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's 2021 Fourth 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 fourth quarter results and give management's remarks. After that, we will have a Q&A session. [Operator Instructions] We will answer the questions accordingly. During the call, you can browse through the pages of the presentation anytime.
Now the portions of what's 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 that investors should not place undue reliance on such statements.
Now let us invite Realtek spokesman, Yee-Wei Huang, to present the financial report and business update for the fourth quarter of 2021.
Thank you, [ Lila. ] Good afternoon, ladies and gentlemen on the line. You are listening to 4Q 2020 webcast earnings release by Realtek Semiconductor Corporation. First, I'm sure you all have a relaxing Lunar New Year break. Welcome back. We at Realtek wish you a very healthy and prosperous Year of the Tiger.
Now let us go through 4Q 2021 operational results. Our revenue -- Q4 revenue was TWD 27.37 billion, a mild 5.5% Q-o-Q decrease and a 23.9% increase compared to the same period in 2020. The mild drop in Q4 reflects both the year-end seasonality effect and slowness in some consumer market. It is worth mentioning, nevertheless, that the drop does not imply demand weakness in the market overall. On the contrary, we see the market demand remains strong as we enter 2022.
Q4 gross margin was 52.9% compared to 54.6% in third quarter '21. Steady shift in product mix and the supply constraint to favor products with better profitability contribute to the gross margin increase. Q4 operating expense was TWD 9.79 billion or 35.8% of revenue. Similar to the last quarter, the OpEx ratio increase is mainly a result of, one, continuing engineering and other investments to expand and secure supply for the future; and two, larger bonus accruement. We strive, nevertheless, to reduce the operating expense ratio as the company continues to scale up.
Q4 operating profit was TWD 4.68 billion or 17.1% of revenue. Higher operating expense is the main reason to the drop in operating profit. Q4 non-op income was TWD 136 million, which reflects a recovery from the loss on value on financial assets in third quarter. Q4 net profit was TWD 4.61 billion or 16.8% of revenue. Q4 EPS as a result was TWD 9.02, a small drop from the TWD 9.57 in third quarter last year.
Regarding inventory, Q4 inventory turnover days was at 119 days. This compared to 97 days in Q3. They are many -- two reasons causing the inventory increase: one, year-end customer inventory adjustment; and two, continuing supply imbalance in key components resulting in certain parts of inventory waiting for the others. Overall, we are confident that the inventory will be consumed in due time. We also had the fourth quarter balance sheet and cash flow statement for your perusal at your convenience.
Now we'll also quickly go through Realtek 2021 full year operational results. 2021 revenue was TWD 105.5 billion, breaking the TWD 100 billion mark, while delivering another year of record high revenue with a strong 35.7% Y-o-Y growth. 2021 gross margin was 50.4%, compared to 42.8% in 2020. 2021 operating expense was TWD 35.9 billion or 34.0% of revenue compared to 31.6% in 2020. 2021 operating income was TWD 17.33 billion or 16.4% of revenue, a marked improvement over the 11.1% in 2020. 2021 non-op income was TWD 250 million compared to TWD 717 million in 2020. 2021 net income was TWD 16.85 billion or 16.0% of revenue compared to 11.3% in 2020. As a result, 2021 EPS was TWD 33 better than TWD 17.24 in 2020.
This concludes Realtek's 4Q and 2021 financial reports.
Forward looking, the market demand momentum remains positive in the first quarter 2022. Nevertheless, it is still necessary to pay close attention to the circumstances revolving around the semiconductor supply chain capacity and changes in COVID-19.
As before, now let's review the top product lines at Realtek. On Ethernet, a strong growth engine for Realtek both in fourth quarter '21 and in 2022. In face of the supply shortage, product mix changes to favor gigabit Ethernet and 2.5 gig Ethernet, thereby boosting the growth. During CES, Realtek announced that we will launch the world's smallest 5 gigabit Ethernet controller at the end of this year to meet a wide range of applications, including PC and accessories, PON, cable modem, Wi-Fi 6 router, Switch, et cetera. A 5-gigabit Ethernet can stay with the CAT 5e cable. We see strong growth opportunity for Realtek Ethernet in the foreseeable future.
On Switch, it's another strong growth engine for Realtek both in the fourth quarter last year and 2022. As both 5G and COVID-19 has demanded and continues to demand network backbone upgrades for more bandwidth with greater manageability. We expect at least 10% annual growth in TAM in the next 3 to 5 years. Along with the growth of the TAM, Realtek is confident in market share gain. In 2022, we are introducing multiport 10-gig 5-port switch and also come with 2.5 gig Ethernet and also new Layer 3 Managed Switch. All of these will drive another wave of growth for Switch product line.
Regarding Wi-Fi. The market clearly is migrating to Wi-Fi 6 as we speak. We expect Wi-Fi 6 penetration to reach 50% to 60% in PC and about 40% in routers. We also observed an adoption ramp-up of Wi-Fi 6 in broadband-related market in 2022. Customer products using real-time Wi-Fi 6E are ongoing. However, we do not expect a fast ramp of Wi-Fi 6E this year for various reasons, for example, price premium and limited countries with Wi-Fi 6E in April. Wi-Fi 7 is under development. In the coming years, when Wi-Fi 7 is ready for entry, likely in second half of 2023, Wi-Fi 6E is likely to gradually replace Wi-Fi 6, while Wi-Fi 5 and Wi-Fi 4 may continue with a long tail for various cost-sensitive applications.
For PC audio codec, we examined the PC market, which grew a mild 1.4% Y-o-Y in 4Q '21, yielding a 15% annual growth of the PC market in 2021. Although the consumer PC segment has slowed down since the end of third quarter last year, the commercial PC demand quickly replaced consumer PC in driving the PC market growth. It is worth noting that commercial PC on average above a higher spec, for example, audio codec with smart amp and better SNR, signal to noise ratio, thereby favoring better business performance. We expect a robust growth in Realtek PC audio codec in a stable PC market in 2022.
Regarding TV, in spite of some optimism in the beginning of the year -- last year, signing Tokyo Olympics and European Football Championship delaying from 2021 -- delayed, right, from 2021 due to COVID-19 pandemic, the global TV market dropped around 3% to about 210 million in 2021. The reasons were many. For example, high panel price in the first half, followed by a sharp price drop in the second half; also semiconductor component supply shortage and the weakening of the consumer market in fourth quarter, to name a few.
Realtek TV was flattish in 2021, in line with our expectations. Our view of Realtek TV in 2022 is about the same as last year, flattish. Last but not the least, Bluetooth, the demand for Realtek BT NIC for remote controller and BLE-SoC for wearable remains very strong. However, BT SoC for TWS did not fare well in 2021 for several reasons, for example, supply constraints; irrational cut in both mainstream and entry segment; Amazon shutting down over 3,000 Chinese-brand, online stores with fake reviews. In 2022 and beyond, nevertheless, Realtek will introduce new solutions with LE Audio Broadcast Isochronous Stream Solution, achieving 1-to-N broadcasting to enable new applications. Overall, we expect a steady growth of Bluetooth product line in 2022.
Thank you, Yee-Wei. Now we are entering the Q&A session. [Operator Instructions] Now the first question is from Randy, Credit Suisse. What is your view of gross margin sustaining above 50% when supply catches up? Has anything changed that could take gross margin higher than the older structure?
It is important to understand that a change in product mix, favoring high-end products is the main reason behind the 50% plus gross margin we see today. Moving forward, Realtek assets, development of products with quality, features and performance, we believe that this will make the current level of gross margin sustainable, as the user behaviors are attuned to appreciate quality, features and performance. Make no mistake, nevertheless, we, however, will continue to be a mass market enabler, making technologies and our products broadly accessible and affordable by the mass market. To this end, when the supply catches up, there's bound to be price pressure in some end markets where we will have to find a balance between keeping the top line growth and maintaining the gross margin. We can do it.
Followed by the first question, Randy would like to ask, do you have an expectation for OpEx growth or OpEx ratio of sales in 2022? What is your year-end headcount? And how much do you target to grow? Are you seeing more wage inflation or turnover in a tight market?
Yes. Well, although the operating expense ratio showed an upward trend in 2021 due to extra efforts to secure mid- and long-term supplies, as well as bigger bonus accruement. As mentioned earlier, Realtek strives to reduce the operating expense ratio, as the company continues to scale up. By the end of 2021, Realtek's total global headcount was about 6,300, approximately a 6.8% growth compared to the end of 2020. We expect the headcount to grow by roughly the same percentage in 2022. There appears to be an escalation in competition for talent since the importance of semiconductor was escalated globally in 2021 due to supply shortage. The competition show up the salary among other impacts. Talent recruit and retention are always a focus for Realtek, and for that matter, all semiconductor companies. Through focused efforts, including offering a very competitive compensation package, Realtek has always managed to maintain a relatively low turnover rate.
Next question is from Daniel, Morgan Stanley. Regarding demand outlook, could you give us some color about your view about changes on the demand across different product lines in the near term?
There are 2 notable changes in the near-term to observe: one, softness of the consumer market since third quarter last year; and two, a very strong strength of network infrastructure-related applications, including the tender projects from the TelCo operators.
Also question by Daniel is regarding inventory. Could you give us the breakdown on wafer back-end material with and finished goods? And also particular product line have higher inventory or when will you expect the days over inventory to go down to healthy level for 80 to 90 days?
Well, the last part first, we believe the turnover days will gradually drop. We don't have a target date, per se, on going to reach certain level. And the product lines, overall, consumer seems to be a little bit higher than the others. And the first part, breakdown of our wafer back-end material with and finished goods, we do not have such a breakdown on hand at this point.
Next question, Rick from Daiwa would like to ask, company previously mentioned first half '22 to continue the strength in second half of '21. Can we have more color for this second half '22 among key product lines?
The demand we see in the second half last year, which are continuing in the first half of 2022 as we speak, come from a few areas: one, increasing demand from the commercial segment as people are returning to the office; two, continuing wire and wireless infrastructure upgrades as 5G deployments expand. Note that though Realtek is not a 5G player per se, our solutions such as Wi-Fi 6, Bluetooth, 2.5 gig Ethernet Switch are all highly complementary to the 5G deployment; and three, increasing silicon content in the automotive segment, especially in light of the push for electrification by the auto industry. In spite of the current demand strength, it is hard to predict the market situation in 6 months. In face of the uncertainty, nevertheless, we will have invest on products with ever improved features and price performance ratio to fuel the growth even if the overall market may slow down cyclically.
Two questions from [ Sunny ], UBS. It's related to the foundry supply. The first question is the company top engineering invest for new foundry capacity in 2022. How much do you expect Realtek supply to grow in 2022? And the second question is, how much of your supply is 8-inch versus 12-inch as of now? What areas do you see the potential to migrate from 8-inch to 12-inch? What would be the major challenge to the fab migration?
While Realtek has secured more wafers for 2022 and 2021 overall, including some new 8-inch wafers from newly qualified foundries. Overall, Realtek consumed more 12-inch than 8-inch both last year and moving forward. We choose products to move from 8-inch to 12-inch mainly based on a few criteria: one, [ timeliness ] of a specific wafer fab, their future prospects, in particular; and two, impact of resulting porting; and three, engineering resources required for the porting. The biggest challenge is always the resources.
Next question is from Kevin, Mizuho. He would like to get an update on the inventory level across the segments both on our side and customer side.
Well, the inventory level for Realtek is relatively high coming out of 4Q '21. There's no need for panic. Nevertheless, the inventory came mainly from supply imbalance. And year-end seasonal adjustments, including taking into account port congestion seen by many customers for some products, we expect the inventory to start dropping entering 2022
Next question is from William, JPMorgan. Can Realtek continue to pass through [indiscernible] to its clients? Which product Realtek have better bargaining power?
While on one hand, Realtek vendors are still giving hints about further price hike in 2022. While on the other hand, we are hearing from many of our customers that they can no longer bear further price hike. Realtek will work with our vendors and customers closely to cope with the situation. We do not see any particular product has better bargaining power than others do.
Next question. Bruce from Goldman would like to ask PC market-related questions. On PC, is the trend, strong commercial but weaker consumer demand remain the same into 2022? Recently hearing some demand recovery for Chromebook from supply chain in first quarter '22. What's your view on this? Any updated expectations for PC shipment growth for 2022?
Commercial segment has become the growth driver since the consumer segment showed weakness toward the end of third quarter last year. The situation remain the same in fourth quarter and entering 2022. From what we know, this may continue at least in the first half this year. Overall, we still see the PC shipments to be flattish to slightly up single-digit percentage in 2022.
Regarding Chromebook, it grew 42% in 2020 and another 14% to reach around 37 million in 2021. The main applications have always been in the educational market. That we expect to stay flat in 2022 compared to 2021. We observed that Chromebook may attempt the corporate market, although it may be too early to predict the result. For 2022, we see a flattish Chromebook sales comparable to the 2021 level.
Next question is from Jason, CLSA. He would like to know the mix of Realtek's Wi-Fi by generation and the price gap among those products.
The Realtek WiFi shipment was dominated by Wi-Fi 5 and Wi-Fi 4 in 2021, while Wi-Fi 4, including IoT products outsold Wi-Fi 5. We started to see the mix shifting in favor of Wi-Fi 6, followed by Wi-Fi 5 in second half '21. The speed for Wi-Fi 6 penetration will accelerate in 2022. The price gap among different generations is roughly 1 to 3 to 4.5 among Wi-Fi 4, 5 and 6. Wi-Fi 6E is expected to add another 20% to 30% price premium over Wi-Fi 6.
A follow-up question for WiFi. [ Sunny, ] UBS would like to ask, for Wi-Fi 7, are you moving to FinFET like your peers? Previously, most of your connectivity products are at 40 and 28 nano. How do you navigate the migration to more advanced nodes?
Yes, we have plans to move to FinFET for Wi-Fi 7. In general, we have seen it part of our technology roadmap for all products in the company, including both for communications and networking to migrate to more advanced nodes in time, all the time for the reason of low-power consideration and sometimes for high performance needs.
Questions from Daniel, Morgan Stanley. Please share your view on Chinese TelCo [indiscernible] project, including the market TAM and spec changes in set-top box, PON and router.
Okay. Regarding the PON, China telco PON market TAM was greater than 100 million sets in 2021. The shipment increased compared to that in 2020 with the result of a push for telco infrastructure buildup in China, especially in second half last year. In face of the supply shortage, the majority of the shipments in 2021 was 2.5 gig PON, 2.5G-PON with single-band Wi-Fi 5 or no Wi-Fi. That is a reduced spec was acceptable to enable a shipment increase. Very few 10G-PON was shipped in 2021. The major suppliers were ZTE Microelectronics, Realtek and [indiscernible]. For 2022, TAM may grow to 115 million sets or above 15% Y-o-Y growth compared to last year. 10G-PON penetration may be up to 20%, thereby driving the adoption of Wi-Fi 6 to cope with the supply shortage. Nevertheless, new projects tend to include flexible specs in Wi-Fi and voice control.
A follow-up question...
No, hold on. So telco OTT TAM was 50 million to 60 million, in 2021. We see 2022 TAM may stay flat due to weakening housing market. Unlike PON, which is part of the infrastructure buildup, OTT business is often timed with new home sales, thereby new subscribers. So OTT mainly came without Wi-Fi but use Bluetooth only in 2021. It is expected that some may return to Wi-Fi 5 while some may move up to Wi-Fi 6 combo in 2022.
And last telco -- China telco, this router shipment. It was about 50 million sets in 2021, which made up 50% to 66% of the global shipment. The TAM is expected to stay flat or grow a little in 2022. Most of the telco routers were shipped with Wi-Fi 5 and gigabit Ethernet in 2021. In 2022, Wi-Fi 6 penetration is expected to be greater than 50%. 2022 -- well, also in 2022, telco will push for Wi-Fi 6 AX3000, thereby contributing to growth for both cloud router and Wi-Fi.
A follow-up question from Randy. What's our view on overseas telco projects, including market trends and Realtek role in those markets?
Okay. Well, we turn to global. So for PON, global telco PON was about 165 million sets in 2021. In 2022, the spec were generally more aggressive than those in China. Moreover, they were fixed and inflexible. Low shipment will be a direct result of supply shortage. For 2022, global TAM may grow to 180 million to 190 million sets. We'd expect January higher than that seen in China. Overall, we can see China is expected to outgrow the rest of the world, including 10G-PON 2022.
Now global OTT TAM might be around 100 million last year. Only U.S. and some part of Europe use Wi-Fi 6, while others stay with Wi-Fi 5. In 2022, any growth in global telco OTT TAM may be limited, but we more move to pair with Wi-Fi 6 outside the China market. 2021 global telco router TAM might be less than 100 million sets. Most stay with Wi-Fi 5, except U.S., Europe and Korea, who started Wi-Fi 6 in 2021. In 2022, more than 50% of U.S., Europe, Korea and even 50% of Japan and China are targeted to move to Wi-Fi 6 AX3000 plus 2.5 gig Ethernet in 2022.
Next question from [ CTBC, Bob Chu. ] What's the revenue split of PC versus non-PC in fourth quarter '21 for Realtek?
Okay. Yes. By the end of the fourth quarter, we see the split remains roughly 65-35, that is non-PC to PC, which is the same level the quarter before.
Next question is related to the Auto Ethernet. Could you give us some colors on it with -- including revenue contribution in 2022, competition landscape change and technology trends?
Okay. Both shortage and [indiscernible] in semiconductor supply remain the big challenges for the automotive industry entering 2022. Nevertheless, Realtek Automotive Ethernet shipment has been growing steadily entering the fourth year. We expect another strong growth for Realtek Automotive Ethernet. Main competitors of media [indiscernible] such as Marvell, Broadcom and NXP. The technology involves our progress in a few fronts: one, speed, from 10 -- 100 megabits a second to 1 gigabit second to multigig, including 2.5, 5 and 10 gigabit per second. And to match with the higher speed interface from HFI to PCIe 4.0 to 10GBASE-KR. And for safety so that Ethernet -- Automotive Ethernet can apply to more parts of the application, we now need to meet ISO 26262 ASIL B classification. And for data security, again, to expand the Ethernet adoption in the car, we are adopting ACL, access control list, VLAN and MACsec for authentication and encryption over layer 2 LAN. And to support all these, Automotive Ethernet Switch need higher core capacity up to 50 or even 100 gigabit per second.
Next question is related to the Metaverse. How is Realtek portfolio positioned for this opportunity? Any shift in your product development to capture this more in [indiscernible]?
Sure. The Metaverse is a next-generation platform built on Internet. As such, every solution Realtek offers, from Ethernet to Switch to Wi-Fi to Bluetooth to audio and video capturing and rendering, all of these can find their places for the realization of the Metaverse. Realtek will continue to focus on what we are good at and work with our customers to apply Realtek solutions to the Metaverse. [ The game is approved.]
A follow-up question on auto market. Do we see other product opportunity for Realtek? If yes, could you share some color on the development status?
Sure. While we are seeing automotive OEM and Tier 1 are all expressing interest in Realtek products, such as Wi-Fi and Bluetooth and more, we did one step at a time while discussing with them for other applications. Our current focus remains on Automotive Ethernet and Switch.
Next question is for TV. What's our view on TV market and Realtek's TV SoC growth in 2022?
While after a flattish 2021 and second half, in particular, the TV market TAM in 2022 is expected to return to the 2020 level of 217 million sets according to TrendForce. Large screen greater than 40-inch and international brands are expected to dominate the market. Realtek maintains a strong position in the global TV market, although we see 2022 a flat year for Realtek TV SoC due to supply constraints.
Thank you, Yee-Wei. Due to the time constraint, 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.