Realtek Semiconductor Corp
TWSE:2379
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
Abbvie Inc
NYSE:ABBV
|
Biotechnology
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Realty Income Corp
NYSE:O
|
Real Estate
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
391.5
604
|
| Price Target |
|
We'll email you a reminder when the closing price reaches TWD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
Abbvie Inc
NYSE:ABBV
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Realty Income Corp
NYSE:O
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Realtek Semiconductor Corp
You don't have any saved screeners yet
Good afternoon, everyone. Welcome to Realtek's 2022 First Quarter Earnings Call. This call will be chaired by Realtek Spokesman Yee-Wei Huang. The presentation will be available on the company website before 6:00 p.m. today.
At the beginning, our spokesman will report our first quarter results and give a management's remarks. [Operator Instructions]
Note that portion of what presented in this call contain forward-looking statements. Investors are cautioned that forward-looking statements involve risks and uncertainties. The actual results may differ materially from the results forecasted or implied in such statements, and the investors should not place undue reliance on such statements.
Now I'll pass this call to our spokesman, Yee-Wei.
Thank you. Good afternoon, ladies and gentlemen on the line. You are currently on the first quarter of 2022 webcast earnings release hosted by Realtek Semiconductor. Now let's go through first quarter 2022 operational results.
First quarter revenue was TWD 29.76 billion an 8.7% Q-on-Q growth and a 27.5% increase compared to the same period last year, achieving another historic high. The growth in the first quarter came mainly from communications network and commercial applications, the strength of which has compensated for the weakness in certain consumer applications. This trend is expected to continue in the second quarter.
Further, note that U.S. dollar appreciated 3.6% against Taiwan dollar in the first quarter compared to the fourth quarter last year. The stronger U.S. dollar also contributed to part of the revenue growth.
Fourth quarter gross margin was 52.2%, slightly lower compared to 52.9% in fourth quarter '21. The small change reflects normal fluctuations. There's no change in company's product mix.
Q1 operating expense was TWD 10.23 billion or 34.4% of revenue, a 1.4 percentage point drop compared to the previous quarter. Faced with prolonged shortage of talent in the semiconductor industry, both local and foreign companies are offering aggressive salaries to attract talents. Realtek cannot afford to fall behind. We are offering highly competitive compensation package in recruiting and retention of talents. Further, we have continued to invest in innovative R&D and expand our supplier base.
We do not expect OpEx ratio to significantly reduce anytime soon. Nevertheless, we still strive to leverage our economy of scale to lower our OpEx ratio as we grow.
So Q1 operating profit was TWD 5.3 billion or 17.8% of revenue. Lower OpEx ratio is the main reason to a higher operating profit. On non-op income, first quarter was TWD 101 million, a lower valuation of financial assets did rise to a lower non-op income. This lead to the first quarter net profit of TWD 5.19 billion or 17.4% of revenue.
EPS, as a result, was TWD 10.15, an increase from the TWD 9.02 in the fourth quarter last year.
Regarding inventory, Q1 inventory turnover days was at 114 days. This is a 5-day decrease from 119 days in Q4, but still at a high level. This reflects a continuing challenge of supply imbalance in the supply chain.
In Realtek over 50% of the inventory are work in progress and finished goods. Although the inventory turnover days may not drop quickly, we are certain that inventory will be consumed in due time. We also have the first quarter balance sheet and cash flow statement for your reference and your convenience. This concludes Realtek's first quarter 2022 financial report.
Forward-looking, the near-term overall market demand is solid. We are cautiously optimistic about the second quarter operations. However, it is still necessary to pay close attention to the impact of Russian-Ukrainian war, the pandemic and inflation on the end demand as well as the production capacity of semiconductor supply chain.
As before, we will review the top product lines at Realtek. First, we observed that PC versus non-PC revenue split remains about 35 to 65 in the first quarter, same as the last quarter. On Ethernet, this is a fundamental and essential technology for wired local area network. Requirements for communications network applications show no sign of slowing down. Besides PC, we observed continued spec upgrade to 2.5 gig Ethernet in networking devices such as cable modem, AP/Router, Switch, PON and et cetera.
For Switch, we expect strong growth in 2022, benefiting both in quantity increase and product mix shift to manage switches and multi-gig switches. Our Wi-Fi strong spec upgrade to Wi-Fi 6 for PC, router, broadband, TV and OTT boxes should be sustainable.
For consumer markets, we haven't seen recovery since fourth quarter last year, where we need to pay close attention to the impact by war, lockdown in China and inflation.
On PC audio codec, strength in the commercial PC sufficiently compensates weakness in the consumer segment. Some OEMs are expressing concerns about the prolonged weakness in consumer and educational markets, while others expecting the strength in the commercial segment to overcome such weakness.
On TV, we still expect flat or slight drop in worldwide TAM this year. Temporary strength will be attributed to the ongoing decreasing panel price. Further future growth opportunity may be in gaming PC.
On Bluetooth, end product demand, especially consumer-oriented ones, is expected to be at about the same level of 2021. Long-term outlook nonetheless remains positive due to new spec features and new applications.
Thank you, Yee-Wei. Now we are entering the Q&A session. [Operator Instructions] Now first question is from Randy, Credit Suisse. He would like to ask first quarter '22 business trends and outlook for growth into the coming quarters. What areas drove the upside to your sales outlook in first quarter? And how do you see sequential growth continuing into the next couple of quarters?
Yes. So the strong first quarter results can be attributed to 2 things. First is a certain order holdbacks in Q4. Second, and more importantly, is the continuing strength in Ethernet Switch, PC, CD codec. Now this reduced strength in communications network and commercial segments, including commercial PCs. The strength is more than sufficient to compensate for the weakness seen in some consumer and educational segments. We expect such trend to continue in the second quarter.
Nevertheless, we still need to pay close attention to the impact by the Russia-Ukraine war, the current lockdowns in China due to their zero COVID policy, and inflation on the end demand, as well as any changes in production capacity of the semiconductor supply chain.
Followed by the first question, Randy would like to ask, what changes have you seen in demand from the COVID-19 lockdowns in China? And also Ukraine-Russia conflict, have the lockdowns impacted downstream production, which delays your shipments?
Well, first, here, what we know about lockdowns in Shanghai, the most populated city in China. The logistics is slightly hampered, resulting in longer routing distance and time to transfer goods, although moving of goods is not at a complete stoppage.
Production of goods is resuming with 656 key companies, including TSMC and ASE restarting their operations on April 19, and more may follow. And we have not seen immediate impact on the demand side. Nonetheless, things may turn ugly if the lockdown persists.
Based on past experiences, lockdowns generally impact mid- and long-term supply, but not necessarily demand. Both sea and land shipments have been badly impacted by COVID-19 before the ongoing lockdowns of 45 cities in China. The added impact may not be immediately observable. If prolonged, nevertheless, the FX impact could add to the problem, causing further delay in sea and land shipments.
The impact by Ukrainian-Russia war has no precedence, although we have seen rising crude oil prices that may result in higher energy costs for both industry and general household, that is, it may impact both supply and demand. For example, we have heard long-haul container ships are traveling at a slower speed to optimize fuel consumption. Overall, nonetheless, congested ports present the biggest bottleneck, causing shipment delays currently as explained above.
Next question is from Daniel, Morgan Stanley, regarding OpEx. What is our OpEx budget for 2022?
Engineering expenses constitute the largest portion of OpEx. Realtek is committed to budgeting adequate investment for attracting best talents to perform innovative engineering, R&D while expanding our supply base. To this end, we expect OpEx amount will grow while the company scales up.
Nevertheless, we strive to leverage our economy of scale to lower our OpEx ratio as we grow. As previously highlighted, we do not expect OpEx ratio to reduce significantly anytime soon as we fight the industry to attract and retain top talents.
Next one, Rick from Daiwa would like to ask, how is the supply/demand gap right now for Realtek and compared to 3 months ago? Will Realtek expect the supply tightness will be largely eased?
Well, this year that some fabs have recently added some incremental capacity. The quantity is too limited to release the supply constraints, while the demand overall remains strong.
For back end assembly and [ test ] substrate shortage remains a critical bottleneck. To the best we can see at this juncture, the supply constraints are not expected to go away anytime soon.
Next question is from Bruce, Goldman. Related to pricing environment we are facing, the question is, what's the pricing environment in the remaining 2022 and 2023? Are we expecting any further price hike for certain products that are still in shortage, such as Wi-Fi 6? Also, are we expecting any price hikes from foundry in the remaining 2022?
Although the pressure for further price increase by foundries still exists, when it does happen, nonetheless, we expect it to be modest compared to 2021 in terms of both scale and scope, therefore, less impact. Realtek takes a positive role in price increase. We will handle price increase case by case this year, Wi-Fi 6 or otherwise, if and when it happens.
Next question is from Aaron, Nomura. He would like to get an update on current inventory cycles and how would end demand noises impact your business? Any difference versus last quarter?
A good portion of inventory at Realtek, more than 50% actually is weak, including memory non codec TGD. For finished goods, the inventory is higher for consumer-oriented products, we have adjusted production for products with high inventory. Further, we are working with customers to consume the inventory where applicable. We are confident to reduce inventory slowly but surely.
Next question is from William, JPMorgan. If market demand is weaker than expected, market share versus gross margin, which one would the company focus more on?
It was practice at Realtek, in our 35 years of history, we have faced market up and down many times. We know how to balance market share versus gross margin and we never stop optimizing our product cost structure. So we will handle this.
Next question, Kevin from Mizuho, would like to ask that PC market and consumer markets are relatively weak. Have we seen the orders slowdown from the customers in those segments?
Currently, the softness in the consumer PCs has been overshadowed by the strength on the commercial side. Now that the stronger the PC makers in the consumer segment, the more conservative in their tone when forecasting the 2022 PC market.
We continue to [ put out ] forecast updates every month. Up to now, the orders are holding. For China consumer market, it has been weak since fourth quarter 2021, and it is still weak.
Next question is from George, KGI. Please update for our recent Wi-Fi 6 business status and the price gap among Wi-Fi 4, 5 and 6, as well as Wi-Fi 7 development progress.
Currently, Wi-Fi 6 clearly it's a priority at this time. We will continue to enhance the feature and performance of our Wi-Fi 6 while optimizing its cost structure. Realtek 6E -- Wi-Fi 6E has been a customer size for their product development since last quarter, with MP shipment expected in the second half this year.
We do not expect a fast ramp-up of 6E as they are currently only 17 countries that have adopted Wi-Fi 6E and opened the 6 gigahertz spectrum for it. China, Taiwan and most of the Asian countries have not adopted Wi-Fi 6E.
Further PCs and phones, these are endpoint devices and now routers are seem to be the first applications to adopt Wi-Fi 6E. All these will limit the value of Wi-Fi 6E in the near term.
Wi-Fi 7 development is progressing as planned. We are pacing our product development to participate in the first Wi-Fi 7 interoperability [indiscernible] scheduled this fall. Regarding price gap among Wi-Fi 4, 5 and 6 is placed about the same level as last quarter, around 1 to 3 to 4.5. And Wi-Fi 6E may add another 30% price premium over Wi-Fi 6.
Followed by previous question. Any challenge you have met in the migrate to FinFET process? How will you manage the founder supply of 6 nano nodes as it is in supply constraint as well?
Yes, while more new fabs are used for advanced nodes, meaning 14 nano or smaller than the mature ones, we expect the industry will progress in technology advancement and migration as always. Products using 14, 12 today are expected to move to smaller geometry such as 7 and 5 in time, when Wi-Fi 7 is ready for volume production likely in 2024.
For power consumption and long-term planning with all factors consider, we are better off to plan Wi-Fi 7 in FinFET.
Next question from George, KGI. Can management provide some outlook of the bidding market and 5G infrastructure? Is it impacted by COVID-19 lockdown in China?
While the infrastructure buildup seems to be unaffected. As previously explained, we have not seen impact on the demand side at this point. The market trend of telco tender projects stay at about the same level as last year. Nevertheless, we need to pay close attention to the impact on demand by lockdowns if they track on.
Next question from Credit Suisse, Randy. What are you seeing for upgrade 10G PON, Managed Switch, mesh router?
10G PON, Managed Switch, mesh router, these are all communications networking devices that have been in strong demand since the pandemic as they each played an essential role in network infrastructure that keep people and devices stay connected.
The more people and endpoint devices to stay connected, the higher demand in the network speed, manageability, coverage and flexibility. To support 10G PON and 5G, new manage features are upgraded to have more multi-gig ports as opposed to [ 1000 ] and gigabit Ethernet ports.
Mesh routers are practical solutions to eliminate Wi-Fi dead spots. To ensure best performance, some mesh routers are upgraded to have tri-band with a third band dedicated for the inter router backbone traffic.
A follow-up question from Randy. Could you discuss what you are seeing on the retail router gateway market, both in overseas and China market? Are you seeing change in pace of upgrades to mesh router, Managed Switch or Wi-Fi 6 and could that offset the weakness or the upgrade are also slowing down?
Well, first, an important thing to note, if you haven't been aware of, is that in China as well as in the global market, retail routers are gradually overtaken by telco and broadband operators who now also offer routers to their subscribers.
At the same time, all routers are going through generation, meaning spec upgrade. For example, from AC1200 that's using Wi-Fi 5 to AX1500, 1800. These are using Wi-Fi 6 and even higher specs.
The same goes to the mesh routers and routers with manageability for small and medium business, which are also gradually replaced by operators' offerings.
Gateway and Managed Switch are sold through telco tender projects. The demand for devices mentioned above remained strong in the first quarter, and the momentum is expected to continue in the coming quarters.
Next, also question from Randy. Have you seen any stabilization or recovery in the TV market?
Overall, we still expect TV worldwide TAM to deflect or even drop slightly this year. Some of the temporary strength we observed recently, most likely is attributed to the ongoing decrease in panel prices, which is expected to stop at some point. Future growth opportunities may be in gaming TV, that is TV with higher frame rate.
Next question is related to the Auto Ethernet. Could you give us some color on it, which including revenue contribution in 2022, competition landscape change and technology trends?
Automotive Ethernet adoption is clearly picking up momentum and accelerating. We expect Realtek Auto Ethernet 2022 growth to, again, significantly over pace corporate average. The competition is still among a handful of strong players, including, other than Realtek, Broadcom, Marvell.
The trend in the coming years will move at equal intensity at 2 fronts. First, higher speed, safety, security and also very high-speed interfaces. And second, lower cost and optimized features for broad cost-sensitive adoption. The 2 is opposite in require engineering, this innovation, but they will proceed in parallel.
A follow-up question on the auto market. Could you share opportunities and progress for other products for Realtek?
Indeed, car companies are expressing lots of interest in Realtek other than Automotive Ethernet. So then a couple of examples, Wi-Fi, Bluetooth come to mind. And in fact, even before -- even beyond these 2, there are a few more we are working with our automakers. We will share more progress in time.
Next question is related to USB 4. What's our strategy for USB 4 hub device product development? Any ambition to enter high-speed interface market, given ample IP portfolio for DP, HDMI, PCIe and USB?
While interest in the USB 4 is the lowest speed among the field standard you mentioned. USB 4 run top theoretical speed at a 40 gigabit per second, HDMI 2.1 at 48 gigabit per second. [ USB 4 ] 2.0 runs at 80 gigabit per second. PCIe 5.0 runs at 504 gigabit per second. These are all very high-speed serial interface, and we currently, as we speak, have products for all either in the market or in the later stage of development. These products all share common high-speed service technology know-how. We have had worked on high-speed service for many years and applied it for many applications. We will keep up the spec upgrade if and when it happens.
Next question, could you share the near-term demand for TWS market and new product development?
On TWS, Realtek will continue to focus on mid- and high end and also brand customer with enhanced features. Other than active noise cancellation, ANC, we are currently leading in introducing solutions to support LE Audio, now featuring the very efficient LC3 codec, also very innovative multi-stream, and broadcast features.
So overall, although we do not see strong growth of the TWS market this year, we believe there's still plenty of opportunity to expect in this market segment.
Next question, does Realtek considered to spin off any business and make it listed, why or why not?
Well, we continue to review all business is there a possibility as the company scales, so including spin-off as well as M&A. So these are all possibilities. And when we have a more concrete development, we will share with everyone.
Next question. Realtek invest in fab transfers and diversified foundry supply last year. Could you provide some color on the current progress?
Right. So up to now, in fact, it's a continuous ongoing effort. We have already qualified several new foundry partners and also new fabs with increasing foundry partners. They are at different stages of initial ramp-up. Overall, contribution to the capacity that Realtek needs is still low. Therefore, the allocation among different foundry partners has not changed much at this point.
Next question is from [indiscernible]. How the exchange rate impact the gross margin in first quarter '22?
Exchange rate, I do not believe, okay? So the exchange rate -- let me see. Yes. Okay, that's quite a thought. It wouldn't have any impact. We buy and sell both in this U.S. dollar. So in that sense, you don't need to factor that in, in this gross margin consideration.
Next question, spokesman just mentioned that the commercial PC outperformed consumer PC. Could you share the dollar content difference between the commercial PC and consumer educational one?
We do not have the breakdown on hand. Generally, currently, really the consumer one is a much smaller portion, but we do not have the quantitative split on hand.
Next one is from [ SCFB, Jacob ]. Could you share company's view on the first half and second half seasonality? Could we still expect a better performance in second half than first half?
As we stand here today, although we have said, may be too soon to comment on the second half. But to the best we can see now, we -- I will say we are optimistic or at least cautiously optimistic, that second half will be at least as good as first half or better.
Next question. Management just mentioned that we are facing competition in recruiting and retaining talent. Could you share the current employee turnover rates and strategies company has to retain the talent?
Overall, our -- this turnover rate actually is pretty low, at least I can share with everyone in the Science Park, where we're situated, I believe the turnover rate is 10% or higher. Realtek turnover rate, at least I can share with everyone, it's much lower than that.
And other than good package, of course, many of you probably have heard, people need their job for all the reasons, often time salary or pay usually is not the top reason.
So yes, we do need a competitive package. But to really keep the talent, we need to make them feel they have future, they can do the things they like and they feel they have a platform they can really show off their talent.
That's all many angles we need to provide the best possible working environment. So they feel they are needed and they can do a different -- make a difference in their work. And that's what we are doing continuously.
Next question is from Daniel, Morgan Stanley. How do you see the market share gain opportunities in 2022? Some U.S. peers are still allocating more capacity to auto. So I would like to know the room for you to take more shares?
We believe so. Some of our international competitors, historically, they are stronger in the mid high-end or super high-end segment. Realtek more on mid mainstream and low end. But with the shortage, Realtek actually find our way in many of the mid-high end design win that, in the past, we didn't really be too successful there. This time, we actually gained quite a bit of design win, in that regard. So yes, some peers move their focus to one area, the voice, they open up, present the opportunity for Realtek.
Next question is from Bruce, Goldman Sachs. Who are the key competitors for our products, such as Wi-Fi, Ethernet and Switch? Are we seeing any new competitor or stronger competition from China?
Last point about competition in China, of course, there's always competition in the largest market globally. So but often times, there are more -- for the market area Realtek is facing, when we do find competition in China, oftentimes, they are more on this low-end, entry-level, basic feature type of competition.
Currently, Realtek, we -- actually, our product mix has shifted. So we do pay close attention. It's not that we completely ignore this -- some of the mid-low end market. We do pay attention to that, but we pay even more attention to the mid-, high-end market.
And in general, different segments, we have different competitor, Wi-Fi -- even Wi-Fi different applications. In PC, we face Intel. In some other areas, we face MediaTek, Broadcom and Qualcomm. And this Ethernet, really, there's much less competition there. And so a company like Econet, they are a competitor in Switch. So yes, different areas oftentimes, we will see different competitors.
Next question is from [ Sky Jeng ] from Nomura. What is the initial business outlook for 2023?
Okay. So we just commented about the second half. And so for 2023, first, I would say we believe it's still going to be a growth year. That probably is the most I can comment at this time. We still believe, for Realtek, it will be a growth year. And I probably wouldn't be able to be more specific than that.
Next question. Could you provide the guidance of gross margin for longer-term, say, 2023 and beyond?
I think, I have said a few times in the past, of course, our gross margin, we believe it will go up and down. The level, we are -- we stay -- the level we stay at this point is the level we have been here for -- by now over a year or exactly a year over year now, for 4 or 5 quarters now. So in general, we believe this is a level we will try to maintain. And it will go up and down, but you probably will find us roughly in this level.
Thank you, Yee-Wei. Due to the time constraints, we will conclude the meeting now. Thanks for your participation today. Please feel free to contact our IR team if you have further questions after the meeting. The replay will be available on the IR page of the company website before 6:00 p.m. Thank you, and have a good afternoon.