Andes Technology Corp

TWSE:6533

Earnings Call Transcript 2019-Q4

[Operator]

Welcome to the Andes 2019 Fourth Quarter Broadcast Conference. To begin with, we would like to introduce the Andes management team in this conference. We have the Andes President Frankwell Lin; Associate Vice President of Finance Department, Ms. Fiona Chou; and acting Spokesman, Mr. Vincent Chen. Today's meeting will be hosted by President Lin. He will summarize our operations in the fourth quarter and provide you key information. [Operator Instructions] As a reminder, this broadcast will be recorded and uploaded to Andes' company web page within 4 hours after the meeting is finished. Please visit www.andestech.com to watch it. The related material will be put under the catalog of investor relationship.

Before we begin, we would like to remind everyone that today's presentation may contain forward-looking statements that are subject to risk factors related to the semiconductor and IP business, and uncertainty, which could cause the actual results to differ materially from those contained in the forward-looking statements. Please refer to the risk/precautions statement on the PowerPoint slide.

Now I would like to hand over the meeting to Andes President, Frankwell Lin.

[Jyh-Ming Lin, executive]

This is the agenda of today's press conference. We will go overview of Andes Technology Corporation, then the operating results for fourth quarter of 2019 as well as the whole year 2019. Then we will go over product applications, following with new products and ecosystems, then giving concluding remarks.

This is the overview of Andes Technology Corporation. Andes was founded in March 2005. It is a well-established high technology IPO company now. We have just over 200 colleagues, and most of them are engineers. We have several milestones listed here for your reference. The company was IPO in March 2017.

I would like to go over the mission we stated. We'd like to innovate performance-efficient processor solution for low-power SoC. Now with the emerging opportunities showing in the market worldwide, like smart and green electronic devices, cloud computing and Internet of Things and machine learning, Andes has got very good opportunities.

So the operating results. So far -- let's give a high-level overview. We have now over 180 commercial licenses covering the whole world, distributed in Taiwan, Korea, Japan, Europe, China and the U.S.A. With these 180 over commercial licensees, we had more than 300 license agreements signed. In the year 2019, the agreements signed by 38 customers, which were for so-called classical agreements. And we had over 100, which is 103 customers coming from network. We call it on-line licensees. They signed agreements from the on-line environment.

The ecosystem Andes built has kept growing. So far, we have more than 145 partners. And until the end of year 2019, there were more than 5 billion accumulative SoC shipped by Andes customers, which integrated with AndesCore.

Now let me get more details. Like we mentioned, for year 2019, we introduced on-line agreement signing procedures. So the IP agreements signed in year 2019. There were 141 agreements signed, total. So the accumulated IP agreements signed from the beginning until end of 2019 is 388.

This slide, we'd like to address the revenue analysis for year 2019 and the fourth quarter of year 2019. The revenue for year 2019 was TWD 494,000 (sic) [ TWD 494 million ]. And for the fourth quarter, it was TWD 133,000 (sic) [ TWD 133 million ]. The revenue growth for the year 2019 over the year 2018 is about 62%.

Now let me analyze the top 10 customers, analysis by revenue, for year 2019. And these top 10 customers contributed 66% of the whole year revenue to Andes. #1 from U.S., application is AI. #2 from Taiwan, application is touch panel. #3, U.S. customers, 5G applications. #4, Taiwanese customers, application in sensing, then followed by Chinese customers with application in audio. And I won't read number 6 to #10. You can refer to the slide.

The royalty kept growing. This slide we state the royalty analysis for the fourth quarter. The amount was TWD 31,000 -- TWD 31 million, I am sorry, for the fourth quarter. So maybe I read wrong in earlier pages for the unit. I read thousand, sorry. That should be million for our revenue in the fourth quarter in the year 2019. I am sorry.

Next, let's analyze top 10 royalty contributors by application. These 10 royalty customers contribute 92% to the overall royalty. The #1 is from Taiwan, touch panel application; #2 from Taiwan, sensing application; #3 in China, navigation application; #4, in Korea, application is touch panel, #5 in Taiwan, application is wireless IOT, et cetera. And #6 to #10, you can refer to the slide.

Now this slide, we like to analyze the royalty contribution from year 2011 till 2019. From the slide, we can observe that from year 2017 to 2019, it started to have very high growth. And the contribution coming from the customers accumulated now in 2019. It is 33 customers used to -- contributed to our royalties. And the contribution of the royalty to the revenue is TWD 106 million in year 2019. We kept the high gross margin for each quarter. In fourth quarter, it is still 99.9%.

Now this slide, we'd like to analyze the consolidated operating expenses for R&D expenses, administration expenses and selling expenses. It is a little bit like a 5% drop from third quarter. But there large is growth year-over-year for the fourth quarter.

In this slide, the consolidated operating income, the amount for the fourth quarter is TWD 15.6 million. And it is a high growth from third quarter, but also a 60% drop of year-over-year for the fourth quarter.

The consolidated operating margin for fourth quarter is 11.7%. It is a change from 3% from -- for the third quarter 2019.

The consolidated net income analysis in this slide shows us the amount for fourth quarter is TWD 10 million. The consolidated net profit margin for the fourth quarter kept at 7.76%. It's a 4% percent growth from the third quarter, but a 24% down from the fourth quarter 2018.

For the EPS, in 2019, it is TWD 0.38. It is -- okay. It is a growth for Q-on-Q, but a drop for Y-o-Y.

Now let me use pie chart to analyze our revenue by payment model. For year 2019, the license fee shared 56%, 22% contributed by running royalty, 60% -- 16% contributed by customer computing service, and the rest, 6% coming from maintenance and others.

For the analysis by region, from this pie chart, we can see, the #1 coming from Taiwan, 39%; #2 changed to USA, 30%; #3, 21% from China; then it's Europe, 6%; #5, Korea, 3%; then followed by 1% from Japan.

In this slide, we'd like to analyze the customer application. #1, sensing. The analysis was based on agreement numbers. So 18% coming from sensing; followed by AI, 16%; networking, 13%; IoT, 13%; audio, 8%; security, also 8%; and the others, please refer to the slide.

In terms of our product, #1 contribution coming from N8; #2, 18% from N22 -- I'm sorry, N25. Customer computing started to contribute, so it is also a category here. Service contributed 13%; D25, 12%; N9, 9%; NX25, 6%; AX25, 6%; ACE, 5%; and the rest, please refer to the slide.

There's another pie chart here. From this chart, we'd like to tell you that V3 architecture contributed 37% of revenue. RISC-V contributed 47% of revenue; and the rest 16% is coming from customer computing.

We'd like to further analyze the revenue contributed from different architectures, like V3, RISC-V and customer computing for the fourth quarter. In fourth quarter, RISC-V contributed 43%, which is TWD 57 million, then followed by V3 architecture, TWD 55 million, then followed by customer computing, TWD 20 million.

So, overall whole year analysis, again, the different architectures, #1 RISC-V, 47%, TWD 233 million; then followed by V3, TWD 180 million; #3, TWD 80 million coming from customer computing.

Okay. Next, let's go through product application. With over 15 years' experience in the market, we have been contributing to the market with AndesCore and its ecosystem. Now Andes is a platinum founding member of RISC-V foundation and a major open source maintainer and open source contributor to RISC-V community. We actively involved in standard extensions like P-extension, Fast Interrupt Task Group, et cetera and several [indiscernible] developments.

In this slide, we use this slide to analyze existing customers' applications. But since there are more than 100 kind of different applications, there are more to list. So it's only part of the whole example. We categorize them as consumer, communication & IoT, storage & sensor, and industrial & video applications. Please refer to the slide.

Further, we'd like to analyze our product used in IoT applications, for example, N7 and N8 and several other RISC-V core can be applied to IoT applications such as electronic price tag, health care devices, Bluetooth speakers, Sigfox, wearable devices and the sensor hubs.

For higher end applications in IOT, the products like N9 and N10, like our product in RISC-V core for 25 series, they are in this category. They can be used in GPS and in shared bikes, portable karaoke, wearable devices, drone control, wireless connectivity and contactless payment NFC, et cetera, application.

Also, we'd like to say Andes' CPUs have been applied to many categories in embedded applications such as smartphone platforms. We could say among 5 smartphones distributed worldwide, one of them is Andes embedded, the applications distributed from storage controller, in mobile phones, NFC controller, sensor hubs, wireless connectivity, touch panel and fingerprint recognition, et cetera.

Further, Andes' CPUs are used in consumer devices, cars and the data centers such as game controller, such as AI speakerphones -- AI speakers, such as shared bike and ADAS controller. Also, it is applied in machine learning, servers and data centers. It is also applied in tier-one switch routers. The recent applications range from 5G networking to WiFi new standards, machine learning processors.

We'd like to address more in AI related, such as from edge application, edge computing to cloud computing. For example, the ADAS, AIoT application, blockchain application, FPGA, MCU, multimedia, security and wireless, data center AI accelerators, enterprise-level SSD and consumer-level SSD, 5G baseband and macro/small cell applications.

Next, I'm going to go through new products and ecosystems. The overview of the Andes RISC-V core ranges from architecture, which we believe is the best extensions of RISC-V and the AndesCore processors, which I'm going to go over further details in later pages. The hardware developing platforms and the software developing platforms and the tool chains for customers to develop their SoC also support the hardware and software platforms with extensive software stacks from bare metal, RTOS to Linux. So libraries, drivers and applications. So the product line is fully deployed, ranging from high end to more economics and then further we are developing security processors.

We believe you might have already seen this page many times. This is the existing AndesCore V3 Families part of road map. Today, I'd like to put my focus on RISC-V product lineup. So this slide shows you the RISC-V processor road map for current and the near future from fast/compact processors to 2-stage N22, to high-end fast/compact with FPU and DSP processors. The [ fast ] stage is AndesCore. We have 3 of them. Then for high end, A25, AX25 with 32-bit and 64-bit capability, they are able to run Linux and then extend to 1 to 4 cores, cache-coherent multicores. A22 -- I'm sorry, A25MP, which is 32-bit core, and AX25MP, which is 64-bit cores. And these are existing products in Andes product line for RISC-V. These are the main products we used to drive applications and design wins in year 2019.

Now in this year, Andes are going to release and promote the following products. The first -- the worldwide first RISC-V core with high-end vector processor, NX27V and A27/AX27 with memory boost. Then Andes will deliver your issue and memory boost to 45-Series, N45/NX45, D45/DX45, A45/AX45, and there will be more. And the application for these products, ranking wise, like we mentioned, on the applications, they are able to run higher-end AIoT communications, machine learning, deep learning, multimedia, networking, storage applications. Also, they can run data processing as well as control processing.

So I'd like to emphasize again, Andes is the leading brand for CPU IP. We deliver RISC-V core on the following extensions, which are at the world-leading position. For example, these products are one of the first DSP-capable RISC-V core, and this is the world-leading RISC-V core with V-extension. Also, we support our RISC-V characteristic a customer/engineer could add his own extension. So the terminology custom-extension with support Andes customer extension environment tools, we put them in the whole 25 series, 27 series as well as 45 series. They are all equipped with ACE support.

With ACE support, Andes' products are capable to be integrated in very high end applications such as AI server applications. We have a customer already designed chip with more than 1,000 cores to run deep learning. Also, there are customers integrating more than 100 cores in a chip for AI server. There's customers using more than 30 cores, 2 to 8 cores, single core, certainly, a lot of them.

So I'd like to summarize the Andes' strength to RISC-V core friendly. We supply AndesCore with high performance and extensibility. We supply them with configurability and maturity.

Like I mentioned, Andes is aggressive in RISC-V community. We are -- we involved in many foundation task groups. Some of them we are chair or co-chair of the task force. So we'd like to strengthen our ecosystem by RISC-V core and the infrastructure Andes developed. Our position in RISC-V is like the following. We will provide complete product portfolio with a reliable RISC-V core IP. We keep our position to provide extreme low-power consumption, high computing efficiency products. And we are the world-leading P-extension, V-extension and custom-extension capable RISC-V core supplier. And we also provide professional customer computing service starting last year.

We have ecosystem built for classical SoC design, also for IoT SoC and AI SoC design, the new ecosystem. The details can be addressed if you are interested. Starting last year, we also brought up to the on-line the FreeStart program. You can refer to Andes web page. I won't spend -- I won't go details here. Okay.

Andes kept its effort to do promotion. The events we attended or hosted in 2019 ranges the geographical territories where IT industries are.

Now let me conclude my presentation with the following. Andes is a trusted computing expert. We successfully rolled out the new series of RISC-V cores with industry-leading P-extension, V-extension and custom-extension capability in the year 2018, 2019 and now. Also, we provide customer computing value service and FreeStart program to extend more opportunities.

We aggressively involved in RISC-V Foundation, new technology development, [indiscernible] definition. We also contributed and leveraged RISC-V ecosystem to build worldwide RISC-V ecosystem that everyone can leverage.

Now Andes is becoming a technology contributor, market promoter and sales leader in the RISC-V industry. And that is my presentation for today. Thank you.

[Operator]

Thank you, President Lin. Now we would like to open the questions-and-answers session. [Operator Instructions]

[Jyh-Ming Lin, executive]

Okay. We've got a couple of questions here. Let me start with the first one. The question is, what is the proportion of Andes' V3 and V5?

V5 is RISC-V among contracts this year, okay? I'd like to address from 2 kinds of category. The first category is analyzed by revenue. In terms of revenue, V3 contributed 47%. V5 contributed 53%. Then another category is by agreements signed, the number. So in terms of the number of agreements signed, for V3, it's like 35%. For V5, it is 65%.

Now for second question. The question is, does tool chains like AndeSight make profit this year?

Okay. In Andes' business development culture, from 15 years ago until today, most of the time, AndeSight played a role as a [indiscernible] into the cores. So the major contribution of the revenue was lifted for CPUs at the most. And the amount shared by AndeSight is very minor in terms of the revenue. So we'd like to say AndeSight plays a very important role when Andes makes profit. But in terms of sales operation, sales administration, the amount contributed by AndeSight is too small to [indiscernible]. I hope this answers your question.

Okay. Here is the number three question. We'd like to ask what is the major product and application for customer computing?

My answer is Andes customer computing, basically, is based on RISC-V's architecture because the characteristics of RISC-V come with the ability allowed for engineer to add his own instruction set. However, not only instructions can be added, the feature of CPU can be added. So in terms of CPU architecture and the CPU micro architecture, then to the design are the major service part Andes do for customer computing. So the application is not limited. It can be anything as long as it's for CPU. However, for 2019, the 2 main categories of customer computing focused on 5G and AI server.

Okay. On the product Andes applied is basically Andes RISC-V product lines, the cores available on the shelf, then Andes ACE environment available on the shelf together with Andes' strong productivity and competitiveness, the whole team that can lead to this service.

Number four, the question is, what is the major application for fourth quarter Andes revenue?

Again, we already addressed the applications. Overall, for the fourth quarter, the focus is on wireless, which is Bluetooth and WiFi audio; also AI applications; and the touch panel controllers, which come from TDDI as major. I hope this answers the questions. And we have already answered all the questions collected.

[Operator]

Ladies and gentlemen, since there's no further questions, thank you for joining us. Broadcast will be recorded and uploaded to Andes' website. Welcome to visit our website for more information. Now we're going to start the Chinese session from now.