Welcome to E Ink fourth quarter 2020 earnings conference call. All participants are currently in a listen-only mode. After the presentation, there will be a Q&A session. Today's speaker is CFO Mr. Lloyd Chen and Finance Director Mr. Patrick Chang. Good day, everyone. Welcome to E Ink 2020 fourth quarter investor conference. Before I talk about those financials and market information, let's take a quick look at the safe harbor statement. Next page. I'll quickly give you a flavor of what happened in 2020 in terms of the P&L. For the sales revenue, 2020, it was around TWD 15.3 billion, 13% Y-o-Y improvement in NT dollar, 18% Y-o-Y improvement in U.S. dollar. In terms of the operating profit, that was TWD 1.85 billion. In terms of the Y-o-Y improvement, that was 230%. I'm gonna talk about that a bit later. For the non-GAAP, TWD 2.4 billion year-over-year, that was a 24% decrease due to the FX loss and decreased E Ink income. The net income for 2020 was TWD 3.6 billion, and the EPS was TWD 3.18. This one point I would like to bring up. In 2020, the operating profit is nearly equal to the 2020 E Ink gross income. That's about the P&L part. Next page. For the operating profit, as I just mentioned, the Y-o-Y improvement, that was around 230% improvement. Basically, the reason behind was, due to the strong demand from the market across all the categories, such as e-reader, e-notes, signage and ESLs. Of course, last year, due to the COVID-19, we managed the costs and the expenses carefully. That's also one of the minor reasons for the operating profit improvement. All right, next page. The return on equity, given the growing profitability, as you can see from the previous slides, the ROE has been improved from 9.2% in 2018 and to 11.6% in 2020. That's for the ROE. The next page. For the cash flow, 2020 year-end cash position remained strong. Around TWD 13 billion cash at the end of 2020. Versus the cash on hand by end of 2019, that was around TWD 7 billion. Even we have a strong cash flow and position, we still utilize our external bank loan at the lower interest rate on CapEx and dividend cash dividend. That's for the cash flow part. The next page. Okay. Apart from the financial I just presented, our ACeP, Advanced Color ePaper Display system, we also give it a market name, E Ink Gallery, has won the 2020 Taiwan Excellence Gold Award. Basically, ACeP adopts full color e-paper display technology. It has achieved full color gamut and visual effects like post printing by controlling voltage and having full color pigments, including yellow, cyan, magenta, and white, in every pixel for dynamic color mixing. Besides, one of our end products of the e-note, reMarkable 2, has been selected the best inventions of 2020 by Time Magazine last year. Another, our another color technology is called E Ink Kaleido. Basically it's a printing color technology. Also has been selected the 100 greatest innovation of 2020 by a magazine called Popular Science. That's our accomplishment in the past few months. Okay. Before I talk about the Kaleido, actually our new generation Kaleido, it's called a Kaleido Plus. Before I talk about it, let's take a quick look at the video clip to show the Kaleido Plus video capabilities. Please. Okay. I believe you already get a feel about how Kaleido Plus work with the video capability. I would like to briefly explain E Ink Kaleido again, because technology basically it utilizes a new printing color technology. Together with our latest generation e-paper, basically becomes faster, becomes brighter. The new printing process alleviates the need for glass-based CFA, making the display thinner and lighter, while simultaneously having overall higher optical quality. Additionally, E Ink's faster ink enables quicker updates for animations and videos, as you can see from the video clip we just presented. With this new color technology, our E Ink product lines are now able to introduce writing tablet with the color highlighters, pens, and markers, giving new options for education and professional devices. Especially, we want to, the purpose of this technology, combining with the end device, the purpose of it is trying to replace the physical textbook to an e-textbook. As you perhaps still remember that initial Kaleido launch, second quarter last year, the market response went beyond our expectation. It went very well. However, we still took our customers' feedback from the initial launch and incorporated into this upgrade, bringing a new level of color saturation to our color devices. Basically, we look forward on Kaleido Plus being adopted in the e-textbook market in the future, as I just explained. From the slide. Okay, you move to the next page. From the slide, I think you can see two new devices shown there. Basically, we are quite proud to have the support of our leading customers. On the left-hand side, basically, is one of our customer, Onyx. The product is called BOOX NOVA 3 Color. On your right-hand side, one of our customers, PocketBook, and the model name is InkPad Color. Basically, they already launched these two products in the market. That's about the E Ink Kaleido Plus. Given the growing momentum of ESL and e-reader, e-notes happened in 2019, we believe this growing momentum for these two, for those three products can still carry forward to 2021. Basically the advantage of the ESL is to save a lot of manpower and provide real-time dynamic pricing. Because of the lockdown on the major city globally, we noticed that there's still a strong growing momentum on ESL from retail. Even COVID-19 situation later on gets better, the advantage of the dynamic pricing, in other words, online, offline, the price need to be the same. The advantage of the dynamic pricing will still lead a strong ESL growth. Apart from that, in response to the anti-COVID-19 measures, remote learning and online meeting have become a trend. The demand of the e-reader and e-note continues to grow. Better Kaleido Plus, I just mentioned, the color performance, the larger sizes and note-taking function, we expect that it will trigger a wave of the new device purchases, especially on the education market. Next page. As I mentioned, the growing momentum on those, you know, on ESL, e-reader and e-note. In response to the demand of the continuous growth, we endeavor to expand the capacity of the e-paper production. Apart from the existing e-paper production line at Linkou, four additional e-paper production line will be conducted. As you can see from the presentation, line H1 and H2 basically are those investment are being approved by E Ink board last year already. Additional two lines, line H3 and H4 was just approved a few days ago, basically shows our determination to grow the e-paper business. Looking forward, the future prospects of E Ink, I would like to say, the profitability and sustainability are equally important. In response to the continuous growth, we will not only focus on, you know, expanding the e-paper production capacity as I just mentioned, but also, you know, cooperating with the module partners continuously to build up a better ecosystem. Recently, such as Yes, Y-E-S Optoelectronics and Microview Electronics, we had, you know, closely working with them. With those cooperations, we will provide e-paper films and related technology support to the module partners, which also increase the overall module capacity in e-paper ecosystem. Also by leveraging their resources in the vertical market. We work with them to develop diverse e-paper products and expand customer for new business opportunities in new retail, healthcare, wearable, logistic, even the transportation. Furthermore, we definitely understand, you know, the importance of the corporate sustainability. We will not just only actively seeking long-term profitability of the company, but also leveraging ePaper's technology advantage, such as lower power consumption and environmental friendly to develop more ePaper products to replace the use of the traditional print paper, so we can contribute more to a better and clean environment. In addition, we will also enhance the corporate governance, strengthen the compliance with law and regulations, improve the transparency of the information disclosure to contribute in the aspects of the ESG and environmental sustainability. Last but not least, the profitability and sustainability are equally important once again, in E Ink's future prospects. That's pretty much about my presentation. Let's move to the next session, Q&A session, and Patrick and I are happy to answer whatever question you're gonna have. Thank you. The first question is from Jerry Su. Jerry, you may ask your question. Please remember to unmute yourself. Hi, Jerry. Feel free to ask questions. Yeah. Yeah. We can hear you properly. This year, what kind of visibility do you have? How should we think about your Q1 and also Q2's revenue and also the margin outlook? I think the visibility is quite clear. In terms of the first quarter outlook, we believe we definitely can grow, but to what extent, it all depends on how our internal ePaper capacity expansion goes, and also how much we can catch up in terms of the driver IC shortage. The short answer for the first quarter, we definitely will grow in terms of the Y-o-Y. To what extent, I would like to hold my comments here. For the second quarter, same thing I would like to say. We believe we can still grow. It may not grow as that much as the first quarter, we definitely can grow. I think that the reason remain the same. It all depends on how our ePaper production expansion plan goes and how much we can catch up with the driver IC shortage. In overall, everything moves very positively. We also believe the whole year 2021 can grow. Okay. How should we think about the margin? Because gross margin Q4 is down sequentially. How should we think about the margin in the first half of this year and perhaps, maybe some comments about the product mix in Q4 and also in first half? Right. In terms of the gross profit margin, actually, we receive a lot of inquiry here, you know. We basically, we work quite hard to improve the gross profit margin constantly. However, with the product mix change, sometimes it's hard to comment how the gross profit margin would go. In general, I'm sure it's moving positively. It's moving positively. I'm sure the absolute value of the gross profit margin can also grow. As I just mentioned, you know, the first quarter, the second quarter, even the first half, our overall performance will get better in terms of Y-o-Y. Okay. Maybe, last question, and I'll get back to you. Is that how should we think about ESL demand this year? I think in previous result earnings meetings, Johnson has mentioned that targeting for a 20%-30% growth year- over- year and could accelerate to 30%-40%. How should we think about that for 2021? I think the growing momentum, as you mentioned, it is still there. Definitely still there. Our situation is not, we don't really worry about the demand of the ESL. What we are worrying about and what we are really working hard is how can we execute the e-paper production expansion, you know, efficiently in order to catch up those, you know, growing demand. The growing momentum is still there. What we really need to work on is, you know, to work harder to execute the e-paper production expansion, you know, more efficiently. That's for the ESL. Apart from the ESL, we believe the growing momentum on the e-reader and e-notes is also there. Since, you know, with the contribution of the Kaleido technology, we believe the opportunity for the education market definitely will be there. Not only from the ESL market, we believe our e-reader and e-notes market will also grow. Okay. Okay, got it. Thank you. All right. Thank you. The next question is from Juno Lee. Please remember to unmute yourself. Juno, you may ask your question. Hi, Juno. Hello. Yes. Sorry. I would like to ask, can you elaborate, how big is the market size and what's your market share, and who is your major competitors, and who is your top three clients? Hi, Juno. Yeah. Thank you for your question. Let me answer your question like this. From ESL perspective, our market penetration is pretty much only 5%. As you can imagine, as you can imagine, how much is room for us to grow in terms of the ESL market. That's for the ESL market. We also believe the reader market and the e-notes market can further grow associated with our new Kaleido Plus technologies. In terms of the customers, I'm afraid that we will not disclose from the call here because we don't directly comment to our customers. Yeah. I think one of your question is our competitors. Basically, our e-paper technology is really in a dominant position in the world. I hate to say we don't have any competitors, but we are really in a dominant position in this field. However, as I just mentioned earlier, with the strong demand from the ESL and even from the e-note and e-readers, what we, what we are really working on is how to execute our e-paper production expansion more efficiently. I would like to say, maybe the biggest competitor is ourself. If we can't get those expansion plan efficiently, you know, we cannot move forward to the next level. Currently, how we can, you know, execute those expansion plan efficiently is the first priority. Thank you. Can you let us know, what's your utilization ratio at the moment? I think our currently our e-paper utilization is very tight. That's why we need to expand our e-paper production line. Also, for your information, even our e-paper technology can be break down into two sub technology. One is microcapsule, one is Microcup. However, all the third additional production line we are working on, those two technology are switchable. In the long run, depends on the market requirement, market demand. These two technology can be switchable from our four additional line that we are working on now. Our capacity is pretty much booked out by our customers so far. That's why we need to, you know, work harder on the production line expansion. For your production line expansion, are you planning any capital raising? We do need the money. However, as you can see, from our cash flow performance, last year, our cash position and cash flow, remain very strong. Basically, we can utilize our internal fund for the additional CapEx. However, as I just mentioned, we still utilize our partial bank facility at the lower interest rate for additional CapEx. Basically, it's all about how we utilize our money efficiently and effectively. Thank you. Right. Okay. Thank you. The next question is Jane Ings. Please remember to unmute yourself. Jane, you may ask your question. Thank you. Hello, Jane. Hello. How are you? Yeah, I'm good. I'm good. Excellent. Thank you. How are you? How are you? Yeah. No, I'm very well, thank you. Thank you. It's great to catch up. I've just got a couple of questions. Sure, sure. The new capacity, what's the timing of this coming on, please? Is any of this for new customers? My second question is about the component shortage, if you can give any more details of on this please. Hi. Hi, Jane. I think first question, I can hear you very well about the new customers. Second question, what is that? Can you repeat? Hello? Hello. Sorry. The organizer muted me again. The second question is about component shortages. Oh. You mentioned driver IC shortage and how long you think this gonna impact you for, and is there anything you can do about that, please? All right. Sure. All right. Let me answer your first questions. For the new customers, Jane, let me briefly explain. For the ESL, basically, I believe we don't deal with our end customer directly. However, our system integrator has been exploring the new customers, especially from the retailer, globally. We definitely can see a strong demand from this field because the advantage of the electronic shelf label, it saves a lot of manpowers, and basically it provides a dynamic pricing. We believe our system integrators can explore more new customers in Europe, in the United States. However, normally we don't disclose the potential customers' names, but as I just mentioned, I'm sure there will be some new customer happening going forward in Europe and in the United States for those vendors. That's for the ESL. For the e-reader and e-note, I think I just briefly explained our new generation of Kaleido Plus. We believe this will be a very, very good technology for the education field. The reason is, I think in the past few years, digital learning has become a trend. Those kids and even the school try to use the Chromebook and even iPad for the digital learning. However, with those tools, those students still need pen and pencil to incorporate it with those Chromebooks or iPad. With our Kaleido new technologies, we believe the new e-reader or the new e-note, because it provides the pen function and even the color function, it will be very helpful to replace the textbook in the long run. Besides, iPad could be a tool for the digital learning. However, it's not very good for the kids' eyes. Our e-reader or e-note basically it's very good for the kids' eyes because of our technologies advantages. We believe with our new Kaleido technology that would be a very good driver to replace the textbook in the long run. We have been working very hard with those vendors in this field. We do see the potential. So far, two major players, one in China and one in Europe. I think the one in China, as I just mentioned, is Onyx, and the other one is PocketBook in Europe. They already launched their new product, so it's okay for us to mention their names. I think the same situation or the potential of those e-reader and e-note with our Kaleido Plus technology definitely will be the driver for us to go, to get more new customers in this field. That's my answer to your first questions. Your second question is about the components shortage. I would like to say yes, it does a problem for us now because for those driver IC, it does affect our supply toward the stronger demand from our customer. However, we have been working very closely with our IC driver vendors, it does affect our first half business a bit. However, even with this negative impact, we still believe in terms of our worldwide growth, we can still grow. Apart from the external components shortage such as driver IC, I think internally, as I just mentioned, our e-paper supply is also quite tight, because that's the reason why we need to spend efforts on those four additional e-paper production expansion. I mean, overall, it does affect our supply toward the stronger demand. I think we are quite okay so far. Overall, we are still growing in general. Thank you for that. Just when will the new supply, the new e-paper supply be coming on? When do you envision that? The e-paper supply, basically, the supply is still ongoing. It's just our demand is higher than our supply. That's why we need more production line to meet the growing demand. The demand, the supply is still ongoing. The e-paper supply is still ongoing. Basically, it is manufactured in our Taiwanese factory, which is located at Linkou, and the other is located in our Boston factory. Basically, we are still manufacturing every day, but it's just very tight. We need to expand our production line further. Yeah. It was just when will that new capacity come on stream? New capacity. All right. Sorry about that. Yeah. The four additional production line basically, some will be finished by end of this year. The other will be end of next year. Eventually, 2023, basically four production line will be fully ready. Yeah. That's great. Thank you very much. No problem. Thank you. Thank you, Jane. The next question is from Juno Lee. Please remember to unmute yourself. Juno, you may ask your question. Hi, Juno. I'm here again. Sorry. No problem. To verify, you mentioned about, the market size before. Is it the penetration rate? Is it 5%? Yes. The market penetration rate, it's around 5% for ESL. It's correct. Okay. As you can imagine, we still have a massive room for growth. Yeah. Okay. Good. Yeah. For your new, production line capacity, will it mainly- Right. Located in Taiwan or elsewhere? If you are manufacturing right now mainly in Taiwan and U.S., right? Right. Our two existing production line, one is in the United States, Boston mainly, and the other at Linkou. Four additional production line will be still located in Taiwan, of course, but in Hsinchu, another region in Taiwan. However, those four additional production line are switchable from the Microcup and microcapsule e-paper production. They are switchable. You don't really need to worry about it will be restricted in particular e-paper technology. Basically, they are switchable. Thank you. Can I know like what e-paper production will they use a lot of water? I think right now global investors are watching about the water shortage in Taiwan. I am just wondering whether this area will be impacted by the water shortage in the future. Right. We do use of water. However, not that significantly. I think it will be less concerned from our perspective. It's in control. It's in control. What this industry is labor-intensive or will you have any labor shortage issue? Juno, can you repeat? About the labor- The shortage? Labor shortage. In Taiwan, there's a labor shortage concern. Oh, all right. Labor shortage. Oh, sure. I think currently, our labor force in the production line is quite okay. It's quite okay. No problem at all. I think in the past few years, we spent a lot of efforts on the automation, so that reduced the need of the labor along with the production line significantly. The labor, we cope with the labor issue quite okay. So far, yeah. Okay. Thank you. No problem. The next question is from Jerry Su. Jerry, you may ask your question. Okay. Thank you. Just want to follow up. Hi, Jerry. Yeah, hi. Just want to follow up on the component shortage, the issue you have commented. Is this going to, you know, get worse? I mean, for your revenue into the second quarter? I think that seems to be emerging from later part of last year. It looks like your January, February revenue is still kind of pretty strong. I'm just wondering, you know, are we gonna see some deceleration in your monthly sales in the next couple of, you know, months before it, you know, before these things get fully resolved? Right. Yeah, good question, Jerry. I think we spent a lot of efforts on this. I think it will get better and better, so it won't get worse. However, during the transition, as I just mentioned, the second quarter in terms of the Y-o-Y still grow. I think because of the, you know, driver IC shortage, it would affect a little bit in terms of the shipment. I think in the long run, it will get better. Yeah. Okay. In terms of, you know, quarter-over-quarter. Right. Q1 should be a down quarter versus Q4, and then we should be expecting Q2 to grow? I think the first quarter and the second quarter, if you are talking about the year-over-year comparison, I think both quarter will still grow. If you're talking about whether a second quarter will be better or worse than first quarter, it's a bit hard to say at this moment. Yeah. Okay. Because I think, yeah, because I think, the March, you know, you just don't get to too much of revenue, even less than February, you should be able to achieve year-over-year growth. Right. Year-over-year will be quite easy for you to maintain that growth. That's why I'm asking about quarter and quarter-over-quarter. Right. I think it's a bit hard to say at this moment. I think second quarter this year will definitely be better than second quarter last year. Okay. That's for sure. All right. Yeah. Okay. For sure. Got it. The second question is regarding the, you know, the new products. I think you have also mentioned about the component shortage. For this year, the top-line growth, is it mostly going to be coming from unit shipment, or we can expect some pricing adjustment, you know, because I think across the supply chain, a lot of companies has been adjusting the price to factoring the component shortage issue. How should we think about that? Right. I think the unit shipment will also grow. Of course, due to the component shortage, inevitably, our cost might be increased a little bit. However, with the economic scale up, we believe the operational efficiency can offset the cost pressure from those, you know, component shortage. We are quite confident with that. In order to, you know, grow the market, we try not to, you know, shift the cost pressure to the customer. Yeah. Okay. Got it. It, yeah, it's hard to say so far, yeah. Yeah. Everything will be changing. Yeah. So far, I think everything is in control, yeah, as I just mentioned. Okay. For Kaleido Plus, is this gonna be a better margin and better pricing product versus your current, black and white or first generation of Kaleido? Right. Yeah. Once again, Jerry, I think that's also a very good question because a lot of people try to ask this question. We're definitely in a good position to check out the ASP more because of the new generation color technology. However, what we really want to achieve is, you know, we try to grow the market. We just try to make a reasonable margin on the new technology, you know. From the margin perspective, I think it would be similar or just slightly better. But the margin will not be increased significantly. What we really want is we just try to grow the market and maximize our gross profit. The short term gross profit margin is not something we are after this moment. Yeah. Okay. The slightly better or similar margin is comparing with the current e-reader product? Like slightly better, but it won't like, you know, have a significant jump, you know. Yeah. Okay. Okay. Got it. Thank you. Okay. That is all my question for now. All right. Thank you. Thank you for joining us today. You may now leave the conference. Good day.