Andes Technology Corp

TWSE:6533

Earnings Call Transcript 2021-Q4

[Operator]

Welcome to the Andes 2021 Annually Forecast Investor Conference. To begin with, we would like to introduce the Andes management team in this conference. We have the Andes CEO and Chairman, Frankwell Lin; Associate Vice President of Finance Department, Miss. Fiona Chou; and Special Assistant, Vincent Chen. Today's meeting will be hosted by Chairman Lin. He will summarize our operation in 2021 and provide you key messages. After the briefing, there will be a Q&A session. [Operator Instructions]

To begin with, we would like to remind everyone that today's presentation may contain forward-looking statements that are subject to risk facts related to the semiconductor and IT business and uncertainty, which could cause the actual results to differ materially from those contained in the forward-looking statements. Please see the risk/precautions statement on the PowerPoint slide. Now I would like to turn over the meeting to Andes' CEO and Chairman, Frankwell Lin.

[Jyh-Ming Lin, executive]

Let's go to Page 5. Okay. This is Frankwell Lin. In this page, I only like to update the number of employees by end of 2021. It's over 260 people now. Okay, next page.

In this slide, I'd like to update that the accumulative SoC shipped by our customers is over 10 billion now. In year 2021, the annual shipment of that Andes based -- Andes' CPU-based SoC is over 3 billion. And now worldwide, we have more than 250 commercial licensees with more than 600 license agreements signed.

On next page for year 2021 operating results. For Q4, the revenue was TWD 269 million. For Q-o-Q, it's more than 40% growth. For Y-o-Y is 0.2% growth.

Next page. The whole year revenue is TWD 819 million. The Y-o-Y growth is more than 41%, and it is a record high. Next page. Okay. In this page, we'd like to analyze the revenue contributed by top 10 customers.

In the pie chart, we can see that top 10 customers contributed 56% of our revenue for year 2021. And for the list of the top 10 customers, the #1 is U.S. customers doing AI. Number 2, Taiwan customers doing touch panel. Number 3, also Taiwan customers doing sensing application. Number 4 from Taiwan doing wireless IoT application. Number 5 from U.S., also doing AI application. Number 6 from China doing 5G modem application. Number 7, also from U.S. doing storage application. Number 8 from China doing video/TDDI application. Number 9 from U.S. also doing AI application. Number 10 from Japan, they are doing MCU, Micro Controller Application. Next page.

For fourth quarter year 2021, the royalty income is TWD 62 million. It is a 4.4% decrease Q-o-Q, but it is 7.6% up Y-o-Y. Okay, next page.

If we analyze the whole year royalty income, it is a 47.2% growth, reaching the record high annually royalty income TWD 233 million. In this analysis, we can see even further for year to 2016 until year 2021, the per year growth rate is high. And in year 2021, other than the royalty income, we can find more information like the number of customers contributing to our royalty in year 2021, this number is 51.

And next page. In this analysis, we like to analyze the top 10 customers contributing to our royalty. In the pie chart, we can see that top 10 royalty customers contributed 86% of overall royalty in year 2021. Talking about the list. The #1 is from Taiwan. In fact, the top 5 are all from Taiwan. Their application is, number one, touch panel; number two, sensing; number three, wireless IoT; number four, touch panel; number five, gaming.

The number six customer is from China doing storage application. Number seven from Korea doing touch panel application. Number eight from Taiwan doing wireless IoT application. Number nine from Taiwan, also doing wireless/audio application. And the number 10 is from China doing wireless and IoT application. Next page.

In this pie chart, we'd like to analyze the revenue contributed by a payment model. The top 1 is license fee, 60%; then running royalty, 28%; maintenance, 9%; and customer computing service, 3% for year 2021. Next page.

In this page, we'd like to analyze the contribution from different regions. Number one from Taiwan, 34%. Number two from China, 34%; Number three from U.S.A., 25%; then 3% from Japan, 2% from Europe and 2% from Korea. Next page.

In this chart, we first take a look at the smaller pie chart in which we can see that between Andes owned proprietary V3 architecture and the RISC-V, the RISC-V architecture contributed 64% to our 2021 revenue, while V3 contributed 33%. And if we analyze by the product portfolio, N8 is number one, contributing 16%; and then number two, N25, 14%; number three, AX45, 11%; and then and NX27, 11%. Okay. The rest we can see a smaller contribution. Next page.

In the bar chart, we'd like to analyze per quarter revenue analysis. In fourth quarter, the revenue from RISC-V was 70% and 30% from V3. Next page.

If we talk about the whole year, we already had this in pie chart earlier. Next page. Now we mentioned the overall agreement side. Now we focus on commercial agreements site. In year 2021, the number of commercial IP agreement signed is 58. So accumulate IP agreement signed is 389. Okay. Next page.

In the bar chart listed here, we can further analyze the historical revenue, especially between V3 and RISC-V. Since year 2017, gradually, the contribution from RISC-V starts to dominant. And in license, the trend is further RISC-V share contributor in higher percentage year-by-year.

However, the royalty contributed from V3 is still very strong growing. From year 2016 to 2021, we can see that the royalties contributed by V3 kept its strong growth rate. On the other hand, the royalty contributed by RISC-V is -- just got started in year 2020. In our number, in our statistics, in year 2020, the royalty contributed by RISC-V was in the rate of 0.5%. While in year 2021, this contribution became 1%.

Concerning the overall royalty growth, so we believe the amount of royalty contributed by RISC-V grew 3x since from year 2020 to 2021. Okay, next page.

Okay. Our consolidated gross margin capital is higher than 99% for quarter base and annual base, okay? Yes. Next page. The operating expense in the fourth quarter year 2021 grew 27.8% by Q-o-Q base and 51.3% with Y-o-Y base. Among them, the share between R&D expenses, administration expenses and selling expenses are analyzed in this bar chart. Okay, next page.

Annual consolidated operating expenses grew 21.7% is our annual comparison. Please take a look at this bar chart. And then the consolidated operating income for fourth quarter had a 126% of growth by Q-o-Q base and the minus 58% is Y-o-Y base comparison. Next page.

The overall annual consolidated operating income had a record high amount TWD 158 million and the annual growth rate is more than 321%. Next page.

So the fourth quarter consolidated operating margin was 19.67%. It is a growth from third quarter. Now overall, the annual consolidated operating margin had a growth rate Y-o-Y, it is 12.88%. Next page.

The fourth quarter consolidated net income was TWD 30 million. It is a minus 31% down from third quarter, also a minus 75% down Y-o-Y base. Next page. The overall consolidated net income also a record high, TWD 161 million. It is more than 321% growth Y-o-Y. Next page.

Talking about the consolidated net profit margin. For fourth quarter, it is 11.15%, a 11.68% down from third quarter and also 33.5% down from Y-o-Y comparison. Next page.

So the consolidated net profit margin was 19.72% for year 2021. It is a 13.67% growth by Y-o-Y comparison. Next page. The consolidated EPS for fourth quarter was TWD 0.54. That is down from TWD 0.99 in third quarter and TWD 2.81 for Y-o-Y comparison. Next page.

The annual consolidated EPS for year 2021 is TWD 3.59, which is a record high. Concerning the Y-o-Y comparison, it is more than $2.7 up. Next page.

Okay. That's the operating result. Next, I'd like to go out for some product and application updates. I will go through quickly, only highlight the difference. In this page, as I mentioned, in year 2021, 3 billion Andes CPU-embedded SoC has been shipped by our customers. Next page.

Okay. I think we saw this before. And next page, next page. Next page. Okay. In year 2022, especially in the first quarter, we are going to launch automotive-grade CPU IP. This product is N25F-SE. We had it developed by end of 2021 and delivered to international consultant company for ISO 26262, [ ASIL B grid ] certification. So it is ongoing now.

We expect to have that certification received by first half of this year. Also, Andes is engaging in the development of new product for 8 core AX45MP, where in the past, we already had AX45MP 4 core, 2 cores and 1 core, many cores product lines available. So that is the most recent development of the product road map.

And yet Andes is engaging in a strong profile in the higher end, RISC-V core development. After our [ TD ] raised in September last year, in October, we had a press release announcing that for coming 3 years, Andes intends to expand its design centers in Shinshu and the North America for 200 tenants. So this is the budget number.

We like to grow in our -- to grow our R&D team in 3 years. With that, several high-end products may be kicked off along the way, and at least we already had one of them ongoing. Okay, next page.

So the coming slides are describing Andes' 45-Series overview. Okay, next page. With AX45 product available, Andes is challenging the market leader Arm's A53 product segments. We had some design win with AX45 in year 2021. As I presented in the pie chart of contribution from different CPU products, you can see that AX45MP is among top 5. Next page.

So the target applications for Andes 27 and the 45-Series includes quite much from AI/Deep Learning, AR/VR, 5G networking to Video Surveillance, Automotive Application and Metaverse Application, Storage Data Center Application as well. Next page.

So Andes tried to bring its competitiveness in doing high performance, low power and extensible CPU to the market. All the CPU made available in Andes, they have great configurability so that customer can leverage its rich features to have variable configurations. Besides with Andes' 17 years industry experience, the maturity of our hardware software tool chains, IPs are very high and which is comparably better strengths than our competitors. Next page.

I would like to use this page to be the conclusion. Andes intends to be a trusted computing expert. We like to be the world-leading RISC-V CPU IP provider. So far, we already successfully rolled out the new series of RISC, of course, like we are the world, first vendors to provide commercial RISC-V, P-extension processor, RISC-V, V-extension processor and so on.

So we will keep our aggressive altitude to evolve in the RISC-V International Association, new technology development, and it's a promotion and the ecosystem expansion all over the world. And we'd like to keep our aggressiveness in becoming a technology contributor, market promoter and the sales leader in the RISC-V industry. So that's my presentation for today. Thank you. Bye-bye.