management is one area everyone in the semiconductor industry, including Realtek, is trying to address. Okay. The next question is from Randy Abrams. She would like to ask about management thought regarding the migrations from eight-inch wafer to 12-inch process node. She would like to know the split between eight inch and 12 inch of Realtek's products. Could all the products migrate from eight inch to 12 inch? Will it help the gross margin by migrating on process nodes? Realtek nowadays uses more 12-inch than 8-inch wafers, but not by a large margin in terms of wafer count. Not all products using 8-inch wafer can be moved to 12-inch wafer because such movement often involves process node migration. Analog-heavy design and high voltage applications, for example, often do not benefit or cannot be ported to advanced node. Products stay at 8-inch fab and older process node, often for a good reason. Now when we decide to move product from 8-1 2 inch nowadays, it is because we need to secure more capacity, not because of margin. Nonetheless, we do take gross margin into consideration when we move the design from 8 inch- 12 inch. Okay. Okay. The next question is from Aaron Jeng. Given the continuous supply shortage and strong end demand for Realtek's end markets, can management provide pricing outlook for the major product lines, for example, Wi-Fi, Bluetooth, switch, SoC, Ethernet, and Codec? Any directional guidance will be helpful. This question is similar to what we say. We do not decide price, market does. Price, nonetheless, must appropriately reflect the cost. In the end, each product we lead needs to plan for and deliver growth and profitability. We will acknowledge, though, during supply shortage, price pressure compared to so-called normal times, it's relatively low. Okay. Okay, thank you. Next, both Randy Abrams and Daniel Yen have questions related to PC demand. What percentage of sales was PC in the Q1, and how do you see that trending for the rest in 2021? How's the current inventory level and market visibility? Realtek PC, non-PC split stood around 34-36 in the Q1. This compared to 30/70 last quarter. Note that the strength here includes PC and PC peripheral. We expect that strength to remain for the rest of 2021. This is because, by now, PC is considered an essential device after COVID-19 for education, for work from home. For the whole market, we will make reference to IDC, who say the PC local market this year may go as high as 352 million units or about an 18% growth compared to last year. Followed by the question related to PC demand. Someone from UBS would like to know what management's latest view on the work from home demand for TV in 2021. What's the current visibility for orders into the H2 this year? We actually just comment on the PC. On the TV market currently is experiencing shortage in driver ICs and panels. That's limiting its growth. Although the demand appears to be at about the same level as last year, both PC and TV customers, they are quite aggressive in sending in purchase orders at this time. Thank you. The next question is from Kevin Chen. He would like to ask management's view on the Wi-Fi 6 penetration rate in 2021. If the price of Wi-Fi 6 is still more than double compared to the previous generation, is the growth margin of Wi-Fi 6 better than corporate average? We expect Wi-Fi 6 penetration to be over 30% in both PC and AP routers this year. Wi-Fi 6 price is still about twice of 11ac in the Q1. In terms of gross margin, let me say that Wi-Fi 6 is still in ramping up stage, while 11ac is in a stable and mature stage at the present time. Okay. Okay. Thank you. Next question is also from Randy and related to the Wi-Fi 6E. How's your solution for the Wi-Fi 6E sampling? Do you get a further ASP premium and expect faster adoption? At Realtek, we still plan to deliver 6E samples for customers in the H2 of this year. We do expect 6E to have a modest ASP premium over 6. The current supply shortage may delay the actual broad adoption of 6E. Okay. Okay. Thank you. Next question is from Brian CLSA. During the last earning release, Realtek was optimistic to TWS recovery in 2021. What's Realtek's TWS revenue growth target for this year? Does Realtek worry about the component shortage will cap TWS shipment this year? Supply shortage is indeed very real, and it's forcing everyone to review the priority. For the TWS market, Realtek this year chooses to focus on brands, quality, and performance during supply shortage. Overall, we do expect TWS market to grow in 2021. Further, we still need to make special note that in BT, in Bluetooth, low-energy SoC and Bluetooth NIC products are expected to grow healthily this year despite the supply shortage, as explained before. Overall, the Bluetooth product line this year, we expect a strong growth this year. Next is following questions from Randy. How much momentum are you seeing for spec upgrades like to 2.5 Gig Ethernet, 10 Gig PON, Wi-Fi 6, Mesh routers, management switch, and new PC surveillance IP-CAM solution? Okay. Well, Technology upgrades, in general, are hampered by supply shortage. The main technology upgrades, they are happening, but generally at a slower rate than originally expected. The upgrade speed is expected to pick up when the supply constraint is removed. Okay. The next question is related to the telecom projects. How is the project momentum for 2021, both within China and overseas? How is Realtek's position and what opportunities do you have to gain content? Which quarter will be the peak of the tender project business this year? Do we see any pull in or push out in this year? Okay. On the tender market, well, okay, These supply shortage and price increase in the supply chain are putting pressure on the telecom tender projects. New tender projects tend to delay, thereby giving opportunity to the existing projects to extend or even to renegotiate the price. Nevertheless, the demand for infrastructure upgrade remains strong in both China and overseas. The respective segment by PON router. The PON may be still at about 60 million-70 million this year. Mesh router may be 40 million-50 million. Set-top box, around 70 million-80 million. The demand for the 2.5G PON appears to be stronger than 10G PON. 10G PON, now we see mostly in U.S. and EU. What we see in the tender market is, because of the supply shortage, some telecom projects choose to de-feature to improve supply and control cost. Example may include using 11n combo or even only Bluetooth. Now Realtek, with a very comprehensive product portfolio, we are well-positioned to support varying telecom project needs. Thanks. Okay. Next question is related to the Ethernet product line, especially in the IP-CAM market. Do you see more traction in the IP-CAM market now? How shall we think about the growth this year? For the surveillance IP-CAM, it's a main application for Ethernet. Currently, we see demand exceeds supply greatly. This is forcing customers to seek second sources. Realtek Ethernet shipment for surveillance IP-CAM maintains growth nonetheless, and we are confident the growth will continue even after supply catches up. Thank you. The next question is from UBS, Szeho Ng, about the latest update on our Automotive Ethernet business. Current expectation for the content per car, sales contribution, industry penetration, client base extensions, et cetera. Is the ramp-up being affected by the auto chip shortage? Realtek Automotive Ethernet shipment is impacted by the supply shortage. The impact, though it's relatively manageable for Realtek, is low compared to many other products. The shortage of MCUs and Power ICs appears to be a bigger problem for the automakers. Realtek Automotive Ethernet customers started in Europe, but by now has grown to spread over the U.S. and Asia. We expect more than half of the new cars in 2024 to have in-vehicle Ethernet. Regarding dollar content, well, that may range from $15-$50 per car, depending on the models. That translates to roughly 20-70 Ethernet ports. At the end, the revenue contribution at Realtek currently is still small as the company's growing fast, but the Automotive Ethernet is also growing steadily and strongly as planned. Thank you. Okay, thank you. The next question is from Szeho Ng on Simon Asia Capital. Please share with us can you rank the order outlook by different segments, for example, PC, TV, TWS, CE, Codec, and auto? Well, the reality is that the demand far exceeds supply, and customers are aggressive in placing orders. It actually is almost impossible to rank them because they are all very strong, they are all very aggressive. Thank you. Okay. Thank you. The next question is from Woody Lee, Mega Profit. Can you share with us the current status of our Type-C or USB 4.0 development, and also the current revenue contribution for those two products? A little bit difficult to answer this one. USB 4.0, or actually it's USB4. USB4, the solution is still in development, so there's no revenue from USB4 today. At least not from Realtek. Type-C wise, is spread in several product lines. It's also difficult, at least I do not have the tally on hand. At Realtek, we do have quite a few product lines using Type-C. Okay. The investors also want to ask about the product roadmap or planning of our Wi-Fi 6 and LTE NB-IoT. 11ax or Wi-Fi 6, we have commented the next spec upgrade will be 6E, and after 6E, there will be 11be or called Wi-Fi 7. That's also in progress. NB-IoT is a totally different product development. We have both have engineering effort on NB-IoT, but not in shipment yet. Thank you. Okay. There's other questions regarding the worry about the overbooking. Recently, the market has worried the overbooking situation. Could management explain the current situation and how we can react? As we say, customers are very aggressive in placing order, the reality is supply is lagging demand by a significant margin. Whether the aggressive booking includes overbooking, while we do not rule out the possibility, what we say is that we pay close monitoring to the inventory build-up in the channel. In our distributor, in our end customers. Currently, we will report that we still have not seen any sign of inventory build-up in the channel. In that sense, the worry about overbooking, we tend to say is irrelevant at this time. We will pay close attention to the inventory situation. Once the inventory starts building up, the overbooking can become a real concern. Thank you. Thank you. The next question is from Kiko Lee, UBS. Is the company be able to pass all the cost up to the customers? All or not, that is very difficult to answer. As we say, the market has its way to determine the price. All we can say is to emphasize again that in our pricing, we have to reflect the cost, take that into consideration for a healthy long-term operation, long-term growth. Thank you. Okay. The final question is from the investor, Kevin Sham. His question is whether Realtek has the plan to increase the cash dividend payout. Okay. The cash dividend payout, we're still at a high level. I think this year, you will see the results soon. Yeah, I think with a good business result, we should see that. Thank you. Okay. Due to the time constraint, we will conclude the meeting now. Thanks for your participation today. Thank you, and have a good afternoon.