Good afternoon, everyone. Welcome to Realtek's 2021 Fourth Quarter 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 fourth quarter results and give a management's remark. After that, we will have a Q&A session. 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. Note that portions of what presented in this call contain forward-looking statements. Investors are cautious that forward-looking statements involve risk and uncertainty. The actual results may differ materially from the results forecasted or implied in such statements, and that investors should not place undue reliance on such statements. Now, let us invite Realtek Spokesman, Yee-Wei Huang, to present the financial report and business update for the fourth quarter of 2021. Thank you, Lilia. Good afternoon, ladies and gentlemen on the line. You are listening to 4Q 2020 webcast earnings release by Realtek Semiconductor Corporation. First, I'm sure you all have a relaxing Lunar New Year break. Welcome back. We at Realtek wish you a very healthy and prosperous year of the tiger. Now, let us go through 4Q 2021 operational results. On revenue, Q4 revenue was TWD 27.37 billion. A mild 5.5% quarter-over-quarter decrease, and a 23.9% increase compared to the same period in 2020. The mild drop in Q4 reflects both the year-end seasonality effect, and slowness in some consumer market. It is worth mentioning, nevertheless, that the drop does not imply demand weakness in the market overall. On the contrary, we see the market demand remains strong as we enter 2022. Q4 gross margin was 52.9% compared to 52.6% in third quarter 2021. Steady shift in product mix under supply constraints, to favor products with better profitability contributes to the gross margin increase. Q4 operating expense was TWD 9.79 billion, or 35.8% of revenue. Similar to the last quarter, the OpEx ratio increase is mainly a result of, one, continuing engineering and other investments to expand and secure supply for the future. Two, larger bonus accrual. We strive, nevertheless, to reduce the operating expense ratio as the company continues to scale up. Q4 operating profit was TWD 4.68 billion, or 17.1% of revenue. Higher operating expense is the main reason for the drop in operating profit. Q4 non-op income was TWD 136 million, which reflects a recovery from the loss on value on financial assets in third quarter. Q4 net profit was TWD 4.61 billion, or 16.8% of revenue. Q4 EPS as a result was TWD 9.02, a small drop from the TWD 9.57 in third quarter last year. Regarding inventory, Q4 inventory turnover days was at 119 days. This compared to 97 days in Q3. There are mainly two reasons causing the inventory increase. One, year-end customer inventory adjustment. Two, continuing supply imbalance in key components, resulting in certain parts of inventory waiting for the others. Overall, we are confident that the inventory will be consumed in due time. We also have the fourth quarter balance sheet and cash flow statement for your perusal at your convenience. Now, we also quickly go through Realtek 2021 full- year operational results. 2021 revenue was TWD 105.5 billion. Breaking the TWD 100 billion mark, while delivering another year of record high revenue with a strong 35.7% year-over-year growth. 2021 gross margin was 50.4%, compared to 42.8% in 2020. 2021 operating expense was TWD 35.9 billion, or 34.0% of revenue compared to 31.6% in 2020. 2021 operating income was TWD 17.33 billion, or 16.4% of revenue. A marked improvement over the 11.1% in 2020. 2021 non-op income was TWD 250 million compared to TWD 717 million in 2020. 2021 net income was TWD 16.85 billion, or 16.0% of revenue compared to 11.3% in 2020. As a result, 2021 EPS was TWD 33, better than TWD 17.24 in 2020. This concludes Realtek 4Q and 2021 financial report. Forward-looking, the market demand momentum remains positive in the first quarter 2022. Nevertheless, it is still necessary to pay close attention to the circumstances revolving around the semiconductor supply chain capacity and changes in COVID-19. As before now, let's review the top product lines at Realtek. On Ethernet, a strong growth engine for Realtek, both in fourth quarter 2021 and in 2022. In the face of the supply shortage, product mix changes to favor gigabit Ethernet and 2.5 Gb Ethernet, thereby boosting the growth. During CES, Realtek announced that we will launch the world's smallest 5 Gb Ethernet controller at the end of this year to meet a wide range of applications, including PC and accessories, PON, cable modem, Wi-Fi 6 router, switch, et cetera. As 5 Gb Ethernet can stay with the Cat 5e cable, we see strong growth opportunity for Realtek Ethernet in the foreseeable future. On switch, it's another strong growth engine for Realtek both in the fourth quarter last year and 2022. As both 5G and COVID-19 has demanded and continues to demand network backbone upgrade for more families with greater manageability. We expect at least 10% annual growth in 10G in the next three to five years. Along with the growth of the 10G, Realtek is confident in market share gain. In 2022, we are introducing multi-port 10G PHY for switch, and also come with 2.5 Gb Ethernet. New Layer 3 managed switch. All of these will drive another wave of growth for switch product line. Regarding Wi-Fi, the market clearly is migrating to Wi-Fi 6 as we speak. We expect Wi-Fi 6 penetration to reach 50%-60% in PC and about 40% in routers. We also observe an adoption ramp up of Wi-Fi 6 in broadband related market in 2022. Customer products using Realtek Wi-Fi 6E are ongoing. However, we do not expect a fast ramp of Wi-Fi 6E this year for various reasons. For example, price premium and limited countries with Wi-Fi 6E enabled. Wi-Fi 7 is under development. In the coming years, when Wi-Fi 7 is ready for MP, likely in second- half of 2023, Wi-Fi 6E is likely to gradually replace Wi-Fi 6. Wi-Fi 5 and Wi-Fi 4, may continue with a long tail for various cost-sensitive applications. For PC audio codec, we expect the PC market, which grew a mild 1.4% year-over-year in 1Q 2021, yielding a 15% annual growth of the PC market in 2021. Although the consumer PC segment has slowed down since the end of third quarter last year, the commercial PC demand quickly replaced consumer PC in driving the PC market growth. It is worth noting that commercial PC on average adopts a higher spec. For example, audio codec with Smart Amp and better SNR, signal-to-noise ratio, thereby favoring better business performance. We expect a robust growth in Realtek PC audio codec in a stable PC market in 2022. Regarding TV, in spite of some optimism in the beginning of the year, last year citing Tokyo Olympics and European Football Championship delaying from 2021 due to COVID-19 pandemic. The global TV market dropped around 3% to about 210 million in 2021. The reasons were many. For example, high panel price in the first half, followed by a sharp price drop in the second- half. Also semiconductor component supply shortage and the weakening of the consumer market in fourth quarter, to name a few. Realtek TV was flattish in 2021, in line with our expectation. Our view of Realtek TV in 2022 is about the same as last year, flattish. Last but not the least, Bluetooth. The demand for Realtek BT NIC for remote controller and BLE SoC for wearable remains very strong. However, BT SoC for TWS did not fare well in 2021 for several reasons. For example, supply constraint, irrational cut in both mainstream and entry segments. Amazon shutting down over 3,000 Chinese brands, online stores with fake reviews. In 2022 and beyond, nevertheless, Realtek will introduce new solutions with LE Audio Broadcast Isochronous Stream Solution, achieving one-to-N broadcasting to enable new applications. Overall, we expect a steady growth of Bluetooth product line in 2022. Thank you, Yee-Wei. Now we are entering the Q&A session. Please type your questions in the box in the lower right corner on the screen. We will reply accordingly. Now the first question is from Randy, Credit Suisse. What is your view of gross margin sustaining above 50% when supply catches up? Has anything changed that could keep gross margin higher than the older structure? It is important to understand that a change in product mix favoring high-end products is the main reason behind the 50%+ gross margin we see today. Moving forward, Realtek accentuates development of products with quality, features, and performance. We believe that this will make the current level of gross margin sustainable as the user behaviors are attuned to appreciate quality, features, and performance. Make no mistake, nevertheless, Realtek will continue to be a mass market enabler, making technologies and our products broadly acceptable and affordable by the mass market. To this end, when the supply catches up, there's bound to be price pressure in some end markets where we will have to find a balance between keeping the top line growth and maintaining the gross margin. We can do it. Followed by the first question, Randy would like to ask, do you have an expectation for OpEx growth or OpEx ratio of sales in 2022? What is your year-end headcount, and how much do you target to grow? Are you seeing more wage inflation or turnover in a tight market? Yes. Well, although the operating expense ratio showed an upward trend in 2021 due to extra efforts to secure mid and long-term supplies, as well as bigger bonus accrual. As mentioned earlier, Realtek strives to reduce the operating expense ratio as the company continues to scale up. By the end of 2021, Realtek total global headcount was about 6,300, approximately a 6.8% growth compared to the end of 2020. We expect the headcount to grow by roughly the same percentage in 2022. There appear to be an escalation in competition for talent since the importance of semiconductor was escalated globally in 2021 due to supply shortage. The competition drove up the salary among other impacts. Talent recruit and retention are always a focus for Realtek, and for that matter, all semiconductor companies. Through focused efforts, including offering a very competitive compensation package, Realtek has always managed to maintain a relatively low turnover rate. Next question is from Daniel, Morgan Stanley. Regarding demand outlook, could you give us some colors about your view about changes on the demand across different product line in the near term? There are two notable changes in the near term to observe. One, softness of the consumer market since third quarter last year. Two, the very strong this strength of network infrastructure-related applications, including the tender projects from the telco operators. Also, question by Daniel is regarding inventory. Could you give us the breakdown on wafer, back-end material, WIP and finished goods? Particular product line have higher inventory? Or when will you expect the days over inventory to go down to healthy level for 80-90 days? Well, the last part first, we believe the turnover date will gradually drop. We don't have a target date per se on when to reach certain level. The product lines overall, consumer seems to be a little bit higher than the others. The first part on breakdown of our wafer, b ack-end material, with and finis ed goods, we do not have such a breakdown on hand at this point. Okay. Next question. Rick from Daiwa would like to ask, company previously mentioned first- half 2022 to continue the strength in second- half of 2021. Could we have more color for this second- half 2022 among key product lines? The demand we see in second- half last year, which are continuing in the first- half of 2022 as we speak, come from a few areas. One, increasing demand from the commercial segment as people are returning to the office. Two, continuing wired and wireless infrastructure upgrades as 5G deployment expands. Note that though Realtek is not a 5G player per se, our solutions such as Wi-Fi 6, Bluetooth, 2.5 Gb Ethernet switch, are all highly complementary to the 5G deployment. Three, increasing silicon content in the automotive segment, especially in light of the push for electrification by the auto industry. In spite of the current demand strength, it is hard to predict the market situation in six months. In the face of the uncertainty, nevertheless, Realtek will invest on products with ever-improved features and price-performance ratio to fuel the growth, even if the overall market may slow down cyclically. Two questions from Sunny Lin, UBS. It's related to the foundry supply. The first question is, the company talked engineering invest for new foundry capacity in 2022. How much do you expect Realtek supply to grow in 2022? The second question is, how much of your supply is 8 in versus 12 in as of now? What areas do you see the potential to migrate from 8 in- 12 in? What would be the major challenge to the fab migration? Well, Realtek has secured more wafers for 2022 than 2021 overall, including some new 8 in wafers from newly qualified foundries. Overall, Realtek consume more 12 in than 8 in, both last year and moving forward. We choose products to move from 8 in- 12 in mainly based on a few criteria. One, timeliness of a specific wafer fab. Their future prospects, in particular. Two, impact of resulting porting. Three, engineering resources required for the porting. The biggest challenge is always the resources. Next question is from Kevin, Mizuho. He would like to get an update on the inventory level across the segments, both on our side and customer side. Well, the inventory level for Realtek is relatively high coming out of Q4 2021. There's no need for panic, nevertheless. The inventory came mainly for supply balance, year-end seasonal adjustment, including taking into account port congestion seen by many customers for some products. We expect the inventory to start dropping entering 2022. Next question is from William, JP Morgan. Can Realtek continue to pass through foundry cost hikes to its client? Which product Realtek have better bargaining power? Well, on one hand, Realtek vendors are still giving hints about further price hike in 2022. While on the other hand, we're hearing from many of our customers that they can no longer bear further price hike. Realtek will work with our vendors and customers closely to cope with the situation. We do not see any particular product has better bargaining power than others do. Next question. Bruce from Goldman would like to ask a PC market-related question. On PC, is the trend strong commercial but weaker consumer demand remain the same into 2022? Recently hearing some demand recovery for Chromebook from supply chain in first quarter 2022. What's your view on this? Any updated expectation for PC shipment growth for 2022? Commercial segment has become the growth driver, since the consumer segment showed weakness toward the end of third quarter last year. The situation remained the same in fourth quarter and entering 2022. From what we know, this may continue at least in the first- half this year. Overall, we still see the PC shipments to be flattish to slightly up single-digit% in 2022. Regarding Chromebook, it grew 42% in 2020 and another 14% to reach around TWD 37 million in 2021. The main applications have always been in the educational market. That, we expect to stay flat in 2022 compared to 2021. We observe that Chromebook may attempt the corporate market, although it may be too early to predict the result. For 2022, we see a flattish Chromebook sales comparable to the 2021 level. Next question is from Jason, CLSA. He would like to know the mix of Realtek's Wi-Fi by generation and the price gap among those products. Yeah. Realtek Wi-Fi shipment was dominated by Wi-Fi 5 and Wi-Fi 4 in 2021, while Wi-Fi 4, including IoT products, outsold Wi-Fi 5. We started to see the mix shifting in favor of Wi-Fi 6, followed by Wi-Fi 5 in second half 2021. The speed for Wi-Fi 6 penetration will accelerate in 2022. The price gap among different generations is roughly one to three to 4.5 among Wi-Fi 4, 5, and 6. Wi-Fi 6E is expected to add another 20%-30% price premium over Wi-Fi 6. A follow-up question for Wi-Fi. Sunny Lin, UBS would like to ask, for Wi-Fi 7, are you moving to FinFET like your peers? Previously, most of your connectivity products are at 40 nano and 20 nano. How do you navigate the migration to more advanced nodes? Yes. Realtek plans to move to FinFET for Wi-Fi 7. In general, Realtek sees it part of our technology roadmap for all products in the company, including those for communications and networking, to migrate to more advanced node in time. Oftentimes, for the reason of low power consideration and sometimes for high performance needs. Questions from Daniel, Morgan Stanley. Please share your view on Chinese telco bidding projects, including the market TAM and spec changes in set-top box, PON, and router. Okay. We'll start with the PON. China telco PON market TAM was greater than 100 million sets in 2021. The shipment increase compared to that in 2020 was a result of a push for telco infrastructure build-up in China, especially in second half last- year. In the face of the supply shortage, the majority of the shipments in 2021 were 2.5G PON, 2.5G-PON, with single band Wi-Fi 5 or no Wi-Fi. That is, a reduced spec was acceptable to enable a shipment increase. Very few 10G-PON was shipped in 2021. The major suppliers were ZTE Microelectronics, Realtek, and Econet. For 2022, TAM may grow to 115 million sets or about 15% year-over-year growth compared to last year. 10G-PON penetration may be up to 20%, thereby driving the adoption of Wi-Fi 6. To cope with the supply shortage, nevertheless, new projects tend to include flexible specs in Wi-Fi and voice control. A follow-up question. No, hold on. For telco, OTT TAM was 15-16 million in 2021. We see 2022 TAM may stay flat due to weakening housing market. Unlike PON, which is part of the infrastructure build-up, OTT business is oftentimes with new home sales, thereby new subscribers. For OTT, many came without Wi-Fi, but used Bluetooth only in 2021. It is expected that some may return to Wi-Fi 5, while some may move up to Wi-Fi 6 combos in 2022. Last, on telco, China telco, this router shipment, it was about 50 million sets in 2021, which made up 50%-66% of the global shipment. The TAM is expected to stay flat or grow a little in 2022. Most of the telco routers were shipped with Wi-Fi 5 and Gigabit Ethernet in 2021. In 2022, Wi-Fi 6 penetration is expected to be greater than 50%. Well, also in 2022, telco will push for Wi-Fi 6 AX3000, thereby contributing to the growth for both cloud router and Wi-Fi. A follow-up question from Randy. What's our view on overseas telco projects, including market trend and Realtek's role in those markets? Okay. Well, we turn to global. For PON, global telco PON was about 165 million sets in 2021. In 2022, the specs were generally more aggressive than those in China. Moreover, they were fixed and inflexible. Low shipment will be a direct result of supply shortage. For 2022, global TAM may grow to 180-190 million sets, with a spec generally higher than that seen in China. Overall, we can see China is expected to outgrow the rest of the world, including 10G-PON, in 2022. Now, global OTT TAM might be around 100 million last year, and only U.S. and some part of Europe use Wi-Fi 6, while others stay with Wi-Fi 5. In 2022, any growth in global telco OTT TAM may be limited, but with more move to pair with Wi-Fi 6 outside the China market. 2021 global telco router TAM might be less than 100 million sets. Most stay with Wi-Fi 5, except U.S., Europe, and Korea, who started Wi-Fi 6 in 2021. In 2022, more than 50% of U.S., Europe, Korea, and even 50% of Japan and China are targeted to move to Wi-Fi 6 AX3000 plus 2.5 Gb Ethernet in 2022. Next question from CTBC, Bob Chu. What's the revenue split of PC versus non-PC in fourth quarter 2021 for Realtek? By the end of the fourth quarter, we see the split remains around 65%-35%. That is, non-PC to PC, which is the same level the quarter before. Next question is related to the auto Ethernet. Could you give us some colors on it, which including revenue contribution in 2022, competition landscape change, and technology trends? Okay. Both shortage and imbalance in semiconductor supply remain the big challenges for the automotive industry entering 2022. Nevertheless, Realtek automotive Ethernet shipment has been growing steadily entering the fourth year. We expect another strong growth for Realtek Automotive Ethernet. Main competitors are familiar names, such as Marvell, Broadcom, and even NXP. The technology involved are progressing in a few fronts. One, speed from 10/100 Mbps to 1 Gbps, to multi-gig, including 2.5 and 10 Gbps. To match with the highest speed interface from XFI to PCIe 4.0 to 10GBASE-KR. For safety, so that Ethernet, automotive Ethernet can apply to more part of the application, we now need to meet ISO 26262 ASIL B classification. For data security, again, to expand the Ethernet adoption in the car, we are adopting ACL (A ccess Control List), VLAN, and MACsec for authentication and encryption over Layer 2 LAN. To support all this automotive Ethernet switch need higher core capacity, up to 60 or even 100 Gbps. Next question is related to the metaverse. How is Realtek's portfolio positioned for this opportunity? Any shifts in your product development to capture this more immersive internet trend? Sure. The metaverse is the next generation platform built on internet. As such, every solution Realtek offers, from Ethernet to switch to Wi-Fi to Bluetooth to audio and video capturing and rendering, all of these can find their places for the realization of the metaverse. Realtek will continue to focus on what we are good at and work with our customers to apply Realtek solutions to the metaverse. The game is afoot. A follow-up question on auto market. Do we see other product opportunity for Realtek? If yes, could you share some colors on the development status? Sure. While we're seeing automotive OEM and tier one are all expressing interest in Realtek products such as Wi-Fi and Bluetooth and more. We take one step at a time while discussing with them for other applications. Our current focus remains on automotive Ethernet and switch. Next question is for TV. What's our view on TV market and Realtek's TV SoC growth in 2022? Well, after a sluggish 2021 and second- half in particular, the TV market TAM in 2022 is expected to return to the 2020 level of 217 million sets according to TrendForce. Large screen greater than 40 in and international brands are expected to dominate the market. Realtek maintains a strong position in the global TV market, although we see 2022 a flat year for Realtek TV SoC due to supply constraints. Thank you, Yee-Wei. Due to the time constraint, we will conclude the meeting now. Thanks for your participation today. Please feel free to contact our IR team if you have further questions after the meeting. The replay will be available on the IR page of the company website before 6:00 P.M. Thank you and have a good afternoon.