Lite-On Technology Corp

TWSE:2301

Earnings Call Analysis

Earnings Call Transcript 2023-Q4

[Julia Wang, executive]

Dear investors and friends from the media, welcome to LITE-ON Technologies 2023 Q4 Earnings Conference. Before we start, please scan the QR code on the left to download the presentation bio from the official website for reference. Today's conference is held physically. Since the company is still in the silent period of issuing convertible bonds, it is inconvenient to provide predictive figures, but we can still outline the market outlook for business development plans. Today, in addition to the results of Q4 and 2023, we also hope that everyone will better understand our future growth strategy after completing many operational adjustments and transformation in recent years. Our meeting will begin when everyone is seated.

Today's agenda consists of 4 parts. I'll first explain the results and financial performance of Q4 and 2023. Next, President Anson will explain the company's operating outlook and growth strategy. Third, CTO, Jason Tsao will explain the future transformation vision. This is followed by the Q&A session, where you can ask questions for further explanations.

For those who are here for the first time, this page provides you with an introduction to the 3 major business segments, which are Opto-electronics, applied to opto-electronic semiconductors and auto electronics; Cloud and AIoT, applied to data centers, servers, 5G networking products, AI, IoT, et cetera; ITCE, applied to notebooks, workstations, desktop computers, game consoles, et cetera.

Net sales in Q4 2023 was TWD 36.9 billion. Gross profit was TWD 8.1 billion, with a GP rate of 22%. Operating expense was TWD 4.7 billion with a rate of 12.8%. Operating profit was TWD 3.4 billion with an OPM of 9.3%. Overall, net sales fell by 8% in Q4 due to weak demand for consumer electronics and the UAW North American strike incident in auto electronics. Excluding the Imaging BU that was disposed of 1 year ago, the net sales was down by 9% Y-o-Y. Due to the decline in net sales, operating GP rate decreased by 1.6 percentage points Q-o-Q. However, thanks to high-value businesses, optimized supply chain resilience and improved operational efficiency, operating GP rate increased by 2.5 percentage points Y-o-Y. Operating expense down by 2% Q-o-Q and 7% Y-o-Y, in which R&D investments continued to increase.

In Q4, R&D expense accounted for 6.2% of net sales with the amount increasing by nearly 10% Y-o-Y. In R&D, Cloud Computing, Opto-electronics, 5G and new businesses accounted for a high proportion. Affected by the decline in net sales, OPM down by 2.3 percentage points Q-o-Q and up by 1.6 percentage points Y-o-Y. Net other income was TWD 930 million, down TWD 200 million and TWD 600 million, respectively, Q-o-Q and Y-o-Y. The main difference is the recognition of onetime disposal gains, while -- that's the major difference Y-o-Y. Profit before tax, TWD 4.4 billion, profit attributable to parent TWD 3.5 billion and EPS TWD 1.51. This concludes the results for Q4.

For 2023, net sales was TWD 148.3 billion. GP was TWD 32.7 billion with a GP rate of 22%; operating expense, TWD 18.2 billion with a rate of 12.2%; operating profit, TWD 14.5 billion; OPM, 9.8%. Excluding the disposed Imaging BU, net sales decreased by 9% Y-o-Y, mainly due to the poor demand for 3C electronics and the UAW strike incident last year. Operating GPM, up by 2.8 percentage points Y-o-Y, and OPM up by 1.1 percentage points Y-o-Y. The Y-o-Y growth of both OPM and GPM reflects the synergy of AI tools, digital operation management and the growth of high-end businesses in recent years.

Operating expense was flat Y-o-Y with R&D expense accounting for 5.5% of total net sales, up nearly 10% Y-o-Y. R&D focuses on improving the value of core products and investing in new businesses. Net other income was TWD 3.9 billion, up TWD 1.1 billion Y-o-Y. The main difference is that in 2022, VIZIO's financial investment evaluation loss of about TWD 1 billion was recognized, but the disposal was completed in Q3, 2023. The full year's profit attributable to parent was TWD 14.6 billion and EPS, TWD 6.36, up 3% Y-o-Y.

Since 2020, we have strategically increased the proportion of high-value core businesses since then gross margin has increased from 17.4% to 22%. OPM has increased from 6.5% to 9.8%. Net profit per share increased from TWD 4.31 to TWD 6.36 with a CAGR of 14% in the past 4 years. High-value businesses including Opto-electronics segment and the Cloud and AIoT segment, accounting for 56% of total net sales in 2023 and only 49% back in 2022. The growing proportion of high-end businesses also drives net sales and our profitability. We will continue to implement our transformation and growth strategy. In terms of our product mix, profit structure and operating model, LITE-ON is already a completely different company.

In recent years, we continue to grow the proportion of high-end businesses, and at the same time, actively manage working capital and optimize investment and operating efficiency. Our ROIC further increased from 28% in 2022 to 54% in 2023. This reflects the profits and returns from our core businesses, creating the resources that we need to continue to grow.

In Q4 2023, Opto-electronics and Cloud and AIoT accounted for 54% of net sales, up 2% Y-o-Y. The 3 major segments were all affected by poor consumer market demand in Q4. Among them, Cloud and AIoT net sales was TWD 12.9 billion, down 11% Y-o-Y. The main growth comes from high-end power supply for AI servers and improved specifications in cloud computing products. Operating profit reached TWD 1.7 billion, up 39% Y-o-Y. ITCE net sales was TWD 16.9 billion. Excluding the sold Imaging BU, the annual decrease was 5%. The main growth reflects that many ITCE clients launched new products in H2. Operating profit was TWD 2.3 billion, down 4% Y-o-Y.

The net sales of Opto-electronics, including auto electronics, was TWD 7.1 billion, down 12% Y-o-Y, mainly due to consumer electronics demand and the UAW strike incidents. However, there were new developments in Opto-electronics semiconductors in car lighting and invisible light sensing applications. Operating profit was TWD 720 million, down 21% Y-o-Y.

In Y-o-Y terms, current assets in Q4 were reduced by TWD 6.5 billion in accounts receivables and TWD 1.9 billion in inventory. Among current liabilities, bank borrowings decreased by TWD 10.1 billion Y-o-Y and accounts payable down by TWD 4 billion Y-o-Y. Our working capital management includes accounts receivable, accounts payable and inventory levels. In Y-o-Y terms, our accounts receivable days decreased by 8 days in our CCC, cash cycle improved by 9 days, reflecting improved working capital management. Net cash position was TWD 67.2 billion, up by TWD 7.4 billion Q-o-Q. This will prepare and help improve business performance in the future as well as investment and growth in core businesses. The BVPS increased to TWD 37, up 6% Y-o-Y, indicating that the intrinsic value continues to increase.

Next is the overview for 2023 and Q4 last year. Net sales in Q4 was nearly TWD 37 billion, thanks to the synergy of high-value business growth, optimized supply chain resilience, AI empowerment and digital operation management. GPM increased by 2.5 percentage points Y-o-Y to 22%, OPM up by 1.6 percentage points Y-o-Y to 9.3%. R&D and operating expense accounted for 6.2% of net sales, up nearly 10% Y-o-Y and continue to focus on Cloud, Opto-electronics, 5G and new business investments. Net profit after tax in Q4 was TWD 3.5 billion, and EPS TWD 1.51.

In terms of the core businesses, we benefited from the improved specs of AI servers, high-end power supply and cloud computing products and cloud power supply net sales grew by 30% Y-o-Y. ITCE clients launched new products, driving net sales and profits from related products to grow Y-o-Y. Among Opto-electronic semiconductors, there are new developments in car lighting and invisible light sensing applications. However, the overall Q4 was still affected by poor demand and the UAW strike incident.

Net sales in 2023 was TWD 148.3 billion; GPM was 22%; and OPM was 9.8%, up 2.8 and 1.1 percentage points Y-o-Y, respectively. EPS TWD 6.36, up 3% Y-o-Y. ROIC increased to 54%, marking the continued improvement of core value. Today BOD has just approved the distribution of cash dividend of TWD 2.5 per share in Q4 2023, including the TWD 2 already distributed in H1, the cash dividend for the full year increased TWD 4.5 per share with a distribution rate of 71%. In the future, our dividend policy will be flexibly adjusted based on financial, business and operation factors.

This concludes the key financial report for Q4 and the year of 2023. Next, President Anson, will explain the company's operating outlook and growth strategy. Thank you, Anson.

[Anson Chiu, executive]

Thank you, Julia. Well, the Lantern Festival has just passed. So I want to take this opportunity to say to all of you, investors and media friends. Happy Lunar New Year, and I wish you happiness and prosperity this year; and thank you for taking your attention to LITE-ON Technology's operation and development today after the Lunar New Year. Since we are still in the silent period of issuing convertible bonds, I would like to take this opportunity to talk to you about LITE-ON changes in the past 3 years.

In 2023, the global market and economy experienced unprecedented changes whether it is monetary policy, military, geopolitics or energy crisis, several important economies have experienced weak consumer market demand posing great challenges to the business community. The important thing is that LITE-ON Technology has always maintained a positive attitude and the belief in cultivating resilience amidst these unpredictable changes. We also believe that every crisis brings opportunities for our transformation.

In the past 3 years, in order to enhance the overall value of the company, we have set up 3 major operational goals and launched LITE-ON's transformation. Although the environment and process have been very challenging, the goals now seem almost achieved. The 3 major goals are the following:

First, to improve our profitability to 2010, meaning GPM, 20%, OPM, 10%. Since 2020, our profitability has grown steadily, as you can all see. LITE-ON full year gross margin increased from 17.4% in 2020 to 22% in 2023. The OPM has also increased from 6.5% to 9.8%. EPS, TWD 6.36 with a CAGR of 14%. The return on invested capital or ROIC also jumped sharply from 28% 3 years ago. This shows that LITE-ON has adjusted its tracks, chosen high-value, high-growth businesses, actively managed working capital and optimized investment and operating efficiency, allowing us to continue to create abundant profits and cash flow and to share our good results with shareholders. The BOD has just approved the distribution of a cash dividend of TWD 2.5 in Q4 and TWD 4.5 for the full year.

Second, to increase the growth businesses to account for 60% of net sales. Well, our goal is that the 2 growth engines, which are Cloud and AIoT and Opto-electronics contribute 60% of net sales. It has increased from 49% 3 years ago to 56% in 2023, and they will continue to increase, I believe. I think this can well be expected for the future.

The third goal is to shift the operating model from OEM manufacturing in the past to a market-oriented growth strategy, and to upgrade from a component manufacturer to a solution provider. LITE-ON has shown strong growth in power supply in recent years, which is the best example of system integration. We have the ability to provide data center level solutions, leading the market in launching AI server power supply products and even data center level liquid cooling system solutions.

The key is to continue to invest R&D energy and resources, especially the ability to develop software and integrate software and hardware. This gives LITE-ON a leading independent R&D capability in the industry, and we can work with suppliers and clients to develop products and define industry norms and technical specifications. This can be seen from one number, LITE-ON's full year R&D expenses in 2023 accounted for 5.5% of total net sales, a significant increase from 3.2% in 2020.

After these goals are achieved, we will move to the next important milestone. In addition to creating organic growth in existing businesses, we will also simultaneously develop new business, new businesses with high growth and high value in the future. To this end, we have specially set up a transformation office to build a LITE-ON IoE ecosystem. A dedicated team comprehensively reduced the company's core capabilities, technologies, resources and business models, we find new tracks and scope that we will enter in the future and draw up a long-term vision and blueprint for new businesses. This is why we have especially arranged for CTO, Jason Tsao to talk with you today so that you, investors, can have a first-hand understanding of our future plans and the new businesses that we are developing.

At the same time, LITE-ON's new innovation platform, LITE-ON+ has been established to more openly connect resources with the global innovation teams and partners. These are all business-related matters.

In the past 3 years, we have also spent a lot of time on ESG. From a broader ESG perspective, we deeply feel the urgency and necessity for companies to respond to global climate change and adaptation. LITE-ON introduced international standards and the environmental regulations many years ago to reduce greenhouse gas emissions and comply with SBT reviews. We have gradually increased renewable energy use, fully shifted manufacturing processes and product materials to low carbon design and collaborated with high emission supply chain to strengthen ESG due diligence, continue to develop low-carbon materials and digital platforms for carbon management. All of these are efforts to care for future low-carbon economic competitiveness.

In terms of Corporate Governance, we have added an ESG cycle to our internal control system, strengthen the sustainable governance mechanism and introduce the latest international center ISO 27001-2022, to strengthen the information security of information systems and products.

As for social engagement, our goal is to be a people-centered business. Over the past 3 years, we have continued our direct dialogue with employees around the world, paying attention to the concerns that the new generation of employees and establishing a close partnership of mutual trust with employees based on LITE-ON's new vision and business philosophy. We review and adjust the salary and lead system such as establishing employee stock ownership trusts, food court level free employee meals, supporting family care and flexible paid leave. At the same time, we have also established the LITE-ON WoW women's club to support female colleagues in 2023, helping to build LITE-ON into a company that respects humanity and shares its vision with its employees.

To sum up, lifetimes changes in transformation are essentially about constantly surpassing ourselves. Everyone must have observed and felt that LITE-ON has begun to look quite different. I believe that LITE-ON is full of vitality and innovative prospects. In the new industrial trends in technological development, LITE-ON with its core capabilities and [ light ] power and global presence will work side-by-side with more partners to create products with more forward-looking value.

Finally, looking forward to 2024, the global economy is still affected by interest rate hikes and geopolitics. The overall prosperity now seems similar to 2023. But economic activity has almost bottomed out. There should be an opportunity to show moderate growth this year in 2024. In order to service our clients with high-efficiency local operation networks and improve efficiency, I think there are still opportunities for continued growth in our core businesses such as cloud power supply solutions.

Shipments of Opto-electronics, semiconductors and ITCE products are expected to gradually pick up this year, laying the foundation for a stable net sales and profitability of core businesses in 2024. So these are our explanations and views in general. Later, we will open the floor for you investors to ask questions if there has been anything that is not clear enough. So this concludes my presentation, I wish you a nice day ahead.

Now I'd like to give the floor to CTO, Jason Tsao, so that he can explain to you our new businesses.

[Julia Wang, executive]

Thank you, Anson. Now I'd like to invite Jason, the CTO, on to the stage to explain our transformation vision.

[Jason Tsao, executive]

Thank you for this opportunity. I'm sure that you have heard about LITE-ON's transformation in the media. I hope to take this opportunity to give you a more comprehensive explanation so that you know our future directions, what we want to do with a better understanding. Well simply put, LITE-ON's transformation direction is that we want to start to go from behind the scene to in front of the stage. Just as Anson said, turning from a component manufacturer into a solution provider.

What does that mean? Well, in the past, we were very strong at manufacturing, efficiency management and what we refer to as squeezing the towel internally. But now we need to focus more on how to value, how to help the market and the clients create value. In order to do that, the requirement for capabilities are for different. For example, we cannot rely on ourselves alone because the clients want to solve their pain points. So Anson mention that we need to cooperate with start-ups to build up an ecosystem and to strengthen our investment in regional centers, so that we can better create value and solve client pain points. Next slide, please.

About 2.5 years ago, we already started our internal transformation. The focus at the time was more on improving our robustness, including systems, process, tools breaking down the data silos between BUs and strengthening our processes. As you saw, our GPM and OPM have improved including manufacturing efficiency, procurement costs and inventory, going down. [ You are pretty ] clear about this data last year, despite market headwind and revenue going down, our GPM and OPM both achieved historic highs. So after 2.5 years, the good results of such robustness are already visible.

But in order to become a solution provider, what are our next steps? Well, on the right-hand side, you see that the client want to solve their pain points. In the past, in the era of OEM and ODM, it was fine for BUs to fight alone, but now we have to join forces and find together. BUs an HQ teams need to cooperate closely; and more importantly, we need to also understand better our regions because the same pain point can be different due to market and regional differences.

Let's take Energy Management as an example. The situation is different on the West Coast and on the East Coast of the United States, and in Texas it's different. So it's very important to better understand our regions. These 3 circles are our future transformation direction. Our BUs already have the dots that exists, but how do we better connect those dots? In which direction? Well, a few quarters back, we talked about our IoE strategies and directions. This is based on our light, power and IoT products and capabilities that exist along with some important scenarios, including EV, data center and energy management that we started a few years back.

We need to integrate all these, and the tracks need to be deep, long and wide enough [ the send ] IoE by 2030 can achieve TWD 5 trillion. And each year, the CAGR growth will be on average about 20%. So this direction, this track is already confirmed now, but how to implement it? In terms of implementation, we have 4 scenarios, including home building, charging and data center, these are the starting point for our implementation. Anson mentioned that we understand servers in data centers. And we extend from that to heat management, providing liquid cooling solutions.

In H2 last year, we showed our direct-to-chip second generation and immersion cooling products in OCP and supercompute events in the United States. The impact since then has been quite positive. Now we cooperate with chip companies and private cloud companies to develop some pilots. The goal is that, next year, they can be deployed in their production environments.

And power is our foundation, and we understand servers, we extend further to liquid cooling. This is just an example. Last quarter, we announced our modulized DC fast-charging product. Since the launch last year, in an American OEM car companies dealer project, we have received the exclusivity to provide the service. The key here is to solve clients' pain points. But when you think about a charger, you think of something installed in a mall or something like that. But in the U.S., many grids are more than 100 years ago -- 100 years old, since Edison's time, which means that they are older and newer grids, 240V and 480V grids.

Most products, most DC chargers are not like our products where older and newer rigs can provide full speed DC fast-charging capabilities. This is because we understand the pain points and the limitations in the current environment. So when we design our products, we take that into consideration, there is no need to add a transformer. There's no need to connect -- contact a grid company for any change whatsoever. In Q1, in our American factory, 300K and 600K products will be produced. And for 120K and 180K products later this year, they will also be produced in our American factory for our local clients.

In terms of charging, so DC and AC -- we horizontally extend to home and buildings, energy management. What we rely on is our energy firmwares and then we go from that further towards software development. And we understand market pain points. So this year, we will gradually put forward energy management solutions incorporating both the hardware and software. In addition to energy management and grid-related capabilities, a few years back, our Singaporean R&D Center started these already. And with the Singaporean government in terms of IoE and some new trucks, we have some cooperation projects that are being built with the Singaporean government. I hope that in 6 months' time, there will be some concrete results to share with you.

Finally, I joined LITE-ON 1.5 years ago. I have observed that in this company, just as Anson said, there is a lot of hidden energy and openness to -- for change and the resilience against challenges. This goes beyond my initial expectations, I'd like to thank all the employees, especially those on the front line for their support, so that our GPM at OPM could achieve historic highs. I'm now more confident about our IoE development. We will surely achieve the goal of energy saving and environmental sustainability.

Now back to Anson. Thank you.

[Anson Chiu, executive]

Thank you, Jason. Thank you so much. Well, my thoughts are simple. I hope that in such an occasion, I can understand your expectations on LITE-ON from our side. So rather than waiting for you to ask, I'd rather proactively share within the realm of possibilities, we try as much as possible to allow you, investors and media friends to know more so that your questions can already be answered. Thank you, Jason, once again for talking about our future transformation directions and what we are already implementing. These new businesses will, to a certain extent, contribute to the company's operation.

Now back to Julia for the Q&A session.

[Julia Wang, executive]

Thank you. This is the Q&A session. You can ask questions, and we will provide more explanations.

[Unknown Analyst]

Anson, Jason. Thank you for your insightful presentation. This is my first question. During the transformation, do you plan to accelerate M&A or strategic cooperation with start-ups in the future? This is my first question.

And second, if we look at the cases that Jason mentioned, these are the transformation directions already mentioned over the last 3 years. So when you emphasize them this time, what are the differences between this time and in the past? And also in terms of M&A and external forces, what are you trying to imply? These are my questions.

[Anson Chiu, executive]

My answer to the first question is, yes. Of course, due to its sensitive nature, we cannot disclose too much here. But M&A and startups are what we have been doing over the past 2 years during the transformation. And today, we invite Jason to reiterate past announcements in this occasion. Well, since the very beginning, things haven't changed. We have talked about the same things. But this occasion allows you to have a bigger picture.

In the past, during the conference calls or in some other occasions, our explanations were perhaps more fragmented. And today, Jason provided you with a bigger picture so that you understand that in an IoE ecosystem, it's not just about chargers, it's not just about liquid cooling, there are many other things. If you look closely at the presentation, I'm sure that you see many other elements. But at this moment, in those areas, we don't have much progress. So we don't point them out specifically. But these areas are promising for the future in terms of the IoE ecosystem, and we will continue to put resources in these areas.

[Unknown Analyst]

Dear management. This is [ Doris ] from BofA. I have one question. Anson mentioned the gross margin 20% and OPM 10% targets that have been met. And the next step is going to increase revenue. Do you have a CAGR target or a long-term target that Anson can share with us? And in terms of gross margin and OPM, do you plan to stay at these levels or do you want to further grow them? This is my first question.

[Anson Chiu, executive]

Well, in the first 3 years, we focused on profit and robustness enhancement. And in the next 3 years, based on such profit and robustness, we will grow our revenue. This direction doesn't change. In terms of a CAGR target, well, internally, we hope to have a double-digit growth. Every year, internally, when we set up targets, this is like our basic requirement.

In terms of our GP and OP, can they further go up? I think in the long run, the answer is yes. But as I told you previously, GP growth means product competitiveness, but GP growth doesn't mean profit growth, meaning that when we improve our GP, that improvement is given back to our CapEx and OpEx investment for our new products and new tracks. This allows us to grow our revenue as a result. And that, in turn, help improve the absolute profit amount of ours. So we don't always want to expand our OP.

[Unknown Analyst]

Thank you, Anson. This is my second question. In recent times, there are some Red Sea impact and incidents. So are your BUs or products affected by such supply chain incidents?

[Anson Chiu, executive]

Well, yes, to a certain extent. Especially our shipment to mainly Europe. These products are more or less affected by the Red Sea incidents. So we have to pass by Cape of Good Hope, and 2 month -- 2 weeks in advance is needed, and that should be enough. But this proportion isn't large for us, so it doesn't affect our operation that much.

[Unknown Analyst]

My last question is this. Anson, could you share with us your CapEx plans for this year and next year? And what are the main objectives and items?

[Anson Chiu, executive]

Okay. Last year, our CapEx was roughly TWD 4 billion. It was mainly for our factories in Taiwan, in Vietnam and in the United States, China. So the building of these production sites, basically. And this year, as I told you earlier, the total amount is roughly the same as last year. We plan to have roughly TWD 4 billion as our target for our CapEx investment. That's about it.

[Unknown Analyst]

Hello managers, could you explain to us the reasons behind Q4's OP margin change? In Opto-electronics, the revenue went down Q-o-Q, but the OP margin went up. What are the reasons? And in ITCE and Consumer Products, the revenue went down, but the OP margin went down much more than Cloud. So what are the reasons?

[Anson Chiu, executive]

Well, that's mainly due to the revenue going down in Q-o-Q terms. Back in Q3, when we were looking at Q4, we didn't see any big impact. And we once thought that there would be a chance to have Q-o-Q growth, but it turned out not to be the case. In Q4, the biggest impact was customer products, especially game consoles, because our clients didn't sell well -- didn't sell as well as expected, but our shipment continue to build up. As a result, the client's inventory levels continue to go up. So in the last 1 month or 2 of last year, we had to stop our shipment due to such inventory levels. So the OP margin is mainly due to the revenue going down. As a result, our OpEx went up.

As for Opto-electronics that you mentioned, we are seeing an interesting phenomenon. In Q4, it was probably bottoming out. Why do I say that? There are 2 indicators. First, we look at our own PB ratio. Gradually, it goes from 0.8, 0.9 upward, meaning that the clients place more orders than before. Another thing is that our product mix is becoming better. Our invisible light products now have a bigger share than that of our visible light products. So that's good for Opto-electronics.

Last but not least, you mentioned ITCE products, including our consumer products. In Q4, we saw that notebook was returning to a Y-o-Y growth. Well, it didn't grow a lot, but at least we saw in Q4 that it didn't continue to go down further. As for desktop, the Y-o-Y decline has gotten smaller. So in terms of revenue, ITCE products are affected, but in Y-o-Y terms, we're seeing that the decline is getting smaller. So this is my answer for you.

[Unknown Analyst]

What do you think of the future of AI and revenue share and capacity planning?

[Anson Chiu, executive]

Well, this is a must-ask. I'm often asked this question wherever I am. If you look at recent market information, indeed, there is a new wave of AI popularity. I think, we still have to look at the applications ultimately.

In terms of AI, we have 3 main products: AI power supply, first of all. Second, keyboard because AI now is no longer limited to servers, it also goes to cellphones and PC. So notebook power supply and keyboard are also influenced by AI. Finally, cellphone, which is our Opto-electronics semiconductors. Due to cellphone AI, the screen will be different. In the future, the screen will be a mini-LED screen.

Overall, we think that AI is positive to the company's revenue. And everyone knows that Cloud and AI are determined by computing power. So power supply wattage will go up for sure. That's the first thing.

As for keyboard, both in terms of AI PC and AI Cellphone, these are high-end products. So their backlight power supply now goes from micro-LED to mini-LED and the usage volume in the past was under 100, but now it's in the 100s. So this is a good thing to us.

In our mini-LED. If you look at the revenue percentage right now, it accounts still for a small share. Last year, it was less than 5%. It wasn't huge. I think it may reach 7% to 8% this year. As a percentage of the total revenue, well, if the market goes into the direction that I just described, then there will be this opportunity for us. And next year, there will be a chance to achieve a double-digit percentage. That's about it.

Well, it's hard to predict that. It still depends on the solutions adopted by the clients. What I can explain is that if they still use 3 kwatt, then 1 AI server will have 15 kwatt. That's different from adopting 5.5 kwatt and 33 kwatt in total. So different proportions will lead to big differences. So it depends on the solutions adopted by the clients. But we are ready for both 3 kwatt and 5.5 kwatt power supply.

[Unknown Analyst]

One follow-up question related to auto electronics, chargers and onboard chargers. What is the current situation? Could you update us on that?

[Anson Chiu, executive]

For auto electronics, we focus still on chargers. Last year, back in 2023, our Level 2 chargers were affected by EV service providers and some emerging clients. Their demand went down. So our Level 2 revenue didn't perform well last year. As for onboard chargers, they are still being developed. We work with clients for product validation and development. So this year, there won't be much contribution to our revenue. I think DC is what we can look forward to. Level 3 DC fast chargers, which Jason talked about earlier at the beginning. Our DC 30 kwatt is 60 kwatt, this quarter will probably enter production. I think quarter-by-quarter, we will see both the demand and the volume increase. So these are the 3 main parts for auto electronics.

[Unknown Analyst]

Are they -- well, 30 kwatt and 60 kwatt are both produced in the United States?

[Anson Chiu, executive]

Yes, in Texas. We told you previously that in Texas, we have a new site. So they will be produced there. Well, our plane is just about to take off, so it's from 0 to 1, not from 1 to 0, so there will be a big impact.

We have 5 minutes left. So please seize this opportunity to ask questions.

[Unknown Analyst]

Hello Anson, I want to ask you about server power. First of all, someone asked about AI. So what about traditional servers? What is the outlook for this year? And also AI server power in terms of competition, are you seeing competitors speed up? And how do you look at the competition landscape?

[Anson Chiu, executive]

Well, last year, as you know, traditional servers declined by 4% to 6%, that's for sure. And this year, we believe that it can return to a normal growth, but the growth extent won't be much. I think, it will be between 2% and 4% that should already be good with such growth momentum.

As for AI, I think currently, from the perspective of power supply, which is our main product, we think that -- well, in the past, we were the first company to launch AI 3 kwatt products. But for clients, I can explain to you that the clients don't want to have such monopoly, both in terms of chips, power supply or any other products, the clients always want to have a second vendor as an option, but the threshold for high power supply is high. So there is a limited number of competitors. This is what I can tell you. I think as the AI market continues to grow and expand, as long as we can make such high-end products, both we and our competitors can benefit from this.

[Unknown Analyst]

Hello, Anson, I have 2 questions. First of all, I want to confirm a number for 2023 in terms of cloud power Y-o-Y. You mentioned 30% for Q4 last year. So the entire year should be between 20% and 30%? Okay. Got it.

I also want to confirm something else. Last time, you mentioned that for AI server power, in 2023, that would account for 5% to 6% of high power. I want to confirm this percentage. Has it changed?

[Anson Chiu, executive]

Right now, it should be between 7% and 8% as a percentage of high power.

[Unknown Analyst]

Okay. So how do you look at 2024? We know that it's a trend that people keep mentioning the shortage of GPU, et cetera. So how do you look at the large environment in terms of AI server?

[Anson Chiu, executive]

Well, AI server will grow this year, that's for sure. In Q1, the growth extent will not be that much. We believe that in H2, the growth extent will be more significant. This has to do with chip supply, and also this has to do with infrastructure, especially in terms of electricity, there will be some improvement in this regard. So there will be a better chance in H2. Things will be much better in H2 than H1.

[Unknown Analyst]

So if you want to differentiate CSP and Enterprise clients, is there -- are there priority differences in terms of getting the materials?

[Anson Chiu, executive]

From our perspective, what we see is that the clients enjoy a better priority, especially the top 2 clients in the United States, they enjoy a higher priority.

[Unknown Analyst]

Okay. My second question is that you mentioned your achievements in the last 3 years. And in the next 3 years, you want to grow your revenue and each year, a double-digit growth. So does it start from this year? You talked about some uncertainties this year, which may be more moderate. So I want to confirm with you, if you start your calculation from this year?

[Anson Chiu, executive]

Well, as I said, internally, our target is a double-digit growth every year. That's a target that we aim at. And of course, it starts from this year. But this year, first of all, it's affected by the macroeconomic situation. There is some impact there and also some consumer products now enter [ UL ] this year. So these factors make this year more challenging to us, but our target will not change.

[Unknown Analyst]

Let me ask a recent question. Could you share with us how you look at Q2 -- both Q1 and Q2?

[Anson Chiu, executive]

For Q1, I think it will be relatively weaker. The reason is because in addition to the Lunar New Year, in terms of our consumer products, last year, in Q4, we were still producing, as I talked about. But our clients didn't sell as well. So we have more inventories that can only be depleted in Q1 this year. Our clients are not selling poorly, but due to inventory in Q1, we are affected by consumer products. And so, the revenue will be relatively weaker.

As for Q2, we believe that we may be able to return to a Y-o-Y growth. The main reasons being, as I said; server, AI, PC and also consumer products, which I talked about. For all of these, in Q1, the inventories will be depleted -- will have been depleted. So in Q2, we can return to normal production.

As for cellphone, industrial automation and auto electronics markets, as I said, the PB ratio is getting closer to 1. In terms of Opto-electronic semiconductors. That's a leading indicator. The demand for that is 1 quarter earlier than other things that we produce. So if the PB ratio is getting closer to 1 in Q1 and in Q2, the demand for our other products will follow suit. So broadly, we believe that Q2 will be better than Q1.

[Unknown Analyst]

So the Y-o-Y in Q1 will be worse than last year?

[Anson Chiu, executive]

Well, before you entered, we were saying that the period of corporate convertible bonds is our silent period. So we cannot make projections on our revenue.

[Unknown Analyst]

Anson, I want to confirm a rumor in the industry. I don't know if it's true or not. The new generation AI chip design, when the chips are installed on servers, in order to address energy consumption issues, they strengthened some design while reducing backup power. This is believed to be detrimental to the power supply industry. Have you seen or heard about this rumor in terms of the new generation designs?

[Anson Chiu, executive]

My answer is, no. As I said, the main 2 sets or 3 kwatt and 5 kwatt. These are the main choices for clients. And the proportion depends on the final solution of the client. It's either 3 kwatt or 5.5 kwatt. What I can tell you is that the clients still want us to study 8 kwatt. If we follow such a trend, then the trend that you mentioned is contradictory to what I just described. So first of all, I haven't heard about such a -- such rumor, and we believe that power demand is still increasing.

I think, if we look at ESG, it's important to think about how to enhance energy efficiency. That's the right thing to do, but TWD 1 is still TWD 1. Even if you want to save energy, TWD 1 is still TWD 1. The amount of electricity that is used is certain. And the increase of computing power is also a necessary trend. As a result, power demand is for sure. And then power supply is also for sure. I think this is a necessary logic. I think, it's unlikely to reduce power simply to want to save energy.

[Julia Wang, executive]

This concludes our conference today. All the materials will be put on to our official website. Thank you for your participation. We wish you a nice day ahead.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]