Good afternoon, everyone. Welcome to Realtek's 2023 first quarter earnings call. This call is chaired by Realtek Spokesperson, Yee- Wei Huang. The presentation will be available on the company website before 6:00 P.M. today. At the beginning, our spokesperson will report our first 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's presented in this call contain forward-looking statements. Investors are cautioned that forward-looking statements involve risks and uncertainty. Actual results may differ materially from the results forecasted or implied in such statements. Investors should not place undue reliance on such statements. I'll pass this call to our spokesperson, Yee- Wei. Thank you. Good afternoon, ladies and gentlemen, on the line. You are currently participating in the first quarter 2023 webcast earning release hosted by Realtek Semiconductor Corporation. Now, let us go through the first quarter 2023 operational results. Q1 revenue was TWD 19.63 billion, a 9.8% QoQ drop, and a 34% decline compared to the same period in 2022. We believe Q1 is the trough of the current cycle. We expect second quarter to be better than the first, and the second half better than the first half, as far as we can see now. Q1 gross margin was 43.1%, a 0.6 percentage point drop compared to the previous quarter. Main factors leading to the drop include, one, product mix change. Two, high average cost. Three, ASP pressure from competitions as well as customers. Four, accounting loss from slow-moving inventory. These factors are expected to stay in the short term. Nevertheless, we believe that the mid to long-term gross profit margin may still be better than that before COVID-19. Q1 operating expense was NTD 7.05 billion or 35.9% of revenue. OpEx drops QoQ, but OpEx ratio creeps up a little due to a lower quarterly revenue. Assuming the revenue will improve in the second quarter and in the second half as forecast, we expect the OpEx ratio to stay at roughly the same level as that in 2022. Operating profit in Q1 was NTD 1.42 billion or 7.2% of revenue. Lower revenue and gross margin and higher OpEx ratio led to the sliding of operating profit ratio. Q1 non-op income was TWD 454 million, which is about the same as the last quarter. Q1 net profit was TWD 1.79 billion or 9.1% of revenue. Q1 EPS, as a result, was TWD 3.5. Regarding inventory, Q1 inventory turnover days were at 210 days, a six-day increase from the 204 days last quarter. The increase in turnover days is a result of a lower revenue run rate. In terms of dollar amount, Q1 inventory decreased by 17% compared to the last quarter. We also have first quarter 2023 balance sheet and cash flow statement for your reference at your convenience. This concludes Realtek first quarter financial report. For the second quarter in the near term, with the improvement of the downstream inventory situation. The stabilization of demand in some markets. The second quarter operation looks prudently steady. The overall market visibility is limited. We have to watch closely the impact of global economic changes on the end demand. Let's review the top product lines at Realtek. Before that, we observed that PC versus non-PC revenue split was approximately at 29 to 71 in the first quarter. Two related factors contribute to a tilt in revenue toward PC related products in the first quarter. First, PC related shipment was held back a lot in fourth quarter last year to help Realtek customers and channels manage their inventory. Two, PC rush orders seen in the first quarter. On Ethernet, overall, we are seeing customers resuming their orders and restocking inventory in Q1. Ethernet revenues from the PC segment, especially for motherboards and consumer PCs, fare better than other segments in Q1. This is because we have held back Ethernet shipment more to PC customers than others in fourth quarter last year in concurrence with the requests from the PC customers. Although the market visibility is limited, we don't expect the Ethernet market to improve further in the second quarter with the preparation for the coming hot season in both PC and the Gaming markets. The switch business remain anemic in the first quarter and won't see significant rebound in the second quarter because the demand is still weak due to geopolitical tension between U.S. and China, as well as that in Europe. Plus, the downstream is still in inventory digestion mode. However, Realtek still expects the market to gradually return later in 2023 and continue its recovery in 2024. We see mid to long-term growth in managed switch and multi-gig switches. Now, on Wi-Fi. Now, similar to Ethernet, Wi-Fi business did better in PC and Consumer segments in the first quarter. With IoT, Wi-Fi IoT outperforming all other Wi-Fi applications. China market seem to be quieter than that outside China. Despite a slow start and slow spec upgrade in other areas, Wi-Fi 6 penetration continues its strength in PC and router applications. Wi-Fi 6 is expected to reach up to 70% in PC application in 2023. For router, Wi-Fi 6 penetration may reach up to 60%, each up to 10 percentage points higher than the respective penetration in 2022. For Realtek, Wi-Fi 6 revenue today accounts for about 30% of total Wi-Fi revenue. We expect this will gradually, Wi-Fi 6 will gradually outgrow others in foreseeable future. Wi-Fi 7 plus FaST continue as we speak, and will go on until mid-year. It will be 2024, 2025, before we may see volume shipment of products using Wi-Fi 7 because of high price, complicated spec, and more. Now, on codec, audio codec. Although PC market may have bottomed out as evidenced by some rush order in Q1, the full year outlook remains conservative. In fact, many PC OEMs and ODMs seem to forecast a 10% drop in 2023 compared to 2022. For first quarter, IDC reported a 29% year-over-year drop of PC shipment, including desktops, notebooks, Chromebooks, and Apple. This implies a continuing recovery in the second quarter is expected. Realtek expects a notable audio codec QoQ growth in second quarter. For non-PC applications, we continue to see growth opportunity for audio codecs in gaming-related areas. For TV, along with other consumer applications, Realtek TV SoC saw rush order coming in in Q1. The main reason, though, appears to be a reaction to the ASP bottoming out for PTV panels and DRAMs. Full wide TV shipment is expected to be flattish in 2023 compared to last year. Realtek, nevertheless, may see a slight growth for our TV SoC shipment this year. Thank you, Yee-Wei. 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. The first question is from Randy, Credit Suisse. How are you seeing the product momentum by application for the second quarter? Are you seeing business recover across the board or are any areas still showing weakness? Okay. We have seen orders pull in, mainly in Consumer segment and some in PC. To this end, we are cautiously optimistic about second quarter. Nevertheless, it will be premature to read such pull-ins and short-term optimism as a sign of full market recovery. We have to pay close attention to the increasing challenges come from a few directions. You know, price pressure from customers and competitions, limited market visibility and slower than expected spec upgrade. The second question is from Daniel, Morgan Stanley. What's the gross margin outlook recently? Will second quarter gross margin continue to subject to inventory write-off? The short-term pressure on gross margin is still high on all fronts. That will impact second quarter gross margin. You know, pressure include product mix, ASP pressure from competitions and customers, ASP, and also ASP staying at high point at foundry suppliers. Of course, yes, slow-moving inventory write-off on selected products. Next question is from Jun-Jie Chang. Will you anticipate the first quarter 2023 revenue be the trough of the year? Will also the growth margin be the trough of the year in the first quarter 2023? Well, as we mentioned, all the pressure on gross margin still exists. On the other hand, we also expect second quarter to grow steadily. The two, this action, they actually counteract each other. I wouldn't be able to tell you with certainty where we will land on gross margin in the second quarter. Thank you, Yee-Wei. A follow-up question regarding the profitability. Bruce, Goldman Sachs, would like to ask, what's your expectation on profitability for the first half 2023 and second half 2023? What's your expectation for a reasonable long-term profitability and growth margin level? We still plan for a better second half than the first, both in terms of revenue and growth margin, provided that the forecast for a strong second half this year holds. Nevertheless, we have to reiterate that the visibility for the second half is very murky at the present time. For long term, we still strive for a growth margin around the high end of our historic range before COVID-19, if not higher. Next question is from Sunny, UBS, regarding OpEx ratio. What is your target on the R&D expense and OpEx ratio in amount for 2023? What's the reasonable OpEx ratio going forward? Okay. For 2023, we plan for roughly the same level of R&D expense and OpEx ratio as those of 2022. In the long run, lowering our OpEx ratio a few percentage points less than the current level is still our goal that we believe to be achievable. Next question is from William, JP Morgan. What is the market and order visibility for three major applications such as Consumer, PC, and Networking? How strong is the rebound in second half 2023? We are seeing rush orders as we speak. These orders are almost all of the nature of order pulling in. The majority of them come from the Consumer segment and some from PC-related. Most, if not all, of our customer in all segments express limited visibility for the second half. For planning purpose, nevertheless, all still plan for a notable better second half than the first. Realtek is planning the same. We're likely to know better toward the end of second quarter. Next question is from Fion, Daiwa. Are we still maintaining our 2023 revenue guidance to flat 2022? We do not really give guidance per se, at least not quantitatively. We will say, you know, all the goal we set, we'll try. Today, we do see the challenge, by the end of the first quarter, the challenge we see is more severe than we started the year. We will, work on one quarter at a time and come back to this toward the end of the quarter. Thank you, Yee-Wei. Next question is from Reese, Daiwa. His question is about inventory. How's inventory situation of Realtek's own inventory, as well as customers and distributors now? Okay. After focusing efforts in fourth quarter 2022 to help Realtek customers and channels manage their inventory, we are seeing inventories outside Realtek reasonable in most cases. In first quarter, we see in-house inventory in terms of absolute dollar amount decreasing in spite of an increase in inventory turnover days. Moving forward, we will adjust new wafer starts dynamically by taking all factors into consideration, including market demand, wafer price, and potential particular wafer supply constraints. Next question is still regarding inventory. Randy, Credit Suisse. Question is, how do you see your inventory trending down in the coming quarters? When do you expect to get back towards 100 days or lower, if that is still your target? As we just explained, due to the dynamic nature of the market we are living in today, moving forward, we will have to take all factors into consideration before we decide the new wafer starts each month. To this end, setting less than 100 days may not be an optimal goal as we try to optimize our business operation. The next question is from Lucas, KGI. What's our foundry supply status in 2023? Which quarter will we start to increase wafer order placement in 2023? When will foundry costs start to decline in our view? Okay. As far as we know, most, if not all, foundry fabs are not running at full capacity at the present time. Many of them, nevertheless, are seeing the utilization to pick up in the second half, and even more so in 2024. While all these may change, one thing seems to be certain is that there's no new wafer capacity expansion in 2023. To this end, Realtek is quoting with our foundry partners to do planned wafer starts beyond the original plan. We are not in a position to comment on wafer foundry costs. Suffice it to say, nevertheless, the rising interest rate and energy costs are not conducive to a cost reduction for the Semiconductor industry. Next question is from Jason, CLSA. Regarding PC demand, can you update on the demand or sales outlook and current inventory for your PC notebook product line? The latest IDC forecast says that PC notebook market will decline 10.7% year-over-year to about 260.8 million units in 2023. This is a view more conservative than one with three months ago, shared by many OEM and ODM PC makers. The inventory level for Realtek PC customers in the first quarter is generally improving after our focused efforts to help their inventory management in the fourth quarter. As evidence, some PC customers are placing order to rebuild their inventory. Next question is on audio codec by UBS Sunny. Could you also talk about the competitive landscape and technology upgrade in the audio codec? Maybe SoundWire is introduced almost 10 years ago in 2014, was intended to replace HDA and I2S in PCs and embedded systems. It is gaining traction nevertheless, slowly but surely. Besides being a leader in HDA codec, Realtek SoundWire solution are found in most PC reference designs as a frontrunner. TI and Cirrus Logic are also players in SoundWire solutions. The next question's on telco project from Randy, Credit Suisse. How is the project activity expected to pick up into the coming quarter and continuing through second half both for China and overseas? Global telco market appears to maintain a minimal level of activities in the first quarter, largely owing to geographical tension between U.S. and China, as well as that in Europe. Realtek still expects the market to gradually return later in 2023, continue its recovery in 2024, as the need for continuing network infrastructure expansion remains. Infrastructure expansion is a tool which governments of all regions often use to stimulate their economic growth. Thank you, Yee-Wei. Next question is from Jason, CLSA. How's the Wi-Fi 6 and 6E penetration rate for different applications, such as PC, notebook, router, TV, and consumer devices? Okay. We are seeing the strength of Wi-Fi 6 penetration continues. It may reach up to 70% for PC notebook and up to 60% for routers by the end of 2023. For TV and other consumer devices, the adoption of Wi-Fi 6 is rather limited. Overall, there seem to be less than 5% TV that are installed with Wi-Fi 6 today. The penetration rate may go up a couple of percentage points by the end of the year as far as we can see. Wi-Fi 5 is the mainstream Wi-Fi solution for TV, for consumer application in general. The adoption of Wi-Fi 6E seems to be marginal, as not all countries have approved the 6 GHz band for Wi-Fi. For those applications that may need the cleaner 6 GHz spectrum, many, if not all, will do it with Wi-Fi 7, which supports the 6 GHz band, plus many other desirable features. Next question is from Marco Lam from MLP. Could you comment on the Wi-Fi competition in China, such as HiSilicon and others? We do run into China indigenous Wi-Fi solution supplier. Up to now, they still seem to more on either Wi-Fi 4 or Wi-Fi 5. We have not really seen much, if any, really, at the present time, very active in Wi-Fi 6. We'll continue to monitor the situation. Next question is from Daniel, Morgan Stanley. What's the current Wi-Fi ASP allocation for each generation? What is the current Wi-Fi 7 progress? Okay. The ASP ratio among Wi-Fi 4, 5, and 6 is roughly 1 to 2.5 to 4.2 by the end of first quarter. It was 1 to 3 to 4.5 a quarter ago. Clearly, the ASP of Wi-Fi 5 and 6 are dropping relative to Wi-Fi 4. Realtek is actively involved in the process and supporting customers design-ins at the same time. Due to the high price, probably at about 10x relative to 1.4, it is that the first wave of 1.7 products are aiming at high-end routers and mass production is not expected until 2024. The next question is from Sunny UBS. What are the drivers to managed switches and 2.5G Ethernet? For switches, what's the split of managed switch versus unmanaged switch last year? How many fold would you expect managed switch to account for in two to three years? What's the latest progress of your share gain in managed switches? A common theme behind managed switch and 2.5G, or for that matter, Multi-Gig Ethernet, is the enhancement in feature and performance, which is a growth driver for both Ethernet and switch business for Realtek in the coming two, three years, despite the market is still facing short-term headwind. 2.5G Ethernet today is mainly used in high-end PCs, motherboards, some gaming PCs and peripherals, such as docking stations and dongles in PC and monitor applications. In addition, there is also demand for 2.5G and Multi-Gig Ethernet in routers and broadband equipment. We expect to see a steady increase of penetration once the market demand recovers. Realtek Multi-Gig Ethernet solution are superior to competitors in terms of power consumption, interoperability, and cost performance ratio. The market TAM for managed switch has been far bigger than that for unmanaged switch. Driven by the needs in post-pandemic and 5G technology trend, we are seeing increasing demand for higher speed and more manageability. Realtek continues to develop new generation Ethernet and switch products to enlarge our market share step by step. Next question is Automotive Ethernet related from Kevin, Mizuho. Can Realtek provide recent updates on current sales contribution from Automotive Ethernet IC? What is the current penetration rate of Ethernet IC in automotive and market share? What is the sales contribution target for this product line in 2024-2025? Other than Ethernet IC, do you plan to offer other ICs in the automotive application? Okay. We do not comment on revenue contribution by a single product line, nor do we comment on market share. Suffice it to say, nevertheless, Realtek Automotive Ethernet product line continues to make strides in the Automotive market, growing at an above corporate average growth rate. The growth momentum is expected to continue into 2024, 2025. Overall, about 50% of the new cars today have at least level one autonomous driving, which almost guarantees the adoption of Automotive Ethernet. The Automotive Ethernet market is served by a small number of Ethernet veterans such as Broadcom and Marvell, besides Realtek. Every player is highly competitive. With the success of Ethernet PHYs and switches, automotive OEMs and Tier ones today recognize Realtek as a quality automotive silicon solution provider. They are inviting Realtek to discuss with them silicon solutions for cars in addition to Ethernet. We will disclose our progress and achievements to you at appropriate time. In the mid to long term, revenue related to the Automotive market will play an increasingly important role in Realtek's growth. The next question is regarding Consumer market from Randy Credit Suisse. Do you see TV and consumer applications continuing to improve? Will there be a margin impact from mix shift back towards consumer? Well, Realtek's presence in the Consumer market, including TV, has a long history with a steadfast foothold. This segment seems to be doing better than others in Q1. In short term, the product mix will impact the corporate growth margin. Nevertheless, we expect the business will gradually recover and the spec upgrade will continue in all-We play in, including PC, network communications, and automotive. Forward-looking, we have our eyes on healthcare and Industrial segment. Based on all above, we do expect there will be headroom for growth margin to improve in the long run. Thank you, Yee-Wei. Next question is from Lucas, KGI. He would like to know demand outlook for the TWS products in 2023-2024. What is the company's view about the competitive landscape within the TWS market? What is Realtek's advantage compared to its peers in the TWS area? Do we see greater pricing competition from our peers? Realtek has gradually exited pure price competition segment since the beginning of the supply shortage in 2020. The price competition in this segment is ruthless, to say the least. We continue to invest in BT SoC solutions, aiming at high-end, high-value TWS applications, such as the one with hearing assist features, as well as wearables supporting audio voice features. Realtek has a complete Bluetooth product line, including BT NIC and BLE SoC that address a wide array of applications, such as Electronic Shelf Labels, remote controller, and wearables that require efficient short-range, low-power wireless connectivity. Bluetooth will remain a focus wireless connectivity product line in Realtek. Next question is from Sunny, UBS. Can you talk about the progress roadmap in the USB4 and the PCIe 5.0? Presumably, your focus is on the host end. Well, Realtek first USB4 product, which is a full feature USB4 hub controller, is at customer site for testing. It is scheduled to reach production by year end. Our first PCIe 5.0 SSD controller is on schedule to come out in the second half of this year. Next question is from Sunny, UBS. Regarding competition, with the demand correction and inventory digestion, are you seeing increasing competition? Does any specific product line see more pricing pressure? Well, there's never a shortage of competitions at any time. While the global economy is weak and inventory challenges still exist in various parts of the industries, they do aggravate the price pressure. We have to cautiously adjust our business and procurement strategy to fare well against the fierce competition. Thank you, Yee-Wei. Next question is from Lucas, KGI. He would like to know the R&D head count, and what's our ideal R&D head count in 2023, and how would it impact the R&D expense in 2023? Well, we see 2023 not a strong growth year in terms of top line revenue. While we intend to keep R&D expense and operating expense ratios to about the same level as those in 2022. To this end, we do not envision a big change in our R&D headcount. Note, nonetheless, we will not stop scouting for talents and recruit them, and bring them in when we find them. The next question is from Daniel, Morgan Stanley. Does Realtek have any new products, technologies that is likely to be the mid to long-term growth driver? Realtek continues to focus on various technology solutions that enable ubiquitous connectivity among machines and between machines and humans. Such solutions often complement 5G networks that provide a wide area network infrastructure, while Realtek solutions offer local and personal area networks completed with an audio-video-based most natural man-machine interface. To this end, Realtek sees two enabling technologies that may fuel future growth for the company. One, optical-based network communication technologies. Two, AI-based audio-video solutions. We plan to have products embedding these technologies in time, We'll share the progress in due time. BesidAs, on top of the markets we serve today, we target to expand market into Auto, Healthcare, Industrial segments, which will support the long-term growth of the company as well. Next question is from Shen Zheng, KB Life. He would like to know, you mentioned the slower spec upgrade than expected. Which product are impacted? We did mention Wi-Fi seems to defy this, spec upgrade slowness. That implies that, you know, other than Wi-Fi, for example, the 2.5 gig, 5 gig Ethernet, you know, as an example, that's being affected. Due to 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.