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 |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| 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 |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
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 |
438.5
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 |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
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 |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Realtek Semiconductor Corp
You don't have any saved screeners yet
Good afternoon, everyone. Welcome to Realtek 2021 Second Quarter Earnings Call. This call will be chaired by Realtek's 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 second quarter results and give management's remarks. After that, we will have a Q&A session. You are welcome to type your questions in the box at the lower-right corner on the screen. We will answer the questions accordingly. During the call, you can browse through the pages of the presentation anytime.
Now I'll pass the call to our spokesman, Yee-Wei.
Thank you. Good afternoon, ladies and gentlemen on the line. You are listening to the second quarter 2021 webcast earnings release by Realtek Semiconductor.
First, let's go through second quarter 2021 operational results. On Q2 revenue, it was TWD 25.8 billion, a 10.7% Q-o-Q increase and a 49% increase compared to the same period in 2020. The Q-o-Q and Y-o-Y increases reflect the continuing demand trends and the increase in product ASP. PC-related businesses performed strongly in the second quarter, resulting in 46:54 splits of PC versus non-PC revenues.
On gross margin. Second quarter gross margin was 50.4% compared to 44.8% in first quarter '21. The higher-than-normal gross margin is mainly a result of better product mix, favoring products with better profitability given a supply limit.
Q2 operating expense was TWD 8.72 billion or 33.8% of revenue. An increase in the OpEx ratio is a reflection of continuing engineering and other investments to expand and secure supply for the future. Our current operational priority is to meet our customers' expectation in supplying the best we can, while maintaining competitiveness in cost performance.
The operating result of second quarter -- I'm sorry, the operating profit of the second quarter was TWD 4.3 billion or 16.6% of revenue. Higher operating margin is mainly a result of better gross margin. Q2 non-op income was TWD 184 million, remaining stable compared to the first quarter with TWD 27 million foreign exchange gain from successful hedging in this quarter. Q2 profit was TWD 4.31 billion or 16.7% of revenue, a 3.6 percentage point increase Q-o-Q. As a result, Q2 EPS was TWD 8.43, better than the TWD 5.98 in the first quarter this year or the TWD 3.97 in the second quarter last year.
Regarding inventory. Q2 inventory turnover days were at 82 days compared to 56 days in Q1, with work in progress constitute the major portion of the inventory as a result of uneven availability of various materials in the supply chain, which remains a real challenge. We also have balance sheet and cash flow statements for your perusal and your convenience. This concludes Realtek 2Q '21 financial reports.
Taking you through the third quarter. The current market for Realtek products still face supply shortage. We need to pay close attention to changes in the upstream supplies as well as end market demand. We are cautiously optimistic about the operations in the third quarter.
Now let's run down the top product lines at Realtek. On Ethernet, market demand for 2.5 gig Ethernet -- gigabit Ethernet and fast Ethernet, all outpaced supply significantly in the second quarter, which is expected to be the same in the third quarter.
Main applications include PC notebooks, IP cam, surveillance cameras, broadband CPEs, et cetera. In spite of supply constraints, the adoption of 2.5 gigabit Ethernet in the high-end segment of selective applications such as gaming and motherboard kicked off successfully in the first half this year. The continuing constraint is now hampering the growth of the new fact for mainstream applications. As a result, the penetration of 2.5 gigabit Ethernet may be limited in 2021, for example, less than 10% in PC. So there's a lot of headroom for growth. Switches business is limited by supply, although there's no shortage of demand for both PON switch and managed switch. We believe that demand trends will sustain post pandemic.
For PON switches, the expanded installed base people work from home and remote learning is expected to enter into a regular refresh and technology upgrade cycle. For managed switch, Realtek continue to expand customer base and win new projects.
Wi-Fi. Applications performed the best in the second quarter for consumer electronics and IoT while demand remained strong across the board, including PC, routers, broadband. Sales is still led by 11ac and 11n for Realtek. The growth for Wi-Fi 6 has been suppressed by supply shortage, although its growth is inevitable. 40% penetration of Wi-Fi 6 for PC and routers may still be achievable this year, while the broadband and other applications may be forced to slow down the Wi-Fi 6 adoption. Wi-Fi 6E MP shipment is expected in 2022.
Bluetooth. In this segment, we chose to allocate supply fairly across BT NIC, BT SoC and BLE SoC. The demand outstrip supply for all 3 segments. Main applications include broadband boxes and PC dongles for BT NIC, wearables and remote controllers for BLE SoC and TWS for BT SoC. Due to supply limit, Realtek focuses on performance and brand customers for TWS.
On the TV, the price and supply of LCD panels and DRAMs continue to impact TV growth negatively. We expect TV worldwide TAM to drop a little Y-o-Y this year, although 4K TV series sales regain momentum. Realtek TV shipment in 2021 is expected to maintain at above the same level as last year.
Thank you.
Thank you, Yee-Wei. Now we are entering the Q&A session. [Operator Instructions] Now the first question is from Daniel, Morgan Stanley. The company reported second quarter revenue to be up to 11% quarter-over-quarter. Could you provide a split of the 11% quarter-over-quarter growth? For example, how much from shipments and how much from ASP hike? Also, what's the reason behind better-than-expected gross margin? Are we still maintaining 42% to 44% guidance into second half this year?
Okay. For quantity shipped and ASP increased Q-o-Q, but ASP was the primary contributor to the higher revenue and Q-o-Q growth in the second quarter. Note that there are 2 factors giving rise to higher ASP: one, product mix; and two, price increase. Regarding gross margin, they are also 2 contributing factors: one, ASP; two, ASC. For example, wafer cost impact on sales cost.
It should also be noted that some of the cost to secure supply may not be included in the cost of goods sold and impact gross margin directly. For example, engineering investments to qualify additional production lines or vendors or investment on long-term partnerships. Changes in ASP and ASC are both very dynamic, and they do not align with each other.
As to the factors impacting gross margin, ASP and ASC are expected to change continuously, but independently to a large extent in the second half. We cannot predict where gross margin may land quarter-by-quarter. Nonetheless, the supply shortage does impact product mix [indiscernible] higher ASP and profitability.
Thank you. The next question is from Goldman Sachs, [ Edison Lee ]. will Realtek's ASP and gross margin they climbed back to previous level when labor supply is no longer an issue?
Okay. At least not anytime soon. I think the key work here is when supply is no longer an issue. When that happens, the only factor to determine ASP will be market competition. And we will see how the market dynamics drive this competitive landscape. That will be the determining factor. But for the supply to go away and not an issue, that doesn't seem to be possible in the foreseeable future.
The next question is from Kevin Wang, Mizuho. Is it possible to see even higher gross margin in second quarter this year?
You mean second half?
Second half, yes.
Okay. As we say, we cannot predict where gross margin may land quarter-by-quarter. So higher, lower, both are possible. Thank you.
Okay. The next question is from Randy, Crédit Suisse. This question is related to OpEx. What is Realtek's target to grow OpEx? And what target ratio should we use for OpEx ratio in the second half?
Okay. Compared to normal time, OpEx in this and coming quarters will include engineering investments to qualify additional vendors and also investment on long-term partnerships. Such additional engineering investment is necessary, although its benefits may not be visible this year. OpEx ratio always dominated by R&D expense. This year is likely to be higher than that of 2020. Thank you.
The next question is from Aaron, Nomura. Realtek respond to the rising wafer cost into second half this year and 2022. Will Realtek able to pass on rising costs continuously? Or would Realtek need to bear the cost with gross profit margin hit into 2022?
[ Although the ] wafer price increases in second half 2021 and even 2022, our big expectation is demand continues to outgrow supply. As we reminded everyone in the past, Realtek does not pass on price increase in the supply chain in a straightforward manner. We will review the necessity of price increase on our parts regularly. Both profitability and market assessment competitiveness are important factors in our decision.
The next question is from Morgan Stanley, Daniel. Could you provide the rough revenue split of first half versus second half this year?
All we can say is the second half is very likely to be higher than the first half. That will be as much as we can comment.
Follow-up by the question. Supply situation for the second half and 2022 and inventory levels, how is Realtek's own inventory versus the target level? How do you see your foundry supply growing for the second half this year? And do you have comfortable capacity availability in the 2022?
The supply remains tight and very challenging in the second half and also most, if not throughout 2022, from what we can tell at this time. No new capacity is expected from foundry and OSATs in the second half this year and most part of 2022. Spot opportunities for fewer wafers may come and go. Realtek tries our best to capture some. Inventory of finished goods remains low in Realtek, which, nonetheless, increase due to unevenness in supply chain process. We do not see Realtek's finished goods inventory returning to normal in the near future.
Thank you. Next question is from Martina, Fubon. Do you see other components shortage impact in the second half of this year?
[ There will be ] supply chain shortage occurs in many places in addition to wafer, for example, OSAT, PCB, substrates, memories, they are all good examples.
The next question is from Brian, CLSA. Could you elaborate the growth magnitude by product line? Realtek has been relatively conservative to the TV SoC growth this year due to higher panel and DRAM price. If prices are even higher in the second quarter and third quarter '21, do you see the same impact to the PC as well? What's the difference between now and 3 months ago?
Panel and DRAM prices now are higher than those 3 months ago. Panel price is still high at the present time. Although the momentum for further price hike seems to be tapering, there are even rumors that the panel price may drop in the near future, although we have not witnessed. DRAM price is also at a high point at the present time. The price impact mentioned above is expected to suppress the TV market this year. For Realtek, we still expect a flattish year for TV. The price rise trends for panel and DRAM for PC is no different from that for TV. Thank you.
Next question is raised by William, JPMorgan. What was the product mix of the second quarter '21? And how would it change in the second half year?
The second quarter revenue growth was led by PC related, including Ethernet, audio codec, Wi-Fi. Looking forward, we still expect sale of product even better business results while fulfilling customers' demand the best we can.
The next question is from Morgan Stanley, Daniel. What's the Wi-Fi take in the first half and the second half of this year? Are we seeing slowing down of Wi-Fi 6 penetration versus our earnings call 3 months ago? What's our progress for the Wi-Fi 6E and also when Wi-Fi 7 will come?
Wi-Fi 6 demands are strong but constrained by supply. PCs and routers are expected to achieve 20% Wi-Fi 6 penetration, while broadband-related market may delay Wi-Fi 6 adoption this year. Realtek restarted Wi-Fi 6 MP shipment at the end of 2020 last year. We expect to ship more Wi-Fi 6 in the second half compared to the first. For Wi-Fi 6E, the MP is expected in 2022 next year. High-end PCs are likely the first adopters. Wi-Fi 7, it is under development. Product availability may be at least 2 to 3 years out. Thank you.
Followed by the previous question Brian from the CLSA would like to ask our initial expectation of the Wi-Fi 6 penetration in 2022?
We're so glad to say we expect Wi-Fi 6 penetration in 2022 will be stronger than that this year.
Okay. Still question on Wi-Fi 6. William from JPMorgan would like to ask whether the company has the confidence to replicate Wi-Fi 4 and Wi-Fi 5 success in the Wi-Fi 6 cycle?
Well, certainly, we are confident to be a leader in Wi-Fi 6. As we always do, Realtek Wi-Fi 6 solutions will enable mainstream adoption of the technology. Our strength includes: one, completeness of product portfolio; two, small form factor through integration; three, low-power design; four, and probably most important, our customer support.
The next question is from Kevin, Mizuho. What is the current PC demand outlook from customers for the second half this year?
We can take a look of some market reports. Overall, PC demand outlook remains strong in the second half. According to data provided by IDC, the PC market may grow 10% up in the second half versus the first half, yielding a total of 368 million units of worldwide PC shipments this year. This represents an 18.3% Y-o-Y growth. We believe such data provide a reasonable reference.
Thank you. The next question is from Goldman Sachs, Bruce. He wants to know what's your PC shipment product breakdown by enterprise and consumer? Do you expect the recovery in enterprise market to offset the demand concerns from the consumer next year?
It appears that people stop tracking PC commercial-consumer split for a while. Still, it is generally believed that consumer purchase [ were made only ] during the pandemics when people work from home and study from home. Nonetheless, a large portion of PC Chromebook for educational use is through tender projects managed by school systems, which are considered commercial projects. If and when pandemic subsides, consumer purchases may shift to products and services other than PC notebook. However, corporate PC notebook refresh cycle may resume. Further, the new norm postpandemics may involve a mix of work from home and back to office. Overall, the new norm may bring PC notebook [indiscernible] to a level higher than pre-COVID-19 as far as we can see.
The next question is from Rick, Daiwa. In the TWS market, the growth is probably capped a bit due to the capacity constraints. What's your expectation for the TWS market growth in 2021 to '22? Also, do you see any meaningful change to competition landscape?
TWS overall TAM appears to be flattish this year as far as we can see. The TAM may go back to the growth mode in the future with the next growth opportunity in LE audio. Realtek has decided to focus only on high-performance segment and focus on brand customers for TWS. On [ AMC ], it still constitutes only a small percentage of the TWS market due to the engineering challenges. We want to emphasize Realtek Bluetooth product line maintained a healthy growth as we see strong demand in PC BT NIC, BT -- BLE SoC and BT SoC. Thank you.
The next question is from Randy, Crédit Suisse. How is the project momentum for the second half this year within China and overseas?
For the trend of projects, we see OTT PON demand in China remains strong. [ Sales ] in overseas, a strong for PON and DSL. We see the fulfillment rate to be less than 50%, nonetheless. Just very recently, we see new tender projects open in China. And in terms of the market potential, we see the OTT spec changes from Wi-Fi-Bluetooth combo to BT-only due to supply constraints. We have fared well in this change. And for updated routers, we still see market potential of around 45 million a year. The market size for PON worldwide TAM is about more than 190 million. China alone has about over 100 million. Realtek PON is expected to grow in this segment. Thank you.
The next question is about China competition. [indiscernible] as recently also mentioned, they have the Wi-Fi 6 product. What's your observation? And how about any other vendors in China?
Well, competition from China always exist. [indiscernible] has been a competitor in IoT for a few years. Wi-Fi 6, we should say there are 3 key improvements over the previous generation of Wi-Fi: one, high throughput; two, mass connectivity; and three, power management through target wait time. Two and three are both very important to the ubiquitous adoption of IoT solution. So Wi-Fi 6 is expected to become an important choice for IoT in time.
As far as other segments, Realtek wins on the solid proven technology, completeness of product portfolio, level of integration, low power and customer services. We should also note that Wi-Fi 6 for IoT seems to be best to support, among other things, voice control. We have IoT solutions integrate voice codec among other IPs. And Realtek IoT will focus on global appliance brands and also solution providers. Thank you.
The next question is spec migration. How much is supply constraint changing the pace of spec migration, and in which areas of the business?
Okay. Supply shortage appear to slow down the development of new generations of spec. Engineering resources may be diverted to port existing products to expand supply base. For products that are already in MP stage, spec migration proceeds. The deployment of the new spec often times, nonetheless, slowed down due to supply shortage. Thank you.
Next question is related to the auto Ethernet. Could you give us some color on it?
Sure. Auto Ethernet is growing at a healthy rate than expectation and significantly above corporate average for the past 2.5 years. We are currently busy working on new design wins. The next wave of RFQs for year 2025, '26 car models are not expected to arise until the end of this year. Supply shortage does impact auto Ethernet business, but the situation is manageable due to the relatively small scale of the business. We have Automotive Ethernet business covers customers in all major global carmakers in EU, U.S. Korea, China and Japan.
We want to share that Realtek automotive switches [ lead in high comp ] supporting gigabit 5 and PCIe interface. The innovative design enabled Realtek automotive switches to pass many global OEM stringent EMC tests and to be designed into a wide range of car models. Realtek is keeping up with the Automotive Ethernet trend to emphasize in safety and security. Ethernet 5 and switches may account for USD 15 upwards to over USD 50 in one car in the coming year. Thank you.
And the next following question is from [indiscernible]. Could you share the current order-related revenue contribution of the company, the revenue contribution in the 3 to 5 years?
Well, we will say as we say that relatively the scale is still small. So we don't particularly comment on the single particular product line ratio of that with the company. But suffice to say, currently, it's still overall low compared to the corporate scale. But it has been very, very impressively in the past 2.5 years, and we expect it, in the next 2, 3 years, continue to grow at a very significant rate.
The next question is from Kevin Wang, Mizuho. Do we still expect the company to grow at least 10% year-over-year in 2022? What are the major growth drivers?
We don't really give growth guidance there, although we shared in the past every product line leader will set a target for themselves to maintain the growth momentum that we have achieved before. The major growth driver in the coming years, or maybe I'd say, next year because to comment too far out will be a pure guess. So in the coming year, we still say, for the top product lines, Ethernet, Wi-Fi, Bluetooth, switches, et cetera, will still continue to contribute significantly. For smaller product lines, we still expect product lines, Automotive Ethernet, PONs still will lead growth in a smaller product line. Thank you.
The next question is from James Chi. What are the major challenges the company faced in the second half this year?
The biggest challenge of course continue to meet the supply. It's very hard to expect new additional supply, meaning that the shortage we have on the first half of the year, likely is going to continue, and that's the biggest challenge. Thank you.
The next question is from Kevin Wang, Mizuho. We heard that the foundries are encouraging their customers to migrate more product to 28-nanometer. Could you disclose the 28 waiting this year and expectation of the 2022?
We actually are not aware of our foundry encourage customer to go any particular direction. Overall, foundry tightness, to our understanding, very much is across the board. Arguably, maybe some most advanced move, but Realtek, we are not there. Today, Realtek, we use most advanced nodes up to this 12-nanometer. And what we can say is from 12-nanometer down or the mature nodes, including 28, the supply, they are already tight. Having said that, overall, continuing technology migration appears to be a trend. So we do expect, in time, there may be more products moving to the 28-nano in terms of the material node. Thank you.
The last question is from DBS, [ Evelyn Chu ]. Why did the salary expense increase significant in 2020 compared to 2019?
Well, salary expands usually also reflect the result of company operations. If Realtek perform well, we -- a certain percentage of the profit will be allocated for salary. I assume salary here, you actually means salary plus bonus, overall compensation. So usually, as we said well in our business results, the compensation amount will increase. Thank you.
Thank you, Yee-Wei. Due to the time constraints, we will conclude the meeting right now. Thank you 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 day.