Innolux Corp

TWSE:3481

Earnings Call Transcript 2022-Q4

[Operator]

Good afternoon. Thank you for joining Innolux 2023 First Half Investor Conference.

[Operator Instructions]

[Cheng-Hsia Kuo, executive]

Good afternoon, ladies and gentlemen. Welcome to join our 2023 First Half Investor Conference. This is Cheng from Innolux's IR team. In response to investor request, today's call will be conducted in English. In QA part, you may ask your questions in English or Chinese. If you have unanswered questions, please contact IR team after the call, and we will try our best to answer your questions.

Our speakers today are Chairman, Jin-Yang Hung; and President, James Yang. Meeting agenda will be market overview India Project, company strategy and the financial summary. Afterwards, we will take questions. Now I will hand over the time to Jin. Jin, please.

[Jin-Yang Hung, executive]

Thanks, Cheng. Good afternoon, ladies and gentlemen. Thanks for joining today's analyst meeting. My name is Jin-Yang Hung, the Chairman of Innolux. We are happy to present to you a few key points of our analyst meeting today.

Number one, I think we do get a lot of the request asking the reason of widespread rush orders, how sustainable that is. We think it's a combination of a few key things from the inventory restocking to the end demand recovery even including some of the new applications from AR, VR glass, 3D printers or automobiles. So I think James will give you much more details later on.

And the second key point in today's meeting, we will share with you is our Indian project. I think the board meeting a few days ago has come to the conclusion that we will involve in a preliminary MOU with our Indian strategic partner, Vedanta. We will also share with you our view on that project.

And thirdly, we would like to share with you what we have been done in the company in the last 4 years of the whole transformation process. And also more important is how we are presenting and position ourselves in the next transformation stage. Lastly, we will have some financial highlights to share with all the investors. So I will stop here, and I'll give to James for the next part of the presentation.

[Chu-Hsiang Yang, executive]

Thank you, Jin. Welcome, everyone, to join Innolux first investor conference in 2023. My name is James Yang, the President of Innolux. I am so happy to share with you about the market outlook and also our successful story of CarUX and also our exciting project, the strategic project in India. Thank you.

So from this page, we can find due to the pandemic the inventories are piling up. Since the last year, the seas of the pandemic and also the uncertainty of war and interaction is improved. So the inventory is lower then. So not only TV but also the IT, the inventory in recent 3 years since 2021 has reached a historical low, inventory situation. And also from all the peers in the different generation of fabs, you can find the utilization rate. Totally average is less than the 70%. So supply reduced the pressures and the inventory lower than the recent low, so it makes the supply demand more balanced and then it gives the opportunity to live up the price.

So from the last year, fourth quarter, TV first enjoys chooses function and the price and then coming is for the IP and things now that Q1, we expect that Q2 in the second half, the traditional back-to-school and holiday season and also introduce a new product. So the demand we're getting stronger, the price that support and then finally live up, we'll give the healthy and disciplined industrial landscape.

In our investor conference in 2021 March, Jin and myself, specific mentioned about entity CarUX were more focused on the high end and also integrated larger display, higher solution embedded with the patch. This kind of AP to APi's new user experience emerges the car-pick entertainment system by the CarUX. And now 2 years past, we will show you the results. So in this pie chart, we can find last year that is Q4. The number 1 is a TV revenue. Number 2 is IT notebook combined monitor. The number 3 is our automotive more than the 21% of revenue, and also we check the growth rate in the past 3 years that takes common annual growth rate is more than the 30%.

Last year, the revenue almost reached TWD 40 billion. That means our strategy is strong. Our result is a wonderful and fruitful. We just shared with you about our performance. And then we also invite all of the investors and our partners to join with us to catch up the EV opportunities, not only the cars, but also the charging ports or the economics driving the scale for the drivers to monitor system for the future.

Last week, our board member just approved a preliminary plan allow us to enter the Indian market with a local [indiscernible] Vedanta for the next customer market in the global economic landscape. That is very important. Innolux will support the technical assistant and also the fab design, fab construction and supply chain.

And finally, we've got the IP licensing know-how transfer and also we've got the potential capacity and new big customers to explore the emerging market in Asia, not only India but also including South Asia, East. So India, as you know, the population more than 1.4 billion and more than 30 million households. And then for the last year, the TV market just more than 70 million units. But the average size is midsize, 32 to 42. According to the economic situation and market prediction, in 2025, the demand will be the 25 million units. So the area wise, will be more than the 30 million square meters. That means can consume the 3 generation 8.5 fabs, so through this kind of engagement, but then the planning, the funding and the compliance with the local rule and regulation and also management that domestic market. By this kind of cooperation of 2 parties, Innolux can shoot the 3 arrows. First, not only the panels, we reshape the supply chain in India and South Asia, East for the panel industries. We also got the extra capacity with a competitive price, and then we can serve the global customer more locally in the show supply chain to make sure to sustainable for the future demand by local touch.

Thank you. I finish my part, I will stop here and hand over to Jin.

[Jin-Yang Hung, executive]

Thanks, James. I think it's a very detailed discussion with all the investors on the market situation or also our Indian projects. From this part, I will share with you that how the company is experiencing the whole transformation process. I think many of you know that this year, 2023 is our 20-year anniversary. 20 years ago, we -- thanks for our insightful founders build up from scratch of the whole company and the set up of high goal that we want to be a global player in the global market become a total panel producer. And we are proudly to say that we achieved that. I think today from the different product applications, Innolux has its key role from tablet to notebook, monitor and include the TV products.

This is something we are proud of. However, also because of the seasonality of the consumer electronics products, we are experiencing up and down following the cycles and also from the serious competition from our peers. So I think 4 years ago, since I and James were in the position and think through the company's advantage, we will identify that there are a few key products applications that we think they can do much more than the -- as a component provider.

The main thing is on the medical side, which is the X-ray detector in InnoCare we're producing today. And also on the automobile side, the auto panel which is what CarUX or producing or focusing the market is. I think these 2 products, the reason we spin that off and up to today is already an independent legal vehicle. It's not because that they are in the different product cycle, unlike the consumer electronics, more important is that we believe the value from these 2 markets can actually be further elaborate to the different level. What I mean by that is for the other part of the consumer electronics because we are assuming the efficiency, we are producing much better quality to the client needs and also much better take time, so on and so forth, [indiscernible]. However, the InnoCare market and also the CarUX market, we are heavily involved or engaged with our end customers, the brand customers or the end users. We have been positioned as a Tier 1. And therefore, the value of those 2 companies and also those 2 product applications is no longer being just a product itself, but also the software, the total solution, we'll be able to provide to the customers.

Next page. That is one thing we keep highlighting ourselves. In the last 20 years, we have been a very successful game player following the market growth. However, we identified and spin off these 2 markets, we are confident to say that we will be the game changers to shift the market focus. These 2 companies, InnoCare and also the CarUX has been positioned very well as a Tier 1 position. I think like James mentioned earlier, CarUX has been awarded for the -- our key customer, BMW, in their Innovation Award 2022 and also it contributed more than 20% of the total Innolux Group's revenue, the InnoCare. The panel X-ray detector is also not only just awarded quite a few awards and also it's not only just keep a very stable margin. More important is that we believe the catalyst of the InnoCare's future potential is no longer only in the human care market, but also extended to the industrial auto inspection market, even the PET economy market, so those are the markets we believe that through these 2 subsidiaries, to speak of, we will be better catch the market growth potential.

This is all about the Phase 1 transformation and what can we do next? I think the important thing is that we look into ourselves that today, we are in Taiwan, we own 14 plus thousands fabs. And Taiwan has always been positioned as one of the most innovative and efficient semiconductor or the silicon island. And that is due to the close link with all the equipments and also all the material suppliers and we are lucky that we're also part of the whole value chain.

So when we look back into our whole production process, for example, our array production process from developing, coating, explosion and also our back-end process of funding, lamination, so on so forth. We see a huge potential or huge value we can leverage from that perspective. Just to give you a metaphor, it's like a paper with different ingredients and different know-how, we can cook for different kind of products and better should whether quite met. So that is something we want to position and transit from this stage, and we will soon, hopefully, to provide you as a concrete result in the near term.

So net-net, I'm still very confident that Innolux transformation process keeps going, and we are positioning ourselves in a much better market no longer or much more than just a panel itself.

Next page is about our financial performance. Although it's still disappointing that we incur a significant loss in 2022. But the encouraging sign is that if you look closer into the quarter-to-quarter comparison, even our revenue in 4Q only slightly declined Q-on-Q, but a few key product applications like TV and ITI or notebook actually has seen some growth quarter-on-quarter. And that is basically, I called what James mentioned earlier that we believe these 2 markets in a very low inventory level and also see the clients start to restock the inventory and that's why we also see the demand start to pick up. And we believe this will sustain through the next quarter or 2 at least.

And even more encouraging is that more than just the revenue growth on the specific markets, we also see the margin improvement in 4Q. Our gross margin and operating margin has improved 3.7% and 5.3% respectively. And we believe that the margin improvement mainly coming from our cost control capability and also our CapEx and our OpEx control. That is quite a few of that like power saving, water saving, we believe, is sustainable in the longer term.

So later on, when the cycle recovers, we'll be able to enjoy the further margin from that extra benefits, so net-net, I think we are looking cautiously positive on the companies for the growth. I will stop here and to hand over back to Jack and start to take questions for you.

[Li-wei Hsu, executive]

Thank you, Jin. Now is the Q&A section. We will have 2 parts today. First part, we will answer the questions we collect from investors in advance. And the second part, we will open for dial-in questions.

So first one question is about the market outlook. According to the market report, later the price lift of TV products recently. Per Innolux view, will it be a sign of resume of demand or only restocking at the consumer side? This question, I want to let James to answer.

[Chu-Hsiang Yang, executive]

Okay. The inventory adjustment of the TV panel started in the first half of last year, by the first quarter of this year, the TV inventory level is relatively low across the industries. In addition to the lower utilization rate of peers, the demand price becomes more balanced. About the recent price lift, we think of issue count. And the first one is the customers struggling about their inventory and then digesting in the pipeline. Another reason maybe they are prepared for the peak demand and the holiday season in the second half of this year in advance.

[Li-wei Hsu, executive]

Okay. The second one is about the India project. Can you elaborate more about the background and the road map of India partnership project? This one I want to let Jin to answer.

[Jin-Yang Hung, executive]

Okay. Regarding the Indian project, I think James has already discussed a lot earlier in the presentation. I think I will just add a bit more from my side. Instead of calling it as a project, actually, it's more like commitment. This commitment actually made to our clients, our customers, I think we all agree that all the global clients, they are facing the concerns. They want to diversify their sourcing of the panel from purely China or Great China include Taiwan. So we believe that this cooperation with our strategic partner in India first will meet what clients want in the longer term. This will strongly enhance our ESG ship with our other global key customers.

And secondly, this also meet what Indian government has been talking about and the strongly push for Made in India. I think we all agree that India is a big market with a lot of potentials. I think with these projects, we definitely work closely with our local strategy partner and be able to meet the local various demands.

Net-net, I think for us, we not just monetize our IP or know-how or technology, we are looking to better serve our key customers. And also, we are cooperating with our strong local partners and also definitely most important to Innolux itself, as a longer term, we believe this strategic move will enhance our longer-term sustainability and we'll be able to provide with our shareholders with a better return in the long run.

[Li-wei Hsu, executive]

Thank you, Jin. And the third one is about the medical market. As you mentioned, non-panel will be one of the transformation approach. Can you elaborate more about your plan in medical field? And this question, I want to let James to answer.

[Chu-Hsiang Yang, executive]

We think InnoCare serves a good example, non-panel product development. Let me say, based on LCD technology to create more value than that. Currently, under the quiet period before the IPO. And we're not able to share the detailed data to you, but would be more -- be happy to introduce you about the opportunity and the technology roadmap.

First, we cover the human being. Second, we cover the animals. The other we cover the industries products. So that the precision for the Medicare is very important for help the doctor to identify the sickness in the early stage. InnoCare devoted ourselves to develop the low-dose, high-resolution and then dynamic, flexible [indiscernible] to meet all the human being Medicare market demand.

Second, we're talking about the economic animals and also the pet. The pet market now is a blue ocean product, and there is a great opportunity for X-ray detector in the pet hospital and clinic to support the doctor to take care of our lovely cats and dogs. Third is about NDT, industry's application and inspection for nondestructive testing. So we can intend the finish is quality in the process, or we can prevent the mistake in the final package or even we can secure the piping and the gasoline all the sub by our non-disrupted products to help the brands, to help the players, to help the channels, to secure the resources, to protect our mother earth by the precision manufacturing. That is the 3 segments we are now doing and focusing.

And finally, most of the 3, we will invest more resources under AI through the AI algorithm to enhance the value of our flat-panel detector to help doctors, inspectors to improve the quality and reduce the cost.

[Li-wei Hsu, executive]

Thank you, James. And the fourth question is about the auto market. EV and the large automotive display are becoming more popular, but will Innolux and the CarUX due to grab the chance. And this one I want to let Jin answer.

[Jin-Yang Hung, executive]

Okay. Thanks for this question. I think -- also mentioned earlier about how our subsidiary, CarUX was doing, we see a strong revenue growth year-on-year. And even more important is we see a very strong backlog for the auto panels, not just for 12 months is actually much longer than that time perspective. But I think here, I want to add up one thing is that the key trend we see on the auto panel market still on the 2 things, number one, the free fall. And secondly, the large panel. I think with these 2 trends, that's why CarUX being positioned very well and also very focused on these 2 major technology trends. I think what -- why these 2 trends are important is because, for example, on the large panel, many people might say it is like the TV market, every inch of the TV growth in household will consume the panel capacity, so on so forth. But actually, for the auto market, it's a different story. It's not just nice to have. It's not like you use the panel on TV to watch Netflix or TV or you do the shopping, so on so forth. You can easily do that on your tablet or mobile phone without the panel on the car. You can still do the shopping on your mobile phone. But important thing is that we all know that they are much more sensors installed around the car and you have the motor cycle, you have kids, you have dogs come around the car and your sensor will feel it, we will sense it and send the message and how are they going to show on your screen.

And also, you have fatigue monitor that something has been put in force in the euro market. And if you are during the conference call, you are also watching on your Google map and then your passenger seat of watching the TV or maybe really doing some shopping. And then you have alert coming in and have to jump into the screen. And if you -- every of this is shown in an 8-inch small monitor or panel, I'm sure that I won't be able to catch the driver's attention. That is why we strongly believe it's not just something nice to have, large panel in the car is actually must have, because much more information need to be download and upload into the autos and also interact with the drivers and even the passengers, even in the label quite autonomy driving period.

So that is something we observe and also communicate with the customers. And that's why CarUX, we are not just looking at the market share. We are not just looking at how many shipments, how many pieces of the panels we sell, it is the value we create for the end customers, for the driver, for the passengers and also for the branded customers and that's why I think the company has been seeing really strong and strong -- not just the revenue growth, but also the strong margin and also the client's trust and that's, again, I think, something we are likely to share with our investors in the longer term.

And of course, that we do not rule out any possibility for CarUX to maybe do JV, M&A and maybe eventually the capital market activities, we are all very open and does not rule out any possibility for the CarUX in the next step. I will stop here.

[Li-wei Hsu, executive]

Thank you, Jin. The next question is about our product strategy. What will be the company strategy in products other than traditional like TV or IT product. At this one, I want to let James to answer.

[Chu-Hsiang Yang, executive]

Okay. Innolux is presumed, never stopped for innovation. In the past straight 4 years, we are top 300 IT owner in United States. In the last year, we are top 1 on the Opto Electronics, especially for the panel industry in United States. And that accumulate more than the 2,000 IPs until now. So we focus on in the blue lakes, in the red oceans charts, so we try to segmentation with some kind of a niche market. For example, I shared with you like the antenna business and medical monitors and also a successful story by the company-wise, company's label like InnoCare for X-ray detectors and CarUX for automotive.

So Innolux not only focus on TV set, total solution provider, but also we will enter the paper for the electronic shelf labels, ESL business. And by these kind of things, I think that we're also challenging is about our Kymeta product cover from the small, medium, mobile device, notebook and monitor. And also now EV car is by charming and booming. So we're challenging the opportunity about the EV charging power stations, this kind of a business opportunity through our digital transformation takes the foundation. Through the business intelligence, now we try to adapt at feature intelligence to increase more values.

Finally, through these kind of things, we try to change our mind to catch up the business model with our partners globally in the -- globalization is a challenge now a days.

[Li-wei Hsu, executive]

Thank you, James. And last, but not the least is about our financial situation. And what is the utilization rate of Innolux in fourth quarter '22, in the first quarter of '23? And this one, I want to let Jin to answer.

[Jin-Yang Hung, executive]

Utilization rate. Okay. I think our 4Q '22 utilization is slightly decline or below the third quarter table. Somewhere around the mid 70. But looking forward, we are definitely more positive quarter-by-quarter. I think first quarter '23, we are looking for some like a single-digit improvement and then gradually further improvement. But I think one thing I want to highlight here is that instead of looking just at the utilization yourself, we are also focused on our profitability or how much other cost control ability. I think like I mentioned earlier, even the 4Q utilization was slightly below the quarter table, our margin improvement actually are very encouraging and that is something we believe that outside of -- or besides of the technology improvement, besides of the strategy move, like I mentioned earlier, the alliance with Vedanta in India. The cost control capability is very key for panel company to be able to win through the cycle.

And I believe that while our financial results in 4Q has just proved that, and we will keep that as our core competence, and we will also expect to enjoy some of the extra cost savings when the cycle starts to turn up. So it's not just the utilization improvement itself helped to lower the overall cost improvement, but also the cost saving measures are being down in the last 12 months. We believe that will pave the way for the further margin improvement.

[Li-wei Hsu, executive]

Thank you, Jin. And now we have finished the first Q&A part. Now we are open for our live questions. Operator, please.

[Operator]

[Foreign Language]

[Operator Instructions]

Jerry Su, Credit Suisse.

[Jerry Su, analyst]

[Foreign Language]

[Chu-Hsiang Yang, executive]

[Foreign Language]

[Jin-Yang Hung, executive]

Right. I think James has already made that very clear. I think the inventory, therefore, Jerry, you mentioned that the very first question, I believe, but just on the panel side, just on the producer itself. The overall channel or even to the hub or the end customer side, the inventory level are all very low. That's why the rush orders keep coming. And that's why, as James mentioned, that we even see the customers pre-ordering for the bike riders seasonal demand.

And I think the CarUX also very clear the position for itself is not just sell more panels. Isn't it just another component provider like what Innolux has been doing very well already. The key thing or the key advantage CarUX has is the strong linkage engagement and trust with the end customers. And we're talking about many, many global leading brands auto names. And I think that system integration and also the Tier 1 position will provide the company a much better position. And -- i.e., the margin will be very different or much more resilient than the consumer electronics. That's the add up on my side.

[Li-wei Hsu, executive]

Thank you. Jin.

[Jerry Su, analyst]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

[Operator]

[Operator Instructions]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Chu-Hsiang Yang, executive]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

[Jin-Yang Hung, executive]

I think [indiscernible] to answer your question, this is definitely for longer term instead of just onetime gain?

[Unknown Analyst]

[Foreign Language]

[Jin-Yang Hung, executive]

Okay. Let me answer first and maybe James can add up further. I think definitely, we -- like James mentioned, that we are open for different possibilities. And so far, it's still in the very preliminary stage. But I think what you point out is also a clear point. I think some of our existing capacity are already the older generation and probably not as cost competitive, I mean, probably because India in its early stage of building up the ecosystem and we need to measure many various kinds of the elements.

Eventually, we do believe it's a very cost-competitive fabs in India, but it will take time. So I think that's also why James mentioned that we don't want to ruin the possibility that we can cooperate in different ways. Like you mentioned, we can buy it depending on them or we can do different licensing, sourcing or product design, so on so forth. So there is no one line cut saying AOB is in the business where there are many different combinations. But I think like I mentioned earlier, the point is what the clients want.

I think this strategy move will put us in a much better position to have a local partner to be able to provide the customers more flexibility in the various kinds of products from TV to mobile phone.

[Unknown Executive]

Okay. My point is that in the short term, 3 to 5 years, your concern will be very limited. You know that why? To build up the effect in India, it's not only the ambitious as Taiwan. It takes time to shift in improve the infrastructure layer and also supply chain to locally supply and then to change the talent engineers also takes time. So I don't think in the 3 or 5 years, it will be the significant capacity to impact on the supply chain totally. But in the future, we should be very cautious on their progress by this kind of project, and then we can update you timely. Thank you.

[Unknown Analyst]

[Foreign Language]

[Jin-Yang Hung, executive]

Okay. Let me take that question first, and please feel free to add up, James. First of all, I think, like I mentioned, the whole transformation in 2 stages. The first stage is we identified the product applications like InnoCare, like CarUX and we are very happy to see the progress on these 2 leading entities to gain the trust upon the clients.

And the second stage, we want to much better leverage our know-how and our manufacturing advantage, i.e., our -- we are very good at processing the large scale of the glass phase with high-yield products. So I think from that perspective, we definitely identify some of the new technology more than just panel to sell. So that is something we will continue to invest. That is one thing the new technology within the panel space like micro LED, so on and so forth. And also, even outside of the panel space, we also identified quite a view that we think can have a synergy with our existing array or CF or even the back end, the LCM process. And those are the places that we will continue to do the investments.

And after all, I think we are also having the possibilities that we will pay back to our shareholders when our overall financial situation are solid, and we have a good financial results. I think investors are very kind to us, and we should definitely also pay back to our shareholders.

[Chu-Hsiang Yang, executive]

Okay. And then thanks to Jin. That means after the successful of InnoCare and CarUX, I can share with you one thing. Innolux has a full lease effect automotive equipment for the LCD module assembly. More than 75 modules, we are assembled by robot, not by the human beings to keep the high quality and low cost. And then we integrate this kind of capability, we serve the new clients like the OSAT, Outsourcing Semiconductor Assembly and Testing hubs. We successfully to deliver this kind of facilities locally and now underway globally and the multiples clients are very satisfied about our proposals.

And also, we invest this kind of technology and to our very unique fan-out PLP. Fan-out PLP is quite interesting in the new chiller products for Power IC for the 5G migration to 6G IP due to the wide bandwidth, due to the higher signal noise ratio, due to the low resist for the semiconductors and then also very good performance for the thermal things. And by these kind of things, not only benefit for the mobile application or telecom communication, but also for the battery management system in EV car for the company's silicon cap. So that is we tend our older fab, fab-1 into the fan-out PLP, we upgrade our fab-2 lead generation 4 into the X-ray product. So I think that step by step, we will find suitable products to cut in to fit our current facility, [ Jhunan ] and also our bunch of talented engineers. Through this kind of manufacturing service, we believe we can transform Innolux into another horizontal in the coming decade. Thank you.

[Li-wei Hsu, executive]

Next question is from Ryan Cho of [indiscernible].

[Unknown Analyst]

[Foreign Language]

[Jin-Yang Hung, executive]

Let both of local emerging demand in India and also the -- due to the major customer requests, China [ year-to-date ] plan, the backup plan there.

[Unknown Analyst]

[Foreign Language]

[Jin-Yang Hung, executive]

Sometimes the person is a current successful story. Current [indiscernible], they need to give up the traditional while funding, different connecting and molding. They have a huge equipment for the burden of current capacity. We are now willing to jump in, in the new blue ocean or even the blue lake in this kind of red ocean strategies. We are exactly from the panel industries. We entered to the photo [indiscernible] process, they are not familiar with that and then our domain can combine a new application and then through the support and assistance from the clients, we got a very good engagement.

[Unknown Analyst]

[Foreign Language]

[Jin-Yang Hung, executive]

Yes, let me answer the question first. I think the first question regarding the tax, I think definitely, we have the tax credit on the -- on our balance sheet, and we will fully utilize that. And the reason there are still some tax expense so far on the 4Q result or 2022 results because the tax price between us and our China entities. So -- but for all the loss -- the operating loss, those tax credits were fully utilized in the future years when the profit turn positive. So that's number 1 to answer your question.

Number two, regarding the water problem, I will let James to handle. Also, you mentioned about the auto -- the CarUX clients. I think I cannot tell you the -- exactly who are the clients but I can assure you that the car you are driving today is definitely with our panel on it, our quite older key global names in U.S. and Europe, even China.

[Chu-Hsiang Yang, executive]

Okay. First, I will try to update Innolux is the leading panel makers with fully recycled water. So we are leading in Taiwan even globally. Secondly, even individual fab, we build up a certain percentage from the 7 days to 10 days of reservoir for the water for the process necessarily. Third, we already contract with a [indiscernible] truck for the water from the local traffic companies. And then we also got the approval to get water resources ever from the agriculture administration or even from some kind of water reservoir for them. Through this kind of 3 levers of guarantee, currently, we don't need to worry about the impact on the water issue in the Q1 and then also no HR costs have incurred from business situation now. Yes.

And about the automotive wise, I think the leading EV car brand from the United States, Germany and then also Japan is our major clients with the largest integrate smart display. And then I think that, that is a new evolution and new user experiences. And again, the capacity is not a front-end limitation, but actually it's a back-end. It's not easy for assembly panel larger than the 30-inch with the free share and invested with touch cover glass and also this kind of very, very high-quality display by label assembly and then Innolux takes advantage of our automation lens. So then we are enjoying the very sweet and full for product. Thank you.

[Unknown Analyst]

[Foreign Language]

[Operator]

Thank you for all your questions. There will be the end of the Q&A session.

[Foreign Language]

We thank you for your participation. We are going to conclude the investor conference call now. A replay will be available in an hour at the company's website, www.innolux.com. After the call ends, you may now disconnect. Thank you, and goodbye.