U.S. Markets open in 3 hrs 12 mins

Edited Transcript of 2409.TW earnings conference call or presentation 25-Jul-19 6:00am GMT

Q2 2019 AU Optronics Corp Earnings Call

Hsin-Chu Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of AU Optronics Corp earnings conference call or presentation Thursday, July 25, 2019 at 6:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Benjamin Tseng

AU Optronics Corp. - CFO, CAO & VP

* Julia Chao

AU Optronics Corp. - Head of IR Department

* Michael Tsai

AU Optronics Corp. - President, COO & Director

* Paul Peng

AU Optronics Corp. - Chairman & CEO

* Tien-Yu Lin

AU Optronics Corp. - VP & GM of Mobile Solutions Business Group

================================================================================

Conference Call Participants

================================================================================

* Arthur Lai

Citigroup Inc, Research Division - VP and Analyst

* Jerry Su

Crédit Suisse AG, Research Division - Director

* Sharon Shih

Morgan Stanley, Research Division - Executive Director

================================================================================

Presentation

--------------------------------------------------------------------------------

Julia Chao, AU Optronics Corp. - Head of IR Department [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, good afternoon. This is Julia Chao of AUO's IR department. On behalf of the company, I would like to welcome you to participate in AU Optronics 2019 Second Quarter Results Call.

Joining me here are 4 executives: Mr. Paul Peng, Chairman and CEO; Mr. Michael Tsai, President and COO; Mr. T.Y. Lin, VP of Business Group; and Mr. Benjamin Tseng, our CFO.

The agenda of today is as follows. First of all, our CFO will brief you on our 2Q results and provide you with our Q3 guidance. And then our Chairman, Paul, will provide you with an opening remark. Afterwards, we will proceed with question and answers. We have collected questions from analysts. For the first part of the Q&A, we will address these questions. Afterwards, if you still have more questions, we will open the floor for you to call in.

Now before I hand over to Ben, I would like to remind you that all forward-looking statements and -- contain uncertainties and risks. Please also spend some time to read the safe harbor notice on Slide #2. Ben, please.

--------------------------------------------------------------------------------

Benjamin Tseng, AU Optronics Corp. - CFO, CAO & VP [2]

--------------------------------------------------------------------------------

Good afternoon. I would like to go over our Q2 results. During the quarter, panel ASP still was weak with TV and smartphone being the main segments of decline. The issue of component shortage was abated. In addition, AUO has increased our shipment ratio of high-end niche products, contributing to profit and revenue improvement. In Q2, net sales came in at TWD 70.1 billion, up by TWD 3.4 billion Q-o-Q; gross profit, TWD 2 billion; gross margin, 2.8%. Operating loss narrowed to TWD 3.4 billion. Net loss attributable to owners of the company was TWD 2.7 billion; EBITDA margin, 8.1%. The EBITDA margin of the Display segment was 8.4%.

Moving on to balance sheet. In the end of Q2, cash was TWD 80.1 billion, up by TWD 11.5 billion, mainly due to the use of long-term credit facility. Debt, as a result, increased by TWD 12.6 billion Q-o-Q. Gearing ratio was 13.6%. Inventory turnover was 36 days. Both of these indicators were very healthy levels.

Next slide, cash flow. We generated from operating activities TWD 7.2 billion. CapEx lowered slightly to TWD 7.9 billion. We had an inflow from financing activities of TWD 12.5 billion due to the increase in long-term debt.

Moving on to revenue breakdown by application. The share of TV gained by 3 -- lost 3 percentage points to 36% due to a lower ASP and the fact that customers became more conservative on the back of higher inventory levels. The mobile PC and device segment gained 2 percentage points to 26%, boosted by the ease in CPU shortage and our continuing effort to drive niche product applications and revenue.

The Commercial and Others segment gained 3 percentage points to 23% due to the growth of car displays, entertainment, POS, wearables Q-o-Q.

Next slide, revenue breakdown by size. Larger than 39-inch panels, as a whole, lost 3 percentage points Q-o-Q due to a lower TV ASP. The 2 smallest segments, the 10-inch to 20-inch and smaller than 10-inch segments, gained 4 percentage points combined due to several higher growth applications, including auto, wearables, smartphones, gaming, entertainment, et cetera.

Shipments and ASP by area. Area shipment went up by 1.3% Q-o-Q. ASP per square meter was boosted by our product mix optimization efforts to gain 3.5% Q-o-Q.

Next slide, small-and-medium-sized panels. These are the smaller than 10-inch panels. In Q2, area shipment surged by 34% Q-o-Q with the contribution from smartphone card displays and entertainment panels. Revenues of the small-and-medium-sized panels also increased by 16% Q-o-Q.

Now about our Q3 guidance. Large-sized panel shipments are expected to be flat Q-o-Q. Blended ASP denominated in USD is expected to be up slightly Q-o-Q. Small-and-medium-sized panels shipments are expected to be up by mid-single-digit percentage points Q-o-Q. The loading rates in Q3 will be adjusted dynamically according to market conditions.

So that was our update on our Q2 results and then guidance for Q3. Now I'd like to hand over to Paul for an opening remark.

--------------------------------------------------------------------------------

Paul Peng, AU Optronics Corp. - Chairman & CEO [3]

--------------------------------------------------------------------------------

Ladies and gentlemen, good afternoon. This is Paul speaking. We are seeing that supply outstripping demand in the panel industry. This is especially so with the commodity products such as TV panels, smartphone panels. The supply was far bigger than demand. For the past few quarters, the panel ASPs continued to decrease. Macro uncertainties have caused end demand to weaken.

Commodity products such as television, smartphones, cars, all see their first half sales lower than the same period of last year. Fearful of the impact of trade wars, channels booked panel allocations ahead of time, causing inventory levels to be higher than normal at the moment.

At AUO, we have been affected by the macro uncertainties as the prices of product continue to be lower than usual. So it is difficult -- more difficult for us to make profits. However, we have been very committed to improving our product mix and our productivity.

We were able to post a net sales of TWD 70 billion in the second quarter, up by 5% Q-o-Q. At the same time, we saw a narrower loss than a quarter ago. Inventory turnover was 36 days, and gearing ratio was 13.6%. These indicators were quite healthy. Over the past few years, we have been committed to our smart investment principles. We have not expanded our capacity drastically. Instead, we have focused on improving value of capabilities. Given the mismatch of -- given the mismatch between demand and supply, we believe that the companies that have ramped up significantly could be under far larger pressure.

As for our outlook for the second half, we don't think that end demand will be very strong. Visibility of demand hasn't improved much. Brands focus on clearing out their inventories, and this could affect their moving -- their pooling moves.

The second half is the high season, but how strong the seasonal demand can be, it is something we have to observe closely. But if our past experience can be an index, we think, generally, the second half will see stronger and better market conditions. But given the uncertainties, we will have to be very prudent.

Despite the worse visibility, we still could have many rush orders coming in due to a surge in demand all of a sudden. This is something that we have to be prepared for, and we have to be ready not just by working better with our customers, but also make sure that we can encounter the demand in terms of manufacturing capabilities.

When it comes to macroeconomic conditions, what worries most -- what worry enterprises most is uncertainties, although, after G20 meetings, U.S.-China conflicts seem to have abated. But the core issue hasn't been really resolved. So what happens is it is extending uncertainties, and this could slow down recovery. So right now, we haven't really resolved U.S.-China conflicts, but we have the conflicts between Japan and Korea and U.S. and between U.S. and Europe.

So right now, although trade conflicts may have abated a little bit, what we see is that the division of labor across the world has been disrupted. The reconstruction of the industries could cause productive to -- productivity to worsen, and we are worried that end demand could be affected.

Starting from last year, Chinese vendors have been ramping up their capacities. Today, supply still outstrips demand. Price wars are getting more fiercer than ever. This is especially so for commodity products as we entered the third quarter, which is the traditional high season, but we continue to be very prudent and keep a close eye on the market conditions.

We are tackling market changes in a more flexible manner, although we still -- we are still committed to our long-term value up and value transformation strategy. Although there are headwinds at the moment, we have been sticking with our value-creation strategy, and we are able to improve our added values. And the results have really shown in our Q1 and Q2 results. At the same time, we want to leverage field economy and hardware-software integrated services to capture new businesses so as to extend our values in the panel industry in addition to improving our competitiveness. Our ultimate goal is to achieve steady growth and steadier operations.

Thank you all for participating in today's conference.

--------------------------------------------------------------------------------

Julia Chao, AU Optronics Corp. - Head of IR Department [4]

--------------------------------------------------------------------------------

Now we'd like to start with our Q&A. For the first part, we would like to address the questions that we have collected.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Julia Chao, AU Optronics Corp. - Head of IR Department [1]

--------------------------------------------------------------------------------

The first group of questions are about market updates and outlook.

The first question under this category is about an update on worldwide panel supply and demand. The second question is about television sell-through in Q2 and outlook for Q3. We have Michael to address these questions.

--------------------------------------------------------------------------------

Michael Tsai, AU Optronics Corp. - President, COO & Director [2]

--------------------------------------------------------------------------------

Good afternoon. This is Michael. I would like to first talk about 2019 supply and demand of television, monitor, notebook and smartphone applications.

On demand side, in the first half of 2019, under macro uncertainties end market demand weakened. However, upward size migration and specification upgrade trends remained the same. It is expected that area demand will continue to grow this year.

On the supply side, with large generation capacity ramps, supply will continue to increase this year. So the dynamics between demand and supply will have to be observed closely. In terms of the overall supply and demand, as we are having more supply than demand, AUO will continue to focus on high-technology barrier and high value-added products to respond to market challenges.

Next, I would like to talk about TV sell-through in Q2 and demand outlook. In the second quarter of 2019, TV sell-through weakened Y-o-Y, but brands and channels continue to promote large-size and high-end products, which boosted average size to grow by more than 1 inch from a year ago.

Now I'd like to talk about some key markets and their updates. First, about the developed markets. North America has posted growth for 5 consecutive quarters. When comparing to the first half or the first half of 2018, the growth was quite good. Large-size sell-through was quite strong as well. In Western Europe, sell-through in the second quarter went into the negative range. However, average size still grew by more than 1 inch.

In China, sell-through went into the negative range into Q2. Brands continue to promote large-size models. 65-inch TV set sell-through now accounted for 15% of the overall sales, which was a historical high, and we believe size will also continue to increase.

As for emerging markets, Eastern Europe have posted 5 consecutive quarters of growth. The main market, including Russian -- Russia, which is going through digital signal trends switch off and transfer, demand has been relatively strong. As for emerging Asia, Thailand and Vietnam have been a key growth driver, boosting area and size to grow at the same time. Overall, although TV sell-through slid in Q2, but the slide was better than expected mainly due to strong results from North America and Eastern Europe. As we look ahead into the third quarter, brands and channels will be preparing for the high season in the second half. And large-size, high-end products will continue to be key growth driver. We expect the average size will continue to grow, but we have to watch the pace of inventory digestion very closely.

--------------------------------------------------------------------------------

Julia Chao, AU Optronics Corp. - Head of IR Department [3]

--------------------------------------------------------------------------------

The next question is about the inventory levels for TV, monitor, notebook and smartphone. Michael, would you please?

--------------------------------------------------------------------------------

Michael Tsai, AU Optronics Corp. - President, COO & Director [4]

--------------------------------------------------------------------------------

Now about the inventory levels for these key applications. Let me first talk about television. Due to macro uncertainties, inventory levels of TV are higher than normal and even higher than Q1. This is something that we have to watch closely to see how fast the inventories can be cleared.

As for monitors, brands have been preparing for the high season very closely in the second -- in the first half. So inventory levels are -- have been slightly higher than normal.

As for notebooks, brands are restocking for the back-to-school demand, so inventory levels were slightly higher than normal. But all in all, high-end and commercial gaming notebook demand was still strong and increasing.

For smartphones, brands have entered the period of restocking for new product launches. At the moment, the inventory levels of smartphones are normal and healthy. Thank you.

--------------------------------------------------------------------------------

Julia Chao, AU Optronics Corp. - Head of IR Department [5]

--------------------------------------------------------------------------------

Thank you, Michael. The next group of questions are financial ones. The first question is about our UT rate.

--------------------------------------------------------------------------------

Unidentified Company Representative [6]

--------------------------------------------------------------------------------

In Q2, our loading rates were more than 90%. For Q3, we will adjust our loading rates dynamically according to market conditions. For depreciation and amortization, the amount in Q2 was TWD 9.06 billion. In 2019, the amount will be about TWD 37 billion. For CapEx, the amount in Q2 was TWD 7.87 billion. The amount for the entire year will be probably TWD 40 billion.

--------------------------------------------------------------------------------

Julia Chao, AU Optronics Corp. - Head of IR Department [7]

--------------------------------------------------------------------------------

Next question is about currency fluctuation's impact on our margins.

--------------------------------------------------------------------------------

Unidentified Company Representative [8]

--------------------------------------------------------------------------------

In Q2, according to official data, NTD weakened by 0.68 -- 0.86% against USD and also weakened by 0.6% against the Japanese yen. These factors combined, currency fluctuation had a 0.4% positive impact on our margin Q-o-Q.

--------------------------------------------------------------------------------

Julia Chao, AU Optronics Corp. - Head of IR Department [9]

--------------------------------------------------------------------------------

The third group of questions are about AUO's key products and applications. T.Y., could you please talk about TV, IT and noncommodity products? And also let us know the progress that we have made in these applications as well as the new applications such as mini LED-related products.

--------------------------------------------------------------------------------

Tien-Yu Lin, AU Optronics Corp. - VP & GM of Mobile Solutions Business Group [10]

--------------------------------------------------------------------------------

Good afternoon. This is T.Y. I would like to first talk about our TV products. In Q2, due to macro uncertainties, customers are -- were more prudent in their panel booking activities. However, we have been focusing on high-end, value-added products. We have seen more steady demand. We have performed quite well in terms of the shipments of 75-, 85-inch products and 8K TV panels. The 75- and 85-inch products of AUO saw a new high in shipment in Q2. The growth was more than 20% than a year ago.

For 8K, our 8K TV panel integrated bezel-less HDR, high refresh rate and quantum dot wide color gamut features, and we have been able to mass produce 8K products with these features. Besides 85-inch products, we have already mass produced 75-inch panels. In the next few years, we believe that the demand for 8K products will continue to increase.

As for IT products, although monitor panels demand weakened in Q2, but the demand for gaming and high-end products was relatively more stable. With seasonal stocking for back-to-school demand and CPU shortage abating, notebook panel shipments increased from Q1.

In terms of Low Temp Poly notebook, we have seen shipments continue to reach new highs in Q2, and the shipments actually doubled from a year ago. Low Temp notebook panels are light, and with the ability to consume less power, they have become the top choice of high-end commercial notebook products. Also, in terms of on-cell touch notebook, AUO has on-cell touch integrated panel. We are able to help our customers to streamline their supply chain process and lower their inventories. These are our niche, and we are able to be a leader in the market. In Q2, our on-cell touch panel shipments grew by more than 20% than a year ago, and the shipments have reached a new high.

As for noncommodity products, our card display shipments grow -- grew by double-digit percentage points from a year ago in Q2, and the growth was better than the rest of the market. Also, to improve our product values, we focused on developing customized products for carmakers. For example, we leverage multi-panel lamination to yield high-performance car displays that are able to incorporate clusters with CID, and this has been enjoying very good responses from our customers.

As for medical sector, we have seen a new high in our shipments of medical panels in Q2, and the growth was very significant from a year ago. These medical displays include a series of high-resolution, wide color gamut, high-brightness and high-contrast panels for diverse medical purposes such as ultrasound imaging modality, endoscopies and microinvasive surgeries. We have earned the trust of many customers.

In addition, I would like to share with you some progress that we've made with mini LED. Last year, in Q4, we mass produced 32-inch mini LED backlight high-end professional monitor panels, and we have started to ship them starting from this year. In addition, we also were -- are working with customers to develop 17.3-inch 4K mini LED gaming notebook panels, and we expect to be able to mass produce them by the end of this year. Mini LED has been one of the key areas of ours. Currently, we are applying mini LED to focus on IT-based niche products. Going forward, we will continue to deepen our collaboration with the industry chain, including our customers and suppliers, to drive the applications of mini LED to more size segments and applications.

--------------------------------------------------------------------------------

Julia Chao, AU Optronics Corp. - Head of IR Department [11]

--------------------------------------------------------------------------------

Ladies and gentlemen, we now would like to open the floor for you to call in. In order to give equal opportunities for all the participants, please limit the number of questions to 3 per call, and please state them all in one go.

Thank you. We will now start the question-and-answer session.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

(Operator Instructions) The first caller is Ms. Sharon Shih from Morgan Stanley.

--------------------------------------------------------------------------------

Sharon Shih, Morgan Stanley, Research Division - Executive Director [13]

--------------------------------------------------------------------------------

This is Sharon from Morgan Stanley. I have 2 questions. Firstly, you mentioned that in Q3, you will dynamically adjust your loading rates according to market conditions. Under what circumstances will you be more prudent and lower your loading rates? We understand that you are shipping your new products, but inventory levels in the end market were higher than normal and demand was weak. So under what kind of circumstances will you consider lowering your loading rates? That is my first question.

My second question is that you have focused a lot about talking -- you have focused a lot on noncommodity products and raising their portion. In terms of their revenue contribution, could you give us some color on their contribution in the first half? And what is your expectation for the noncommodity products to account for your revenue in the next 2 to 3 years?

--------------------------------------------------------------------------------

Paul Peng, AU Optronics Corp. - Chairman & CEO [14]

--------------------------------------------------------------------------------

Sharon, this is Paul. I would like to answer your questions. Firstly, about your question on loading. Generally, we take into consideration of 2 aspects: first is the market demand; secondly, how demand impacts prices and whether or not this will impact our margins and whether we can maintain a healthy level of margin. These are the 2 factors when it comes to deciding our loading rates.

According to our guidance, we actually guided to have similar levels of revenue in Q3 to Q2. This is because we have continued to adjust our product mix. For the past years, AUO continues to leverage our mid- to high-end added-value products to improve our advantages, and these are the areas that our customers want to improve their portions on because if you think about commodity products and entry-level products, it is very difficult for our customers to even stay afloat already. That is why they also want to improve their high-end portions.

As far as AUO is concerned, we think the demand in Q3 is relatively stable, and we have not decided to adjust our loading rates significantly at the moment. But if there are some huge changes in the market, then we will adjust the loading rates based on the 2 principles that I just mentioned.

As for noncommodity products revenue contribution, they now account for approximately 25% of our revenue. Other than that, we also have more focuses on high-end and niche products in commodity products. So these products combined, our value-add products actually account for more than 50% of our revenue. Our hope is to continue to improve our performance and improve the portion of these value-add products. Based on our customers' demand or our understanding of the market conditions, we will try our best to maximize the portion of value-add products.

Despite the doom and gloom in the market at the moment, AUO has been able to maintain relatively better performance. I believe this is because of the advantage that our product mix offers. Thank you.

--------------------------------------------------------------------------------

Sharon Shih, Morgan Stanley, Research Division - Executive Director [15]

--------------------------------------------------------------------------------

So for the past few years, you have been focused more on your value-add products. Does this also pose some challenges to your product line allocations and adjustments of your utilization rate?

--------------------------------------------------------------------------------

Paul Peng, AU Optronics Corp. - Chairman & CEO [16]

--------------------------------------------------------------------------------

When you talk about value-add, these are products that actually are more customized. They are more in variety and smaller in volume. So they actually pose some really stringent demand in terms of the capabilities to manufacture products and your capabilities to manage your internal control and how you work with your customers as well as your supply chain partners. We have been doing this for many years. That is why we can earn the trust of our customers and continue to increase the portion of value-add products.

Although the pace is not fast, but it is -- it has to do with the characteristics of these kind of products. They do not grow significantly in a short period of time, but we are seeing them steadily growing. This type of products is actually something that large -- really large vendors do not want to work on, but small vendors cannot afford or do not have the capability to work on. But with AUO's capabilities and long-term focus, we will continue to enlarge the portion of these products.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

Our next caller is Arthur Lai from Citi Group.

--------------------------------------------------------------------------------

Arthur Lai, Citigroup Inc, Research Division - VP and Analyst [18]

--------------------------------------------------------------------------------

Our analysts and our investors have several questions. First question is about the industry's outlook. Paul, I think you had mentioned in the past that you think -- that you thought this year would be a low demand year and over -- a year of oversupply. Actually, many investors have decided to ignore this year, and they have moved on to the outlook of next year. I wonder how you see the supply and demand of next year.

Secondly, you have very strong and healthy cash flow. Can you give us some color on your dividend plans in the next few years? Investors are also interested to know whether you will distribute more dividends to your shareholders.

--------------------------------------------------------------------------------

Paul Peng, AU Optronics Corp. - Chairman & CEO [19]

--------------------------------------------------------------------------------

Arthur, this is Paul. I would like to answer your first question, and the second question, I will ask my colleague, Ben, to answer it.

In terms of the industry outlook, we actually evaluate not just supply, but also demand. In the past few years, Chinese vendors ramp up their capacity very rapidly. I think we have mentioned this a couple of years ago that the next few years will see oversupply being a new norm, and oversupply will likely continue for several years. As far as how long it will sustain, it really will depend on whether people will have discipline in terms of investment decisions.

This year, we have seen market conditions weaker than expected. This is because supply -- while supply was similar to what we have expected, demand was weaker than expected. Because of trade wars and various moving momentum, the conditions were worse than we expected. However, since we have been aware of this potential problem from a long time ago, we have started to make preparations. It really takes a long period of time to improve your capabilities, and we have been doing this for many years and been improving our capabilities from various aspects. Going forward, we will focus on niche products, value innovation in addition to solutions and one-stop-shop integrated services.

Today, we're seeing the rapid growth in IoT and AI applications. That is why we have been launching some field economy-based initiatives. For example, targeting health care industry, we have set up AUO Care. Targeting the circular economy, we have set up UFresh Technology. We also have businesses for industrial intelligence services and smart retail applications. For smart retail, we have extended our reach to not just Taiwan, but also the retail market in the U.S.

In the future, besides providing panels, we would also have an increased focus on solutions and services. I think I have talked about this several quarters ago. If you think about AUO in the future, you may not think of us as a panel provider. You may think that we are also many other different services provider.

--------------------------------------------------------------------------------

Benjamin Tseng, AU Optronics Corp. - CFO, CAO & VP [20]

--------------------------------------------------------------------------------

This is Ben. I would like to talk about our cash flow. Of course, a strong cash flow is an important source of growth or CapEx or paying back to our shareholders. As you may know that for the past 3 or 5 years, our dividend payout ratio has been higher than the last period of profitability. So what we do is that we would make our adjustments and decisions based on our growth initiatives and also the interest of our shareholders.

--------------------------------------------------------------------------------

Arthur Lai, Citigroup Inc, Research Division - VP and Analyst [21]

--------------------------------------------------------------------------------

May I have a follow-up? Could you talk about your cost-reduction plan for the next quarter?

--------------------------------------------------------------------------------

Benjamin Tseng, AU Optronics Corp. - CFO, CAO & VP [22]

--------------------------------------------------------------------------------

We are still working on it. Right now, we are targeting to have a 2% drop.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

Our next caller is Jerry Su from Credit Suisse.

--------------------------------------------------------------------------------

Jerry Su, Crédit Suisse AG, Research Division - Director [24]

--------------------------------------------------------------------------------

The first question is about your Q3 guidance. You guided that your shipments to be flat Q-o-Q. Could you specifically talk about the guidance for your TV and IT product shipments?

Secondly, about your new products and new technologies, I think, in May, you launched a low-temp LCD fingerprint on-display solution. I wonder how far away you are from mass production and how you have been working with your customers.

The third question is about dual-screen notebook models. I think at Computex this year, many notebook vendors and ODS exhibited some dual-screen notebooks. I wonder if you have any thoughts about this. And when do you expect a -- the adoption time to be?

--------------------------------------------------------------------------------

Michael Tsai, AU Optronics Corp. - President, COO & Director [25]

--------------------------------------------------------------------------------

Jerry, this is Michael. About your question on our Q3 guidance, of these 3 products, notebook panel shipments were relatively healthier. TV and monitor panels are seeing some weaker demand from the market.

As for AUO, we have seen some very good performance from notebook -- low-temp, high-end gaming notebook panels. So in Q3, we think the shipment momentum for notebook panels will be okay.

As for TV and monitor panels, as we move towards large size and higher-resolution segments, they enjoy relatively better shipment momentum in Q3. But the demand for lower-end, smaller-size panels, they have smaller demand. In Q3, AUO will continue to flexibly adjust our shipment ratio for TV and monitor panels to respond to market demand.

--------------------------------------------------------------------------------

Tien-Yu Lin, AU Optronics Corp. - VP & GM of Mobile Solutions Business Group [26]

--------------------------------------------------------------------------------

Jerry, this is T.Y. You mentioned 2 key technologies. One is fingerprint on-display on LCD panels. Actually, we have led our peers to have developed fingerprint on-display solutions, and we have identified customers that are willing to collaborate with this. But in terms of their product launch line and whether or not they will launch their new products anytime soon, it will depend on the plans of our customers.

Secondly, you also mentioned dual-screen notebook products. Dual-screen is actually a feature of high-end, differentiated products panel -- notebook panels. In terms of technology, there's no -- there's not any problem for us, but it all depends on our customers' product positioning and their development schedules in terms of our application and product development plans. Thank you.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

(Operator instructions) The last caller is [Tyler] from Fubon Life Insurance.

--------------------------------------------------------------------------------

Unidentified Analyst [28]

--------------------------------------------------------------------------------

I have 2 questions. First, given the tug of war between Japan and Korea for high-end panel materials, do you have any plans to source local vendors for some materials? For example, do you, perhaps, consider using PI films from local vendors?

The second question is about your progress made and your strategies for the Gen 3.5 OLED intra-printing models.

--------------------------------------------------------------------------------

Paul Peng, AU Optronics Corp. - Chairman & CEO [29]

--------------------------------------------------------------------------------

Tyler, this is Paul. In terms of key materials, actually, we have continued to do risk control very closely. As for whom we source from, it really depends on the vendor's competitiveness. We do not specifically target the products from certain vendors. It all has to do with our risk control approach. We have to make sure that there is no risk for product sourcing. And we have already deployed some materials from local vendors that are really competitive.

Also, about IJP, inkjet printing, AUO has actually been working on OLED technology research and development for a very long period of time. We also believe that IJP may become a new technology for OLED, and we are working aggressively on R&D. But we still need some more time in making adjustments in terms of the equipment and also the materials. But with R&D, we have never stopped. We have been very aggressively working on it. But we are not there yet to launch a product. When the time comes, we will report to you. Thank you.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

In the interest of time, this ends our question-and-answer session. Ladies and gentlemen, this concludes our conference call. If you have any further questions, please feel free to contact us as...

--------------------------------------------------------------------------------

Editor [31]

--------------------------------------------------------------------------------

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.