Good afternoon. Welcome to E Ink's second quarter 2023 earnings call. At this time, all participants are in the listen-only mode. After the presentation, there will be a question and answer session. Today's conference is being recorded. The webcast replay will be available on E Ink's website after today's conference. Joining me today are CFO Lloyd Chen and Finance Center Senior Director Patrick Chang. Now, let me turn over to Lloyd. Thank you, Winnie. Good day, everyone, and welcome to E Ink's second quarter earning conference. Before we start, you may take a quick look at those photos shown on the cover page. I think one bit is the outdoor signage that you might be familiar with. The other is, you know, there's a new product being launched by international brands called Kohler. They launched this smart toilet being showcased in China International Kitchen and Sanitary Equipment Exhibition. As you can see, we are e-extending our application from CES, so outdoor signage, even to the interior design. We, we just try to, you know, make E Ink technology, ePaper, you know, everywhere. We, we try to make all the services, you know, even smarter and, and, and greener. Okay? Before we start, let's look at the first half statement first. All right, next page. All right, first thing is about the first half results. The sales revenue for first half is around TWD 14.5 billion, YoY increased TWD 11 billion, with 8% growth. This performance basically marks the best result in the past 12 years. As the revenue continues to grow, both first half operating profit, net income, and EPS have reached a record high in the company's history. Next page. Operating profit has shown a positive trend of growth since 2019, as you can see from the screen, with a consistent upward trajectory. Next page. The assets. Basically, by first half, the total assets was TWD 6.1 billion, 16% YOY growth, which was increased from operating growth and financial investments. As you can see, there's also a growing net asset value per share. Next page. For the cash. Cash was around $11.1 billion by second quarter. I think I mentioned this several times in the past. We try our best to utilize cash inflow from operation and investment to further, you know, financial investments and to CapEx on the ePaper production line. The total financial assets plus cash was increased to around TWD 44 billion by second quarter. All right, next page. Apart from the financial, we'd like to share the continuous recognitions externally. I mean, we were being honored with the 8th National Industrial Innovation Award by the Ministry of Economic Affairs in Taiwan under four major sectors. As you know, the award is being called Distinguished Enterprise Innovation. For the TWSE Corporate Governance Evaluation, it is the 1st time we are ranked as the top 5% out of, you know, Taipei Exchange-listed company. Basically, we used to be the top 20 in the past five years. This is the first year, we jumped to the top, 5%. We were quite excited about this. We received a long-term issue credit rating, twA- from Taiwan Ratings Corp.. We are the only company in Taiwan, you know, under the active electronic display industry with the long term issue credit rating of twA-. One of the leading magazine in Taiwan is called CommonWealth Magazine. They, they do survey every year on, on Taiwan top 2,000 leading companies. We, we were enlisted as the, you know, 141st place of the overall ranking, and improved from 2011. Sorry, 211th place in the last from last year. We were also the 14th place under another category, under, you know, the company's operating performance. Last but not least, we were also honored by TDUA, Taiwan Display Union Association, for two awards. One is from SDAA, Smart Display Application Awards, for the Smart Medical Award, with the battery-less color display device. Also, the Gold Panel Awards in technology excellence tech solutions, with our latest and greatest technology, Spectra 6. Next page. Next one is about the sustainability ratings. Basically, this is the 3rd year we participated. Also one of the leading magazine is called Global Views Magazine, ESG Corporate Sustainability Award. We, we finally won the first prize for the overall performance category in electronics and technology industry. Furthermore, we again have been listed as one of the Asia-Pacific Climate Leaders in 2023, in a report by the Financial Times and Statista. Well, that, the list identifies the company that achieved the greatest reduction in their Scope 1 and 2 greenhouse gas emission intensity between 2016 and 2021. Also, it's the 3rd year that we won Asia Responsible Enterprise Awards in the category of green leadership with the theme of solar-powered ePaper bus stop signage, enabling sustainable, low carbon and smart public transportation. The next one is this is the 1st year we participated ASRA, Asia Sustainability Reporting Awards, organized by CSRWorks in Singapore. We were determined as the finalist for nine categories out of 60 finalists from Asia. Eventually we won three different categories, Best Diversity Reporting, a silver medal, Best Supply Chain Reporting, also silver medal. The last one was Best Environmental Impact Reporting in bronze. For FTSE Russell, we also had good progress in FTSE ESG rating. Apart from 99.98% green revenue, due to outstanding performance, we were the first time being listed in the FTSE4Good ESG Index series. Another major ESG risk rating is called Sustainalytics. We continue to maintain low ESG risk towards Sustainalytics. Next one. More, more recognition in, in terms of the sustainability. We, we have won the HR Asia Magazine's Best Companies to Work for in Asia 2023, for three consecutive years. Furthermore, this year, we received special, special one, a Digital Transformation Award, due to our outstanding performance in digital transformation efforts. This award acknowledges our dedication to providing digital platforms, which transform transitional employee experiences into personalized digital processes. Also, another one thing happened locally in Taiwan. The Taiwan Sustainable Energy Research Foundation has acknowledged the achievement of our sustainable projects. We have won in the TSAA, Taiwan Sustainability Action Awards, and also APSAA, Asia-Pacific Sustainability Action Awards, under three different projects. The first one is achieving efficiency, reducing consumption, and advancing toward net zero, which, you know, mapping with SDG 13 climate action goal, and it goes gold award. The second one is eReader for future, and which was awarded SDG 4, educational quality, and that is silver medal. The last one is ePaper bus stop, enabling sustainable smart public transportation, which received SDG 11, sustainable city, with bronze medal. Next one. The next one is, is by the renewable energy we have been purchasing. Basically, we collaborate with Chunghwa Telecom, one of our affiliates, on the YFY group to procure the first batch of biomass renewable energy certificates. We commit to achieving RE100 on this goal by 2030, aiming to use 100% renewable energy. Basically, our approach to sourcing renewable energy, not only emphasizes the additionality, but also value diversification. Therefore, in addition to our existing renewable energy sources, like, you know, solar and wind power, you know, we, we first time, you know, purchased a renewable energy certificate for biomass energy from Chunghwa Telecom. We look forward to enhancing this future collaboration with them. All right, next page. The next one is also relevant to the RE100. We have been making continuous efforts, you know, in the utilization of the renewable energy. We joined RE100, initiated last year, with a goal in the RE100 by 2030. We are very, you know, fortunate to be selected as one of the three finalists for the best newcomer category in this year, you know, RE100 Leadership Awards. The winner of the awards are expected to be announced during the climate week in New York in September. Out of the three, you know, shortlists, we are the only Taiwanese company being selected. All right, next page. This is sort of the new ESG area we have been engaging in. We are not only committed to the energy saving and carbon reduction in our operation, but also places significant emphasis on the preservation of the natural environment and conservation of the ecological diversity. Through the collaboration with the local, Taiwan NGOs and also, you know, participation in the international initiatives, such as SBTN, Science Based Targets Network, also a Business for Nature coalition, also TNFD, Taskforce on Nature-related Financial Disclosures. Through those, you know, corporate engagement program, we invest resources in biodiversity conservation where it is most needed. Okay, so that is all about my sharing for second quarter. Let's move forward to the Q&A session. We are now in the Q&A session and open for questions. To ask the question, please press the Raise Your Hand icon on the sidebar. When we take your question, please remember to unmute yourself. The first question is from Jasper. Please go ahead. Hi, Jasper. Hi, can you hear me okay? Yes, I can hear you. Okay, great. I was, thanks for, for taking my question. I was wondering, in relation to 2024, can you say anything, can you give any early indications of what your expectations are for 2024 in terms of first ESL? Secondly, in consumer electronics, do you expect the weakness there to continue into 2024, or is that more of a 2023 story? That's my first question. Right. Hi, hi, Jasper. Before answering your question, I think it will be better to talk about the second half this year, because we just finished the earning conference in Mandarin an hour ago. We talked about what will be happening in the second quarter. Basically, we are transitioning. Yeah, Jasper, if you don't mind, can you put on mute to avoid the echoes? Yeah, thank you. Yeah. Basically, we are transitioning our color technology in, you know, CE and ESL, which would impact our performance, you know. What we are expecting in second half, there, I mean, basically for, for the whole year, 2023, we believe the sales revenue would stay flattish and even, you know, a single digit drop could be possible. Because, the guidance we had from last earning conference was, we were expecting a single digit growth for 2023. Even given the statement I, I, I just mentioned, so coming back to your question, 2024, we believe we need a bit time to, you know, get over transition. We, we are pretty sure 2024 will still better than 2023. To what extent it will grow, we still need a bit time to observe. Simply speaking, I'm sure the color technology would go better in 2023. That might possibly trigger the growth from our CE business and even from our ESL business. I just pause right here to see if you have further questions. Yeah. Maybe you could talk more about what is really driving this lower guidance for 2023. Is it mainly ESL or is it mainly consumer electronics? Is it inventory digestion or, what exactly is, is driving it? Right. Right. I, I think for, for consumer electronics, you know, giving, given the macro uncertainty, we, we already mentioned the whole year would have been relatively weaker. That, that still continues, you know? For ESL, we are, we are transitioning from 3- color technology to 4- color technology, you know. That, that, that would affect, you know, our sales performance, because for, for the full color ESL technology, we, we, we provide with a very competitive price. From the, the system integrators perspective, they, they would go for the latest technology, which is four-color, you know, quicker and sooner. In, in that case, they of course, we, we, we are happy to, to provide. However, they, they, they need, the, the new TFT, and they also need, a new driver IC. That, that would, you know, affect, the, the growth of, of, of our sales revenue a bit. That's, that, that's the reason behind for, for this, you know, unfavorable, impact. Does that apply to both ESL and consumer electronics equally, or is it more consumer electronics? Come again? Your question is, this. You said this transition to four-color, to, to four-colors is, is putting downward pressure on your revenue. Is that- Right. in both segments? Is that both for ESL- Yeah. And for consumer electronics? Yeah. Yeah, both. Yeah, both segments. Yeah. Okay. I would say for CE, consumer electronics, you know, due to the, you know, macro uncertainty, that, that part is under expectation. For ESL, from last quarter, we thought the whole year would, you know, would have grown single-digit, you know, but, you know, after we observe what has been happening, we believe the 2024 sales revenue would stay flattish. More. Mm. You know, a bit down. Yeah. Do, do you expect any FX impact on, on the top line and on the margin? I think, you mean, you mean the, the gross profit? Mm. Or- If you look at the growth on the top line, is there any impact from FX changes? FX, you mean currency FX? Yeah. Yeah, I'm wondering if your revenues are lower because of unfavorable currency exchanges. All right. In 2023. Another question, right? No, same, same. FX, I, I, I wonder if your top line growth is slower in the second half of 2023 because of unfavorable FX or currency. No, no. So there- It, it has nothing to do with the FX, yeah. Okay. Okay, that's, that's it for me. Thank you. All right, thank you. Next question is from Adam Zhan. Your line is open. Hi, Adam. Hi, thanks for taking my question. I was wondering if you could address the level of inventory right now in your system integrators and your downstream customers, particularly in China? Okay. I, I think our inventory level from E Ink's perspective are regarded as a healthy situation, since, you know, as you can see from our financials, our inventory has been decreasing, you know. But if you want me to comment on our customers, especially, you know, downstream, their inventory level, I think it's hard for me to comment. I, I would say during the technology transition, I, I would say it possibly, you know, affect their inventory digestion a bit. Yeah. I, I, I believe that's all, that, that would be the. That, that's a transition that we have to get through. Yeah. Okay. Thank you. That is very clear. Could you for my second question, could you mention what order trends have been like inside China and in your other geographies? Thank you. I'm sorry, Adam. Can you please come again? What order? Yeah. Yes. How your orders, your sales trends have been for ESL, within China and, say, for your European customer or your Korean customers, how that selling has been going? All right. Adam, let me put it this way. We don't. There are few types of business models, you know. For ESL, because we are supplying ePaper material, you know, of course, eventually goes to the system integrators. We don't take orders, you know, directly from them. Even, you know, they are our European end customers and Korean end customers. We normally take the orders from their module assemblers. The majority still in China. Their orders, we believe, is reasonably okay. I, I think, as I mentioned earlier, you know, we are transitioning our color technology in ESL, so moving from three-color to full color. They would rather, you know, go straight to full color directly. However, in order to make it work, they need the support from the TFT-LCD maker with the new glass and also new IC drivers. That would affect their order a bit. That's why we, at the beginning of the call, I mentioned our guidance, you know, will be changed. For 2023, the sales revenue will be changed from single-digit growth to flattish or even in a single-digit drop. Okay. Thank you. All right. Next question is from Selena Li. Please go ahead. Hi, Selena. Hello. Hi. I had two questions. On, on the consumer electronics, I mean, the migration from black and white, you know, e-readers or e-notebooks to color. Do you think that the pause is, like, really a macro, you know, problem, or is there something structural that's preventing, you know, that, that transition from happening? Are people not doing e-readers as much? They're reading books on their phones? I don't know, like, just your views on that. Okay. All right. Shall I answer your first question first? Yeah, yeah, go ahead. Yeah, please, yes. All right. For, for CE, definitely, macro is one of the reason for, for relatively weaker growth. Another reason was the one I just mentioned. We are transitioning from black and white to, to color. We, for, for CE, we, we have the two major color technology. One is called Kaleido, the other one is Gallery. We, we, we basically offer them for our customer. It, it turned out to be Kaleido. It, it, it's much more popular at this moment. The, the, the theory of the Kaleido technology is we still use the black and white ePaper, but we print the color onto it. In other words, in order to make it work, we, we, we need the new printing machine. The, the Kaleido, goes quite well from, from the customers, but, it, it go beyond our expectation. We, we need, more, printing, machine to, to meet this, growth. Coming back to your question for, for, for, for CE, the, the, the, the slowdown, I think, one is from the macro uncertainty, because it's highly relevant to the, consumer electronics. The other, the limitation of our, printing machine, but we, we are working on it. It, it's not a massive problem yet. Okay, good. My second question was more on, like, ESL. Obviously the growth in the past few years has been driven by Europe or EU, and, you know, the, the, everybody's waiting for the U.S., you know, penetration to go up. You know, obviously, we know about the Walmart, and maybe a. Right. - a few small grocery chains. How do you see that progressing, you know, in the next year or so, U.S. penetration? Right. We, we stay very positive about, about the, the potential, growth in the United, in, in, in the North North America. It's very hard for us to comment how, how soon they will, you know, entirely, you know, roll out. We, we believe, the growing momentum and the, is still intact in, in the long run, definitely. Not, not only, in, in, in the North America, I would say even globally. Yeah.- Mm-hmm. Yeah. Okay, great. Thank you very much. All right. Thank you. Next question is from Kenny Chen. Please go ahead. Hi, Kenny. Hi. Could you hear me? Yes. Yeah. Thank you. Thank you for taking my question. I got two questions. First one is regarding the, module, ESL module sales. I'm wondering if module, ESL module sales in 2nd half of this year, will be higher or lower in 1st half of this year, and how can we expect this trend in 2024, given your, business strategies? Okay. For the ESL module, let me put it this way. We, we basically get it done in our Yangzhou module factory, and we, we, we have the limited capacity there, you know. There, there's no way for us to, to, to do everything. We, we, we only help our customer on the new product or, or, or new, new, new technology being, being launched, you know. We, we, we help them at, at the beginning of the, the, the launch and then hand it over to, to, to their module assemblers. Coming back to your question, this, this, this will not be the majority for the ESL business, you know. Basically, we just, you know, help our, our customer during the initial stage. I, I would say 2024, 2023, the, the, the percentage should be similar. It's hard to say at this moment because it all depends how we best utilize our, our module capacity in, in, in our Yangzhou factory. For example, if CEE business, you know, will be taking off better than we expect, or the, the outdoor signage or even indoor signage, you know, goes well in 2024, we, we, we might figure out how to best utilize the module capacity. But, but, you know, for ESL, the, the, the majority is still, you know, based on the material cells, not, not the mo- module cells. Yeah. Basically, for, for modules, we just help our customer, you know, to help them to get through the, the, the initial stage of the new products. Because no one, no one knows the, the ESL module better than us, you know? We, we, we know how to do it in the best. Yeah. Okay, very clear. My other question is about the OpEx. I know the company is enhancing technology and capacity expansion, I'm wondering how can we expect the absolute numbers of OpEx in coming quarters? For example, in the first half of this year, the average is around $1.7 billion-$1.8 billion. How will this change given your initial thoughts on 2024, the sales could be better than in 2023? Can we see some leverage on operating margin due to higher scale? Thank you. Right. In general for CapEx, the annual CapEx level is around TWD 5 billion-TWD 6 billion, you know. That guidance remains there, you know. You know, we only book the fixed assets after we get everything clean, you know? Sometimes even we spend, but we haven't booked under fixed assets, so it haven't started, you know, the depreciation. In general, TWD 5 billion-TWD 6 billion CapEx is our guidance for this year and even next year. Okay. Thank you so much, Lloyd. All right. Thank you. Next question is from Jerry Pan. Please go ahead. Hi, Jerry. Hi. Hi, Lloyd. Hi. Can you hear me? Yes. Yes. Great. Great. Okay, hi. I think, just want to dig a little bit deeper about this technology transition, especially for ESL going from three-color to four-color. I just wonder... Right. -if this, is this request for procuring this, four-color rather than three-color, is this something happened recently, or is something that people has been kind of? Yeah, just wondering about the timing. I think the four-color has been out for some time, and I was just wondering why are we just know about this now, and I mean, why is the supply chain seems to be facing so much, kind of, obstacles? Yeah, that's my first questions. Right. So, so Jerry, I think let me put it this way, that the four-color technology, you guys, have heard of it, definitely from, the Touch Taiwan, that exhibition. By, by the time you, you heard of it, it doesn't mean that the, the, the technology, what was already ready, you know. There's, there, there, there's some timing difference by the time you, you, you saw it in, in Touch Taiwan, and, and then we, we, we get, get them ready. At the time when we get them ready. There, there, there's a timing difference. That, that's the first thing I would like to explain. It, it, it doesn't mean it has been there for, for quite a long while now. You heard it in Touch Taiwan because that's our new technology, doesn't mean it's already ready by then. The E4, E5, basically, four-color on technology, it's happening this year. It what was not ready next year. Basically, it's just a new start. After we offer to our customer and with also with very competitive price, from a customer's perspective, they want go to the four-color technology more. That require the support from the TFT-LCD maker and driver IC make so that, that would affect our overall sales performance this year. Yeah. From a long-term perspective, we believe the demand still intact in the long run. Sure. Lloyd, also, when you say that the, you're pricing it comparatively, it doesn't mean that you're selling a four-color at a discount to a three-color, is it? Not, not really, not really discount. Jerry, let me put it this way. When we do the pricing, of course, we have our own mechanism, but we expect that the full color technology will go well. We consider those, you know, benefits coming from, for example, you know, operational efficiency and the volume discount that we perhaps we can get from our vendor. We would basically factor that all in, you know, that's where the competitive price is coming from. It doesn't mean, you know, we set the regular price, and then we would provide a discount to our customer. It doesn't mean like that. Yeah. I see. Maybe along the same line, I was just wondering, in such a case, should we, should we be quite positive about the demand once this transition is over? Because if the underlying, you know, demand or adoption of ESL still quite structured, quite intact, then this, this is kind of like just temporary pause, and there should be some kind of pent-up demand happens when the transition completes. Just wondering why you don't sound like you are more positive than, and for the first of all, for first half next year or 2024? We, we, we believe so when the transition is over, definitely, the growing momentum will go back up, you know. I think in our earnings conference call last session, people, one of the analysts asked how do we see 2024? Basically, 2024 will be better than 2023. How much it will be better? We need some time to observe the color technology transition, both in CE and ESL. Yeah. Sure. maybe just last question is kind of like a housekeeping question. Sure. Just, I think, you are expanding one more line in 2024 and also another one in 2025. Just want to know about... Correct. if you have some, some idea about the timing of the 2024 line, opening? Also for the 2025, new line, I think, supposed to be a larger size. are you still, is, is there any change in size that maybe get bigger or, you know, you'll stay the same? You know, just, just kind of wondering, is there any kind of design change for that, for the new line in 2025? Yeah. For, for, for the new line in next year, we believe, we, we, we can get the equipment moving in the first half and, you know, we, we can start production in, in second half. Yeah, that's for, for the new line in 2024. Another one in 2025 is hard to comment at this moment, but I, I, I would say definitely will, will not be the first half in 2025. I, I, I think it should be second half. Yeah. I see. Okay. Sure. Okay. Thank you, thank you, Lloyd. That's it. Thank you. All right. Thank you, Jerry. Yeah. Now, we will take our last question from Jasper. Hi, Jasper. Hi. Just, just a brief follow-up from my side regarding your guidance for, for, for the rest of this year. You said it could be flattish, or it could be down single digits. Is that for 2023 as a whole? Correct. Is that for 2023 as a whole, or is it for, for the second half only? 2023 as a whole. Okay, okay. That implies that second half will be down quite dramatically, given that you grew like 7%, 8% in, in the first half, right? Yeah. Okay. Okay. This transition to four-color really accelerates in the second half? Right. Okay. All right. Thank you. All right. Thank you.