Good afternoon and welcome to E Ink Third Quarter 2023 earnings call. At this time, all participants are in the listen-only mode. After the presentation, there will be a Q&A 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. Before we officially start, I would like to share a bit of story behind our cover page. I believe the extensive screen time has caused concern of eye health problems and distraction for children and adults alike. So we recently sponsored a website, HealthierScreenTime.com. One can find information of research papers, news, white papers, and ePaper device guides. It's all about helping people preserve their eye health for themselves and their loved ones. So please check out the website, HealthierScreenTime.com. I see you can also see right in the middle, down below, www.HealthierScreenTime.com. All right, so let's move to our investor conference today. All right, before we start, as usual, let's take a quick look at the Safe Harbor statement. All right, next page. All right, let's look at the Q1 to Q3 results. For the sales revenue, it was around TWD 21.3 billion, and non-operating income was around TWD 2.4 billion. For EPS, it was $5.76. Overall, the slight decline was mainly due to the color technology transition, and we also spent more investment on R&D and key talent, as well as a decrease in royalty income. However, the net income was still historically second-best. All right, next page. So for operating profit, relatively lower slight operating profit, but still historically second-best. So once again, the slight decline was mainly due to the, as I mentioned earlier, color technology transition and more investment on R&D and our key talents. So even the operating profit was relatively lower, but still 27.1% against total sales revenue. All right, next page. For the total assets, that was around TWD 72.4 billion versus TWD 64 billion in third quarter last year. The slight increase is around TWD 8.4 billion. Basically, total assets increased from operating and financial investments. For the net asset value per share, also growing. It shows a positive trend from the screen. Next page. For cash, the cash position was around TWD 10.9 billion by third quarter. Basically, we utilized the cash inflow from operation and investment to further financial investments to CapEx on ePaper production line. The total financial assets plus cash was increased to around TWD 46.1 billion by third quarter. Next page. All right, recently, a lot of inquiry about our growth momentum. We would like to explain through this page, driven by COVID-19 economic impact and global ESG initiative, the demand for ePaper has experienced rapid growth since 2020. Due to ePaper capacity shortage and the uncertainties in the supply chain during the pandemic, our customers proactively stocked up, leading to our sales revenue exceeding expectations in 2022. However, this year, the color technology transition has extended the transition period, so causing a bit of slowdown in business growth. But if we look back over the past four years, from sales revenue perspective, it increased modestly from TWD 13.6 billion in 2019 and then to TWD 15.4 billion in 2020, and then jumped to TWD 20 billion in 2021, and further exceeding expectations, reaching around TWD 30 billion in 2022. And also for operating profit, starting at TWD 600 million in 2019, grew to TWD 1.8 billion in 2020, and then jumped to TWD 3 billion in 2021, and eventually exceeded expectations again, reaching TWD 9.2 billion in 2022. As you can see from the trend chart, we already established a track record. So comparing this year to previous one, there's a bit of deceleration in business growth, but we still anticipate a continuous growth driven by new retail solutions from ESL and color consumer products under our e-reader, e-note segments, and also large-size color signage, both indoor and outdoor. All right, next page. I would like to talk a bit about the recent recognition we received. As you can see from the screen, this year, one of the leading magazines called CommonWealth Magazine, they have an annual award. It's called Excellence in Corporate Social Responsibility. We were listed 18th this year, and we were 49th place last year. So that was quite a big jump. And also, it's the third consecutive year in a row we won Best Company to Work For in Asia by HR Asia magazine. We were also being honored by TCSA, Taiwan Corporate Sustainability Awards, and also APSAA, Asia-Pacific Sustainability Action Awards. We won both silver and bronze. Last but not least, by CRIF China Credit Information Service, ranked us as the top nine company with outstanding operation performance and top 10 from a general rating out of Taiwan's top 500 technology companies. So that's the recent recognition in terms of the sustainability. Next page. We also received the recognition in our new technology organization. It's called SDIA, Smart Display Industrial Alliance. Annually, basically, they honored a company with forward-looking display. So our two color technologies, E Ink Spectra 6 color ePaper technology and another one, Kaleido 3 color printing ePaper technology, both won gold awards from SDIA. Next one, I would like to share our efforts on environmental impact. We were awarded the Best Newcomer in 2023, RE100 Leadership Awards, and we also received awards during the Climate Week NYC in New York City. The next one, I think in the previous quarter, we talked about we joined SBTi, Science Based Targets initiative, a leading international authority on climate change. After a lengthy process, basically, we get their approval. So our Scope 1 and Scope 2 carbon emission reduction target was set basically in line with SBTi's 1.5-degree Celsius trajectory. So as you can see from the screen, it shows those information I just shared. And on SBTi's website, they also mention E Ink with our highly ambitious net-zero target, which is currently the most ambitious designation attainable through the SBTi process. And the next one, I would like to share one of our annual important social engagement events, eRead for the Future. Basically, this event has been launched since 2017. This year, we are pleased to have invited more ecosystem partners. In October, together with 22 ecosystem partners, we conducted this event for 39 primary schools and 10 public libraries in Keelung City, the northern part of Taiwan. A total of 1,075 color e-readers were donated, and each device loaded with 102 e-books for school students. The total donation value around TWD 30 million benefiting over 15,000 students in Keelung City. All right, next page. Talking about moving toward Net Zero, one of the very important events from the Taiwan government, basically, we've been honored, recognized. Outstanding entity. I mean, there's an annual event. It's called National Sustainable Development Awards, and we were being awarded in this category. Also, another very important event just happened early this morning, the 6th Taiwan Corporate Sustainability Awards, TCSA. Basically, this year, it attracted 526 participants. We won seven awards this year, including the most important one is called Most Prestigious Sustainability, Top 10 Corporate, and also a Platinum Award for Corporate Sustainability Reports, Climate Leadership, Sustainable Supply Chain, Social Engagement, Enterprise Wellbeing, and Growth through Innovation Leadership Awards. All right, last but not least, I think one of the leading sustainability rating organizations called S&P Global basically announced that we have achieved the highest score of 89 points under the ITC, Electronic Equipment, Instrument Components Industry, this category, and year-over-year, 12 points improvements. We are quite excited about this outstanding performance. Okay? So that is my presentation for this quarter, and let's move to the Q&A session. We are now in the Q&A session. To ask a question, please press your raise hand icon on the sidebar. When we take your question, please remember to unmute yourself. You can also ask questions through the text in the question box on the sidebar. We received a few questions online. I think one question is about we shared a bit more detail on how we are investing the cash, for example, from stocks, bonds, money market, etc. Basically, our investment portfolio consists of several categories, but most of the investments are relatively stable. So we select more stable stocks in the stock market, and we also purchase some bonds. And also, we invested some good companies in our ecosystem. So that's how we utilize the cash. Basically, we have the quite stable investment income being reflected in our P&L. And there's also a question asked the whole year sales revenue outlook and also the 2024 outlook. So basically, for fourth quarter, still about two months to go, as I mentioned earlier, we are facing a bit headwind at this moment. The business hiccup, basically, is associated with two things. The first one is the destocking issue, but it has been smoothing out gradually. And the other one is the three-color full color transition. And we believe it still takes a while to smooth things out, but we believe all the business hiccups should be able to be normalized by first quarter next year. So that's how we look at sort of the headwind we are facing at this moment. And for 2024 outlook, we believe we will be expecting worldwide growth. The first quarter, still, as I mentioned earlier, three-color, four-color technology transition. So first quarter next year would be relatively lower, but we believe we will be better each quarter. In other words, it will be better from one quarter after the other. So that's how we see the 2024 outlook. So we have a question from Max [audio distortion]. Your line is open. Hi, Max. Hi. Thank you very much for taking my question. Still, congratulations on the recent results. What I would like to better understand is, can you share a bit more detail on the impact of the new color display? So 2024, we can expect a higher share of those being what's the impact on the margin overall and the cost structure? Can you give us some details there? Sure. Sure. Absolutely. Let me explain like this. So for the color technology, we have three major color technologies. For the E-series, basically, being used in the ESL market. So as I mentioned earlier, we are in the transition between three-color to four-color. So, three-color, internally, we call it E4. Four-color, we call it E5. So we believe we still need a quarter to get through the transition. But we are also moving forward to E6. The market name is called Spectra 6. So Spectra 6 is also quite suitable for the retail signage. And we believe Spectra 6 can be launched in the market first half next year. So we will wait and see how the market response goes. So that's for the E-series for the ESL market. And for CE, consumer electronics, e-reader, e-note, they are two major color technologies. One is called Kaleido. The latest and greatest is Kaleido 3. So it's been launched, and some second-tier customers, they already adopted it. The feedback we collected from them is the Kaleido product really helped them to grow the market to maybe 20%-30% on the color CE product. So that is the situation. And for another color technology, we call it Gallery, Gallery 3. That's the latest and greatest. And it's more suitable for the signage application. So basically, we have been shipping samples to our customers. So we believe it's potential. And there's a possibility is like even Kaleido, it's a printing color technology, but it can sort of play video. So according to some of our customers, they are thinking to extend their CE device to the tablet-like device. So we do see the potential from that perspective, but it's just at the early stage of this market. So we still need a bit of time for that. So yeah, so that's the status quo for our color technology. Perfect. Just a quick follow-up. So what I would be very interested in is the numbers on that. So how much of your revenues are by now coming from the color technology, and what's the impact on the gross margin of this technology? Right. Max, basically, ESL, the ESL sales revenue, they are all color. But I believe you are more referring to the CE, right? So if you are talking about the color product for CE, that's still relatively lower, still single digit. Yeah, still single digit. So we believe it's potential, yeah, I mean, for the color technology in CE products. Okay. And ESL is nearly nothing, right? That's all black and white predominantly. Yeah. ESL, basically, I can say 100% they are color, yeah, a limited color, three-color, four-color, and we are moving to five-color. But through the five-color, through the dithering, it can demonstrate more than five colors. Yeah. In terms of the- Wow, so it's not only black and white anymore. Yeah, yeah. I mean, ESL, ESL, e-tag, e-tag. Yeah. Yeah. Yeah. e-tag is no longer black and white. I mean, most of the retailer and SI, they are already using the color e-tag already. But we are adding more color into the ESL tag. Yeah. Okay. Great. So we just can say that for ESL, then apparently, the gross margin stays the same no matter if we are moving from black and white to color. And what about CE then? Can we expect margin uplift for that segment? Oh, Max, the ESL, basically, we are supplying the display film, right? Yeah, ePaper only. In general, we don't supply the ePaper module. So for ESL business, it comes with a higher gross profit margin. But for CE, we supply the ePaper module. So the gross profit margin is relatively lower. So the more ESL we sell, the higher gross margin we can beat. Yeah. Okay. Perfect. Thank you very much for the explanation. All right. Thank you, Max. Yeah. Next question is from Jennifer Hsieh from JP Morgan. Your line is open. Hi, Jennifer. H i, Lloyd. Can you hear me? Yes, but not very well. Yeah. It says better now. Yeah. It is better. Yeah. Yeah. First of all, can you maybe update on your capacity expansion? I think there's H5 and H6 coming in the next few years. Do you have more precise schedule on this? Right. Right. For the capacity expansion for H5, yeah, it should be ready second half next year. I think in the Mandarin earnings conference one hour ago, Johnson Lee also mentioned that for H5, it should be ready by second half next year. And for H6, we reserve the space in our new building, but we are preparing for the right timing for that. But basically, it will not be happening next year, but it should come after next year. Yeah. So that's sort of the timeline, yeah, for these two production lines. H5 definitely will be ready by second half next year, but for H6, we are still preparing, yeah, to decide the best timing. Understood. And so as H5 is previously expected, it will be 1.5 the current existing line size. Is that correct? Yes. Yes. Compared to those four production lines we did before. Yeah. Well, 1.5 x. Yeah. More. Yeah. And maybe another follow-up on the consumer electronics side. I think the consumer electronics side year to date was holding better than expected, even stable to slight growth in the nine-month time period. I'm just wondering, is it the volume-wise holding better than expected, or is it because more color readers, notes coming online, so the ASP-wise is better than expected? Can you maybe give us some color on that? Right. I think the upside you just mentioned, it comes from two areas. The first one, when we are talking about the CE, actually, it comes from e-reader and e-note. We do see a bigger potential from e-note because recently, in China market, they use our e-note for the cram school, cram school, just like those additional courses provided by those private after-school institutions. So they use our e-note to replace the conventional paper textbook. So that's one of the upsides. And the other is coming from color. Yeah, coming from color. Yeah. Understood. I think you have mentioned there is a bit of a shot on the e-reader in second half until 2024. I'm wondering, is it the printer capacity constraint that we mentioned in the previous quarter earnings call? And can you have some updates on how the printer capacity preparation is now? Thank you. Right. For the printing machine, it should be ready. Yeah, it should be ready soon, but not now. Yeah, but not now. Yeah. So that's why we still have some obstacles in providing some Kaleido products. But that should be ready by, I believe, first half next year. Yeah. Understood. So maybe my last question will be on OpEx. So I think in the Chinese Mandarin call, we have mentioned R&D expense will see still year-on-year growth to keep the talent in the company. But I'm just wondering, can we expect the ratio to see some meaningful decline if we have a higher revenue base after the inventory correction comes to an end? Right. I mean, if the percentage you are referring is the total RD spending against the sales revenue, yeah, I agree with your statement. As low as our sales revenue grows, the percentage definitely will go relatively lower because from the RD, from the value perspective, we are expecting growth, but the YOY should be still single-digit growth. So as long as our sales revenue grows, yeah, the percentage should go relatively lower. Yeah. Understood. Very clear. Thank you. All right. Thank you. Thank you, Jennifer. Next question, we will have Kenny Chen from Nomura. Your line is open. Hi, Kenny. Hi, Lloyd. Sorry, I just asked questions later in the Mandarin session, but I still have two follow-ups, if I may. Sure. Yeah. Sure. Yeah. Thank you. Thank you. Yeah. I'm wondering, the first one is on the growth outlook. How should we expect your ESL, which is IoT sales growth rate, versus the system integration clients' growth rate in 2024? I mean, if clients are growing 25%-30% in next year, how can we assume E Ink's IoT growth rate? Yeah. Kenny, good question. I think it's still a bit early to comment on your question, but I can give you a flavor. I think in the Mandarin session, Johnson talked about we may still need one quarter to resolve the stocking and color technology transition issue. So as long as it is resolved, the growth from our system integrator should be able to match with our growing momentum. So that's how I see it. And it's very hard to say how the system integrator will grow in 2024 because I heard different versions, but I think most of their forecast or outlook, they will be growing 20% or 30%. But it's hard for us to judge at this moment. But however, as long as those restocking issue, color technology transition issue, as long as they have been resolved, we believe that the growth among the key stakeholders, system integrators, module assembler, and us, should be consistent. Yeah. That's how I see it. Yeah. That's how I see it. Yeah. Okay. Thanks a lot for the color. And on the other hand, on CE, how should we expect the growth entering 2024? I know it's low base this year, and you have major clients ready for the color e-reader in 2024 to be launched. So how should we assume its growth rate is either faster or slower than the IoT into 2024? Thank you. Right. I mean, growth rate, I can't really comment on the specific number, but we are still running a 2024 budget cycle. We do see the growth, yeah, in CE, but hard to say how much it's going to be because CE is still highly relevant to the macro situation. So I don't think next year that the macro is going to be good. So we still stay a bit conservative in that area. However, from the upside I just mentioned in the fourth quarter, that should be able to bring up the growing momentum on CE. So hard to say how much it will grow, but we believe it will be growing. It will be growing. Yeah. In terms of the year-on-year. Okay. Exactly. Yeah. Okay. Got it. Very appreciated. Thank you, Lloyd. All right. Thank you. Thank you, Kenny. Right. We noticed one question from Jesper. It's about the color transition issues. Let me just read out the question. "Does the issue with color transition persist for longer than initially expected?" As I recall, you previously expected the issue to be resolved by end of Q4, but it sounds like there will still be issues into Q1 next year. Yes. Yeah. It took a bit longer than we expected. But let me elaborate. For this color transition, that's mainly associated with the ESL business. And for ESL, we only supply the ePaper to our customers. So our customers procure TFT and driver IC by themselves. And we have around 15 different sizes for ESL products. And they basically have the multiple sourcing strategies. So in general, they have three to four different vendors for driver IC and TFT LCD makers. So that complicates the whole qualification process. So that's why it takes a bit longer than we thought. Now, we will have [Shih-yi Lin from CLSA]. Your line is open. Hi, Shih-yi. Hi, Lloyd. Hi. Thank you for taking my question. I have a question regarding the capacity expansion. Well, actually, during the earlier session, the Mandarin session, I think it seems like we are now expecting capacity expansion to be finalized by the end of first quarter 2025. But last quarter, during the earnings call, it seems like we should have the we should have the newly launched production line in second half of 2024. So I would like to confirm what is our tentative schedule for now. Thank you. Shih-yi, you are talking about the H5? Sorry, you- Yes. Yes. Yes. I do hear you very well. Yep. The H5. True. H5, right? Yeah. Yeah. I think it should be able to be ready by end of next year. But after it's ready, we need to move in, and we need a bit of time to ramp up. Yeah. So that should go to 2025 then. Yeah. Understood. Understood. So how about H6? We are still sticking to second half 2025? Yes. H6, it's always on our preparation list, and we already reserve the space for H6. And I would say the planning, we probably will make it happen in 2025. But we haven't decided the firm date yet. But H5, basically, is in process. That's a timeline I can provide. Yes. Understood. A final, may I have another follow-up question before we discuss final question? Sure. Well, is it fair to say that those capacity expansion, especially H5, is largely designed for the outdoor advertising signage products? Yeah, Shih-yi. Yes or no. Of course, we see the potential from the outdoor signage. We need bigger-sized equipment to meet that demand. However, if that doesn't come that early as we expect, we definitely can utilize that H5 for ESL business because bigger size of the equipment, theoretically, just like the bigger size of the TFT fab, so the cost can be even more competitive. So for H5, it doesn't really just serve the single purpose for large-sized outdoor signage. Basically, it serves multiple purposes. Yeah. Understood. Thank you. All right. Thank you. Okay. There's a question, a best online question about, "Is there any inventory issue for CE business? And how is the outlook in terms of black and white and color for 2024? I believe we don't think there's inventory issue in CE. And for the black and white and color product mix, hard to give you a specific number, but we are pretty sure that the color will be increasing in 2024. Yeah. But hard to comment on the specific percentage.