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Edited Transcript of 4966.TWO earnings conference call or presentation 30-Apr-20 6:00am GMT

Q1 2020 Parade Technologies Ltd Earnings Call

SANTA CLARA May 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Parade Technologies Ltd earnings conference call or presentation Thursday, April 30, 2020 at 6:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ji Zhao

Parade Technologies, Ltd. - Co-Founder, Chairman & CEO

* Judy Wang

Parade Technologies, Ltd. - CFO

* Yo-Ming Chang

Parade Technologies, Ltd. - IR Officer

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Conference Call Participants

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* Bruno Cheng

Nomura Securities Co. Ltd., Research Division - Analyst

* Daniel Yen

Morgan Stanley, Research Division - Research Associate

* Jerry Su

Crédit Suisse AG, Research Division - Director

* Po-Tsung Huang

Yuanta Securities Investment Consulting Co., Ltd. - Analyst

* Ruijun Huang

Fubon Securities Investment Services Co., Ltd. - Research Analyst

* Thurston Lee

Goldman Sachs Group Inc., Research Division - Business Analyst

* Yiqun Chan

CIMB Research - Research Director

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Presentation

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Operator [1]

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Welcome, everyone, to Parade Technologies 2020 First Quarter Webcast Investor Conference. Investor Relations of Parade Technologies, Mr. Yo-Ming Chang, will present 2020 first quarter financial results first. (Operator Instructions) After the presentation, there will be a question-and-answer session in English by CEO, Dr. Jack Zhao; and CFO, Ms. Judy Wang. And we will also remain the last 15 minutes for the attendees who would like to ask questions in Chinese. (Operator Instructions)

(foreign language)

Now I'd like to introduce Mr. Yo-Ming Chang, Investor Relations of Parade Technologies. Mr. Chang, please begin.

(foreign language)

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Yo-Ming Chang, Parade Technologies, Ltd. - IR Officer [2]

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Thanks, [Wang Che]. Welcome, everyone, to Parade Technologies 2020 Q1 Webcast Investor Conference. Parade Technologies first quarter 2020 consolidated revenue was USD 98.36 million, and the net income was USD 20.69 million. Its both basic and fully diluted after-tax earnings per share were USD 0.27 and USD 0.26, respectively. These results compared to consolidated revenue USD 93.72 million and a net income of USD 18.59 million or USD 0.24 and USD 0.23 per basic and the fully diluted share in the year ago quarter.

In U.S. dollars, the first quarter revenue increased 2.27% sequentially and was up 4.95% year-over-year. The gross profit in the first quarter of 2020 were USD 43.9 million, an increase of 3.87% from the previous quarter and an increase of 11.86% compared to the same quarter of last year.

Based on the current business outlook, Parade is providing the following guidance for the second quarter of 2020. Revenue is between USD 105 million to USD 115 million. Gross margin is between 41.5% to 44.5%. Operating expense is between USD 23 million to USD 24 million.

(foreign language)

It is my presentation for the 2020 Q1 financial results. Now I transfer to CEO, Dr. Jack Zhao, to answer your questions. Wang Che , you may begin.

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Questions and Answers

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Operator [1]

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Thank you, Yo-Ming. We will begin our question-and-answer session in English. (Operator Instructions)

The first to ask questions, Morgan Stanley, Daniel Yen, Morgan Stanley.

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Daniel Yen, Morgan Stanley, Research Division - Research Associate [2]

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Jack and Yo-Ming, so my first question is regarding your first quarter financial and then also the second quarter outlook. I remember back in 4Q last year, you mentioned that the reason for the gross margin improvement, the key reason, should be the lower DRAM pricing. However, in the first quarter, we continue to see your gross margin improve Q-o-Q, and it's also beyond your forecast. So I wonder whether or not there's any other reason for your gross margin improvement in the first quarter?

And for the second quarter, could you give us a sense what kind of product has -- has drived a stronger second quarter sales growth? You are looking at around 10% to 12%. So I want to know what's the driver behind that.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [3]

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Okay. Thanks, everybody, and good afternoon. The first question is regarding our Q1 gross margin. And the Q1 gross margin's slightly, I think, 0.1% above our -- the guidance range. I think that really was due to the product mix. And as I said previously, the DRAM price drop has been in favor for our gross margin improvement. And -- but I think, and in particular Q1, it's really the favorable product mix. And that's the -- it's so small. It's very difficult for us to exactly forecast or guidance exactly right. So that's a little bit above our guidance range.

In terms of the Q2, the driving force for stronger guidance we provided, we provided revenue from $105 million to $115 million, and that will really be is, first of all, we are a -- gain market share on our panel vendor side to our bundled solutions for notebooks, tablets. The solution in the panel side is really due to our robustness, our source driver, high speed performance to design to the gaming type of platform.

And also, we see as the COVID-19 pandemic around the world and the demand for the notebook, Chromebook and tablet has been strong. And we worked very hard to aggressively to try to satisfy those peak demands. And so fortunately, we are in the area or key player to support the PC solution, the Chromebook solution and notebook solutions and the tablet solutions. So we're in the center place to help to support those strong demand.

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Daniel Yen, Morgan Stanley, Research Division - Research Associate [4]

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I see. So could I just a follow up on 1 question. So what's your revenue breakdown for fourth quarter?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [5]

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In the fourth quarter, and I think on the DP, we're slightly lower 45%. And our high-speed or PS product line, it's about 35%. And our TC, which is a source driver, is above 15%. And our [TT] is around 5%.

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Daniel Yen, Morgan Stanley, Research Division - Research Associate [6]

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I see. So compared to the fourth quarter, basically for high-speed interface, the mix is lower. And for -- right?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [7]

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Yes, go ahead.

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Daniel Yen, Morgan Stanley, Research Division - Research Associate [8]

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Yes. So for high-speed interface, the mix is lower. But for your CP driver IC, the mix is higher. I recall that for high-speed interface, usually it has a higher margin. So why it looks like the product mix is inferior, but the margin goes higher? I'm not sure if my understanding is correct.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [9]

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Okay. When we said, for example, the DP, 45%, right -- and those are our Tcon device. And within the Tcon device and whether you sell eDP 1.2 solution or eDP 1.4 solution or gaming type of Tcon solution, the gross margin is different. So it's not that simple to compare the PS and the DP and the -- proportionately. So I think the wonderful favor us is that we ship quite a lot of -- in the Q1, a lot of gaming type of Tcon device along with the source driver together. So we have a bundled solution together. It's in favor to us.

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Daniel Yen, Morgan Stanley, Research Division - Research Associate [10]

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I see. Yes, got it. So second question is regarding your PCIe Gen 4 retimer. So this morning, one of your potential competitor, which is a Chinese company called Montage, they held a conference call, and they mentioned that they will also get into the PCIe Gen 4 retimer business. And they stated that they already [take out] last year and will be ready for mass production by the end of this year. So my question is regarding, firstly, on the competitive landscape right now, what you are seeing from the supply chain. And also, what's your current progress in terms of timing of the ramp-up?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [11]

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Okay, we -- as we reported, we have made a start for PCIe Gen 4 retimer for sort of a small volume production with our tier 1 customer already. And so PCIe Gen 4 retimer, we have both solution with 4 lane and 16 lane. The devices, the small volume go with a customer. So we continue to see, in the Q1, we scored many tier 1 design wins, whether the [public --] know who are those customers and also go through the tower [ODMs.] And so I think we knew Montage, but I'm not sure how much would they do in the PCIe Gen 4 retimer. Or seems to me, it's a bit late in the -- for the current game, right? To the current game. We have been working on the PCIe Gen 4 retimer as we -- well, maybe more than 1 year. It is more than 1 year, and the customer -- tier 1 customer would know us pretty well. And the device has been in top returns with many -- whether Intel or AMD or [any disk] as well. So -- but we are confident that we are becoming one of significant player in PCIe Gen 4 retimer space.

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Operator [12]

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Next one. I have Bruno Cheng, Nomura.

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Bruno Cheng, Nomura Securities Co. Ltd., Research Division - Analyst [13]

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Can you hear me?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [14]

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Yes. I hear you very well.

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Bruno Cheng, Nomura Securities Co. Ltd., Research Division - Analyst [15]

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Okay, great. I have 2 questions, actually. First one is, if we look into the second quarter by segment, could you please give us some color on the growth potential by segment in second quarter?

And my second question is about long-term question. I mean, we know that the PC demand is quite strong in second quarter. And I'm just curious about the demand sustainability into second half. Could you give us some color?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [16]

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Okay. So thank you very much for the question. And first question, in terms of current demand or driving force for the Q2 business, I think overall, it's a system-level in PC, tablet and the Chromebook. Being more specific, our product segment is really the -- our high-speed PS device is in the very high demand, in the surge in demand. And more importantly, I would like to -- yes, when I mentioned this, we are winning the market shares for the panel solutions. And we are shipping large volume with the panel, the bundled solution to our customer. And that's become one of the bright point for our business in Q2 as well. So -- however, in the overall -- if we look at the overall, in Q2, you, in fact, see almost all the segment we have served to full segment. And the demand all are pretty strong, but the particular strong is our high-speed device and bundled sale to the panel customers.

In terms of second question, you were looking for the -- what -- in the long term for the second half of 2020, what the business looks like. And in the Q3 and this moment, we could see kind of Q3, what the world looks like. I said we'll say Q3 will maintain the traditional PC seasonality that the Q3 is a strong quarter, right? It's a strong quarter compared with Q1 and Q2. And we think that this year, Q3 remains a strong quarter.

In terms of Q4, and Q4 -- the current COVID-19 pandemic, it does create an unusual uncertainty there. So the Q4, I would like to wait to see what will be the Q4. I think it's a bit early to say what it will look like Q4. I do want to point out that in the -- with our Q2 guidance and our actual Q1 number, our first half 2020 versus 2019 first half grew quite a lot. So we are pretty confident. And I think Q3, we think we have the strong quarter as well. I think the second half should be pretty good -- should be pretty positive overall, even though the Q4 will still remain kind of uncertain because of this COVID-19 situation. There's going to be more change and probably more bigger than it used to. So we are like waiting to see.

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Operator [17]

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Next one to ask questions, Peter Chan, CIMB.

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Yiqun Chan, CIMB Research - Research Director [18]

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I have 2 questions, one on Fresco, one on the PCIe again. The Fresco -- the technology of Fresco Logic, this current acquisition is certainly exciting news. Just wondering how -- would you give us some background on the Fresco's customer landscape. As I understand Fresco, they do share one major customer with you. And that's probably their own -- their most significant customer. And as I understand, that's iPad, and there may be other opportunity. So I'd like to hear some more background on that.

And also on the supply side, would you give us some background about the -- how Fresco supply chains like and how that could be compatible with your current supply chain strategy? And together, 2 companies, how may the synergy of the IPs together form the competitive edge and some -- perhaps some new products could be produced leveraging the IPs from both sides? I'd like to hear more about the long-term prospect of that.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [19]

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Okay. And the first one on Fresco, and we are really looking for the long-term strategy. And we believe USB4 will be a significant interface and with high-speed there to play in the industry and it will be everywhere. And also, we'll have more different devices associated with the USB4. So really, the key theme to acquire the Fresco is because the future technology or IPs. And that we think with our high-speed security with Fresco's protocol expertise will make us much stronger in the USB4 area or USB -- after USB4, and that will help. And the Fresco's key engineered talents used to work in the Intel, and that has been early leader for USB 3.0, and they have been licensed there at core to the Intel on USB 3.0, right? So really, the -- in terms of the current revenue strength, yes, they are -- had a win with previously one of our key customers, and we understand that they will be on the -- this key customer for the coming platform -- coming devices as well as the USB-related device. Both revenues are good for us. However, the more key thing, if I emphasis, it will be our future -- fulfill our future road map to more big picture on the USB4. And I think Fresco Logic and the people, if the key players, if we know the history, they were very early guys develop the PCIe Gen 3, the larger core portion. So those guys are also pretty expertise on those areas. We think also will help us on the PCIe Gen 4, Gen 5, those devices. So we're looking for the more on the IP side and technology side for the synergy of 2 companies together.

And you had a question in terms of supply chain. After a period of time, the Fresco product will be manufactured by Parade and will go through the supply chain, and that might have a transition period. And after that, it will all go to the Parade.

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Yiqun Chan, CIMB Research - Research Director [20]

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I see. So they are not currently using UMC fab like most of your products do. Is that correct?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [21]

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I think they are using -- [quite] many UMC and also TSMC. And I think that's the 2 key foundry they are using.

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Yiqun Chan, CIMB Research - Research Director [22]

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Okay, okay. I see. I was under the impression they go through Faraday and then using the UMC fab. I didn't know they have a multiple fabs. Okay. And the -- it's correct that they share the one big very customer with you, and that's probably their most significant customer?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [23]

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They have many customers. This customer will be one of their most important. And they have currently a lot of customer on the docks, dongle, cable and the PC as well, many overlap with our customers. And yes, they have one customer and -- or will be the one-of customers they will share with us. And in fact, we will reach that customer with some discussion and that may have a more synergy for us because we work with this customer pretty closely as many people you know that. And the customer is very happy to see us to acquire the Fresco Logic.

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Yiqun Chan, CIMB Research - Research Director [24]

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Okay. Move on to my second question on the PCIe. Could you give us some update on the PCIe 5, the status? As I understand, the PCIe 4, of course, is ready. And this year, Parade is rolling out the PCIe 5 products. And how would these 2 products -- since they co-exist the market within a very short time frame, how do you see customers going to adapt the PCIe 4 over PCIe 5? And what they -- for each of them, what's the revenue stature going to look like in the next couple of years?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [25]

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I think that we are working very hard to develop PCIe Gen 5, 32-gig per second, the retimer device. And we will have an example in the second half to [example to] our key customers. So yes, the -- Intel pushed the PCIe Gen 5 as well. However, I would feel -- the PCIe Gen 4, the current customer will sustain, will use PCIe Gen 4 for a while. The reason being is PCIe Gen 5, the speed is 32 gig bit per second and the technology barrier to make a system work seamlessly is much tougher, right? It's really the big system with many high speed there. Then likely, the PCIe Gen 5 and PCIe Gen 4 are being compatible. And so to us, yes, we are open-minded for the customer which device they want to use. We will support them. But we couldn't see more customers are designed in PCIe Gen 4 retimer device. And I think it's a consensus, the PCIe Gen 5, we'll have the example later this year and the designing and everything. Maybe take a year to qualify the system. So we'll be -- the production of PCIe Gen 5, it could be 2022 story, right? So -- and the PCI Gen 4 will sustain for a while to support our customers.

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Yiqun Chan, CIMB Research - Research Director [26]

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Okay. So I guess we can say that PCIe 5 lags PCIe 4 about 1 year in terms of a production ramp-up?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [27]

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I think a 1.5 year. Yes, 1.5 year probably. Yes.

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Yiqun Chan, CIMB Research - Research Director [28]

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Okay. And just one last follow-up on that. What is the delta between the ASP? And do we expect better ASP for PCIe 5? And if so, how much better? And does it require more expensive technology?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [29]

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Okay. Yes. Yes. The PCI Gen 4 -- for example, we have a 16 channel and 4 -- 16 lane and 4 lane devices. So the price are pretty high. And PCIe Gen 5, the price will be even higher, okay? And because of the complexity, because of the speed and because you need -- using more advanced technology to design it. So it shouldn't be a surprise that the price will be higher. And that system cost will go high as well. So that's what I say, the PCIe Gen 4 could last for a while. And PCIe Gen 5 [is --] will be a very expensive device.

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Yiqun Chan, CIMB Research - Research Director [30]

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Does it require using a more advanced technology? For example, right now, most of your products are on 14 nanometer. Would you require -- would you need to use a 28-nanometer, for example, for PCIe 5?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [31]

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Yes, probably, yes, for sure. Yes. It's more advanced technology. So for sure, we have to.

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Operator [32]

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The next one calling Jerry Su, Crédit Suisse.

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Jerry Su, Crédit Suisse AG, Research Division - Director [33]

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My first question is regarding -- I think the market has been expecting your major customer [or the] first customer could go -- could adopt the ARM-based CPU going forward. I don't know how will this change or impact Parade's high-speed and also the DP business going forward? Is there going to be more opportunities, especially you have acquired Fresco Logic. Could this help to get into here -- I mean, your customers' USB controller business?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [34]

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Okay. Yes, there are many rumors on the market and the customer may adopt their own -- the AP process to do the notebook. And I think for -- in terms of our panel solutions or eDP panel and Tcon, I don't think there is much difference between the -- what -- current we have or future we will have. So they are very similar because they have eDP. The interface for -- have been long time.

In terms of the high-speed device, we have been with -- we work with them on their dongle and they are inside the device. We continue to promote our solution to the customer and the customer know us very well for our high-speed solution as well. So we hope and with the Fresco Logic, we may be able to win more the customer solution with them. And I think that as long as we know at this moment, the customer is pretty happy with us to acquire Fresco Logic. And the comment was that the Fresco Logic team, the [expertise] of the PCIe Gen 3 -- PCIe -- on the USB are pretty good, and they want to see the financial strength in the company like Parade can take responsibility, make the customer happier for that business. I think because as a start-up, they are concerned financially, right, even though you have good technology. So that's as far as I know. But if you want to see the weather, we could have a more design opportunity. I think we'll wait to see, and we will continue to engage with them and see whether there are opportunities there. Overall, I would think the people move to the -- their own [AP] process is not much different from whatever we do currently.

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Jerry Su, Crédit Suisse AG, Research Division - Director [35]

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Okay. So can I clarify that? I think right now, you have pretty limited exposure or content on the USB side for your customer...

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [36]

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We have the converted device in their system, right? We have the DP to HDMI converter and the device there. And the USB C has become [blurred] because they carry DP and they carry USB traffic, right? And as we said to the previous who asks us, yes, Fresco will have a device to design to their system, maybe some systems. That's the first step. That's become a first step for us to engage with them more in the USB segment, right? So they are the same team, and we know pretty well. And we also work with them to design high-speed converter size, more custom device with them as well. So I don't see the -- much of a barrier for design activity, but we just started to inform them. So I would like to wait to see whether we will have a real opportunity to report to the investment community.

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Jerry Su, Crédit Suisse AG, Research Division - Director [37]

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Okay. Got it. And then second question is regarding, I think, a pretty hot topic, mini-LED. I'm just wondering what is your view on your -- [seen in your] first customers, your -- their adoption of the mini-LED? How much volume should we expect? And then for Parade, how could this help on your content in -- within your customer? Is that going to be increasing numbers of chips or more wafer area or higher pricing? How should we think about it?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [38]

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You know we cannot talk about our customer. What do they have to know? I don't even know what is their volume and those kind of things at all. So -- but in general, the micro-LED solution, the price range came very -- pretty big, right? And it depends on how customer [partitioning] their systems and how do they do the architecture, okay? I previously already reported that because we are -- first generation already shipping in the XDR monitor. People probably love that monitor even though it's very expensive. We already done second generation of the similar technology, the Tcon and another device together. And I just don't know what is the percentage sharing, and I don't know when it will go to market. I don't know what the volume would be. But I just try to remind people that the price range can spread pretty big between the different systems, okay?

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Jerry Su, Crédit Suisse AG, Research Division - Director [39]

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Okay. But for Parade, should we think about that, you can have additional chip going into this kind of structure? Or it's going to be same chip but with a bigger die size area?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [40]

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I think the chip will be similar with our Tcon device. But for some systems, they do have another device there. So it's a combination of whether you need 1 chip or 2 chips and those kind of things.

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Operator [41]

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Right now, we're having Martina Huang, Fubon.

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Ruijun Huang, Fubon Securities Investment Services Co., Ltd. - Research Analyst [42]

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I have 2 follow-up questions. Could you give us some ideas about bundle sales adoption rate of our DP products?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [43]

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Could you say that again? I didn't get it clearly.

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Ruijun Huang, Fubon Securities Investment Services Co., Ltd. - Research Analyst [44]

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We talk about bundles sales increase in first half. So could you give us some ideas about bundle sales adoption rate of our DP products?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [45]

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Oh. Okay, good. And I'm glad you asked this question. And I think within our Tcon, you are talking about a bundled sales range, right? And I would think if you take away our standard plus customer. And currently, our bundled sales percentage should be quite high. I would think -- probably the real number -- you might ask Yo-Ming to calculate it. But the recent design win we have, and particularly in China, the panel vendors, almost all are bundled sales solution.

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Ruijun Huang, Fubon Securities Investment Services Co., Ltd. - Research Analyst [46]

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My second question is in terms of gross margin. Can we expect continuing going up this quarter [due to your promise?]

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [47]

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If we can -- so we take our guidance very seriously. And yes, we will maintain, as I said at previous conference call as well, that we will keep our guidance for coming quarters and until we see significant difference, we'll make an adjustment. But I cannot guarantee that we would not exceed, in some cases, just like the previous quarter and exceed a little bit and like I think a 0.1% or something. So it may happen because this gross margin thing is not totally predictable and because the product mix within the quarter can change.

So anything it should be very close to our guidance, very close to our guidance, within our guidance. And that's as much as I can say, okay?

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Operator [48]

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Next one to ask questions, [Song Dan Aiyu] from [Solomon] Investment.

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Unidentified Analyst, [49]

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Yes. Sir, on your Q3 demand, where you said that predominantly it's going to be the seasonally strongest quarter for you. Do you see your high-speed segment picking up from Q3 onwards? Or would the mix be predominantly similar in terms of demand driven by the display segment only? Can you elaborate a bit more on how you see the high-speed segment in the second half?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [50]

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Let me try to answer it. And I'm not sure I hear exactly correct. And the question more towards the Q3 demand? And yes, in the second half, is that...

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Unidentified Analyst, [51]

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Yes, yes.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [52]

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I think the Q3 demand, PC -- for PC, it's a pretty well known, Q3 is the strongest quarter for PC traditional seasonality. And now we think this year, we will see the same thing. Q3 will be stronger quarter among the whole year, and yes, with -- for the Q2, the Q2 pretty strong. I think Q3 remains strong. The driver strength -- the driving force behind this is really the PC demand and also our panel and our panel solution and our high-speed solution and got a lot more adoptions in those systems.

In terms of the second half, and I had said because the current pandemic COVID-19 create a lot of uncertainty. And the Q4 is still a little far from our forecast or prediction. So I would like to wait for project our Q4, the strength of -- revenue strength, those kind of things.

But overall, we think Q2 -- the second half of 2020, probably still will be better than the Q1. That's as much as I can see.

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Unidentified Analyst, [53]

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Got it. So why as -- this is traditionally, we have had a very strong Q3, where Q3 sequentially has grown in double digits over Q2. Given the strong commentary for Q2 that we are giving, should we still presume that the seasonality effect will continue in Q3 with a double-digit kind of number? Is that the kind of visibility that we are having now? Or how should we look at this because...

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [54]

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Yes, yes, I have a kind of a visibility there showing us that Q3 will be a strong quarter.

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Unidentified Analyst, [55]

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Okay. And on the high-speed side, HSP segment, when do you see your high-speed segment picking up?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [56]

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When or where?

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Unidentified Analyst, [57]

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When, when.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [58]

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Okay. We have shipping quite a lot of high-speed device in the PC space or in the -- some of in the server space as well. I think you really referred to the PCIe Gen 4 retimer type of thing. I would think the volume is more like a quarter later, or the Q3, Q4 type of thing. But again, as I said a couple of times, PCIe Gen 4 is an expensive device. Unit-wise may not -- they're not a high-volume unit for the -- but the price is higher, margin are higher. So those are the scenarios we see, okay?

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Unidentified Analyst, [59]

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Okay. Okay. And given that...

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [60]

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I would think it's more towards the margin side of improvement and also secondary for revenue side improvement.

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Unidentified Analyst, [61]

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Correct, correct. That's what I was trying to say. Given that our margin profile has improved with changing product mix even with better products on the display side, should one see a different range in terms of our margin profile incrementally going forward given the fact that the -- all the segments are moving towards a much better product mix with a better demand there?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [62]

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Okay. Yes, yes. I just explained to the others as well that we treat gross margin guidance very serious. And we think next couple of quarter, we will remain at the similar -- the guidance for gross margin. As we experience more volume of a PCIe Gen 4 retimer, at that time, we may look at it or predict -- may look at it differently. We will report to investment community or our investors -- and yes, maybe differently by that time.

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Unidentified Analyst, [63]

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Got it, got it, got it. On the demand in the data center side, or -- is there anything more broad -- from a broader perspective that you could provide could be picking up the overall demand for us incrementally for, say, in Q4 or that could actually change your outlook for Q4 and onwards?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [64]

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I think at the data center, we are working with our big customer and a few of big customers for the PCIe Gen 4 solutions. I hope that by the Q4, there are more volume shipment. However, this COVID-19 pandemic thing make us a little bit nervous to project, to see what is the Q4 or beyond. I really want to wait to see customer -- what does the customers tell us, right? So -- because this COVID-19 more or less will impact the overall global -- the economy and that's big picture. So I prefer to wait to do a Q4 projection.

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Operator [65]

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I'm sorry, to interrupt, sir. We still got other attendees within the line. So I'm going to put you back in the conference. Okay. Thank you. Yes.

Next one, we're having Mike Yang from Bank of America. Okay. I don't think Mike is now in the conference room anymore. So we are going to move on to the Chinese Q&A session.

(foreign language)

Goldman Sachs, Thurston Lee.

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Thurston Lee, Goldman Sachs Group Inc., Research Division - Business Analyst [66]

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Management (foreign language) Congrats on the good results. (foreign language) Product mix (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [67]

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So Q1 (foreign language)

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Thurston Lee, Goldman Sachs Group Inc., Research Division - Business Analyst [68]

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Q1, Q1.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [69]

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So Q1 EPS is slightly lower than 45%, PS is about 35%. PC above 15%. [TT,] about 5%.

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Thurston Lee, Goldman Sachs Group Inc., Research Division - Business Analyst [70]

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(foreign language) contribution (foreign language) 5% 7%, 10% (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [71]

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(foreign language) with the customer. More and more models. We are careful with more and more models. It's still difficult to predict [what are] percentage. (foreign language) to the figure percentage-wise (foreign language) customer (foreign language) do customer like it and do they order more? (foreign language)

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Thurston Lee, Goldman Sachs Group Inc., Research Division - Business Analyst [72]

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(foreign language) You are working towards Thunderbolt. (foreign language) You have interoperability with Thunderbolt III. Now we have -- there are vendors that are working on Thunderbolt II, Thunderbolt IV. And yet, I'm trying to get a sense of how you think the competition landscape do you think is changing, whether or not we're going to be better positioned or how differently are we going to be positioned when we head into USB 4.0 considering the additional Thunderbolt in the whole picture?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [73]

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Okay. Good question. (foreign language) decide that USB (foreign language) for Thunderbolt solution. Now Fresco Logic team, the original detail came out, and Intel, even now, continue to work very close. (foreign language) process for Thunderbolt solution. Now USB 4.0 very powerful standards. Now because Thunderbolt plus USB's platform, now decide Intel initiative-wise (foreign language) USB for the louder - where you have the louder, where you have many things. Now USB 4.0, it will have a continued growth (foreign language) sort of acquisition (foreign language) the expertise.

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Thurston Lee, Goldman Sachs Group Inc., Research Division - Business Analyst [74]

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(foreign language) position-wise (foreign language) competition (foreign language) turn towards Thunderbolt structures, underlying structures (foreign language) of Thunderbolt (foreign language).

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [75]

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(foreign language) USB 4.0, for the USB category, the device (foreign language) become clear the leader for this tier 1 customer (foreign language), the Thunderbolt USB for the solution (foreign language) for PC (foreign language) platform solution (foreign language) original Thunderbolt teams are close. It's in Oregon. Teams are close. (foreign language) mostly develop stronger earlier systems.

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Thurston Lee, Goldman Sachs Group Inc., Research Division - Business Analyst [76]

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(foreign language) follow-up (foreign language) the IT manager (foreign language) USB (foreign language) just for market (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [77]

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(foreign language) India. Now more or less, they need to secure the USB to the host controller to the business. (foreign language) to the platform. So the AP process, (foreign language) so the USB 3.0 (foreign language) now USB host very useful (foreign language) Now USB host, controller (foreign language) the industrial, the design (foreign language) the design (foreign language) the industrial design (foreign language) mainstream, for the, let's say, 2 or 3 years later (foreign language) mainstream (foreign language) USB 4.0 (foreign language) eventually, [Samsung] device more or less, could be integrated. Now together, the business USB side, the USB, the (inaudible), the timer (foreign language) [the figure out how to work] the device, the router [to favor the] device, peripheral device. USB 4.0, Thunderbolt switch, you have a new category device.

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Thurston Lee, Goldman Sachs Group Inc., Research Division - Business Analyst [78]

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(foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [79]

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(foreign language) targets by a few years later (foreign language)

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Operator [80]

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(foreign language) Yuanta Research, Steve Huang. (foreign language)

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [81]

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Okay, hello? (foreign language)

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Judy Wang, Parade Technologies, Ltd. - CFO [82]

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(foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [83]

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(foreign language)

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [84]

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Judy, Yo-Ming (foreign language) follow-up (foreign language) PCIe 4 (foreign language) more production (foreign language) Q4, more volatile (foreign language) COVID-19 uncertainty (foreign language) second half and then [goal] to launch (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [85]

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Seeing the customer indeed need assistance on the statement (foreign language) Based on when I talk to the customer, Q3 (foreign language) but Q2 second half, [we're] in production.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [86]

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(foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [87]

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American customer (foreign language)

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [88]

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(foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [89]

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Q3, Q4 may have a difference (foreign language) volume with significant difference, right?

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [90]

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(foreign language) seasonality (foreign language) Q1 I think above seasonal. Q2, I think a growth quarter (foreign language) Kind of second quarter, usually a down quarter (foreign language) notebook, chromebook (foreign language) remote study, working from home (foreign language) the demand (foreign language) demand based on (foreign language) communication (foreign language) second half (foreign language) disability (foreign language) double figure inventory to overbooking (foreign language) work from home, bigger momentum in second half will be slow (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [91]

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(foreign language) panel side (foreign language) market share (foreign language) contribution Q3 (foreign language) Even on the PC demand or high-speed demand, Q3 (foreign language) up quarter (foreign language) COVID-19 (foreign language) industry could believe working from home (foreign language) COVID-19 prove work at home very doable and very necessary. Now actually even if COVID-19 gone, the momentum to demand PC, data center, internet. (foreign language) work at home productivity continue (foreign language) avoid the commute, avoid the train commute. (foreign language) PC, tablet, notebook demand. Yes, it will last pretty long.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [92]

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Yes, okay (foreign language) new norm.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [93]

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(foreign language) Yes, for sure, it's very expensive (inaudible) instead of you work at home.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [94]

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(foreign language) employee work from home (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [95]

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(foreign language) has been practicing. First of all, all of our employee are healthy and all are good. (foreign language) practice work at home for 1.5 months. In fact, our office is excellent, continue open. (foreign language) office, washing the office, (foreign language) work at home.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [96]

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(foreign language) sustainable?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [97]

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(foreign language) sustainable (foreign language) you can clear see industrial leader take into consideration, "Why do I need to commute anymore?"

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [98]

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Okay, okay. Got it. (foreign language) second quarter complete (foreign language) second quarter, the guidance, your particular deal gains (foreign language) 2% (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [99]

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(foreign language)

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [100]

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Okay, okay. (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [101]

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That's what we hope.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [102]

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All right. (foreign language) AMOLED (foreign language) mass production, this is the concurrent [parameter down] for the (inaudible) deal.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [103]

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(foreign language) strategy (foreign language) AMOLED for general notebook costumer. More or less, (foreign language) on previous years, (foreign language) AMOLED (foreign language) AMOLED platform for notebook or tablet (foreign language) they will continue that (foreign language) second half or sometime (foreign language) revenue contribution (foreign language) mature. Those matured (foreign language)

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [104]

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Okay. (foreign language) Tablet (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [105]

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Both (foreign language)

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [106]

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They both will see some revenue contribution from second half?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [107]

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(foreign language)

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [108]

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(foreign language) different (foreign language) AMOLED (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [109]

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Yes (inaudible) is glass-based. So kind of (foreign language) Notebook or the tablet customers (foreign language) costs are more competitive

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [110]

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Okay. (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [111]

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Yes, yes, yes. Steve, we did a lot of good research. Among (foreign language) AMOLED and the touch device (foreign language) the touch device, the customer engaged, the device performance looked very encouraging. The device (foreign language) more of an AMOLED, (foreign language) touch solution, particularly the smartphones.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [112]

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(foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [113]

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I hope so. That is (foreign language) it is not strategic important to us.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [114]

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(foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [115]

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(foreign language)

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Operator [116]

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(foreign language) Morgan Stanley, Daniel Yen.

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Daniel Yen, Morgan Stanley, Research Division - Research Associate [117]

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(foreign language) if we can extend out this (foreign language) PC (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [118]

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(foreign language) customer, sorry, notebook customer, they're screaming for parts, okay? They're screaming for parts. We must calculate everyday the (foreign language) delivery time. Now Q3 (foreign language) the panel side, you gain significant market share with Q3 more contribution. Now on high-speed device, so far, (foreign language) Q3 has (foreign language) so far, okay? (foreign language) sort of pandemic, (foreign language) a lot of impact in economy in a big way. Now what keeps uncertain for Q4 and Q3 -we continue grow, that's as much as I can share. (foreign language) customer (foreign language)

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Operator [119]

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(foreign language) [Warren Chu], (inaudible)

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Unidentified Analyst, [120]

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(foreign language)

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Judy Wang, Parade Technologies, Ltd. - CFO [121]

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Okay. (foreign language) PPA, purchase price allocation (foreign language) PPA (foreign language) Q2, [as a whole,] is closed (foreign language) PPA (foreign language) Q2, the forecast, they may also require (foreign language) PPA (foreign language) For Q2, the purpose, (foreign language) Q2 (foreign language)

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Unidentified Analyst, [122]

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(foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [123]

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(foreign language) You mean the AI machinery type of thing or...

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Unidentified Analyst, [124]

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(foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [125]

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(foreign language) you need a forecast (foreign language) Yes, that's as much as I can say. (foreign language) purchase come with a purpose at all.

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Unidentified Analyst, [126]

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Okay. (foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [127]

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(foreign language) PCI Gen 4 when they compete with each other (foreign language) remain the competition. (foreign language) for the customers (foreign language) The customer have some concern, it's a start-up.

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Operator [128]

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(foreign language)

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [129]

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Okay. Thank you, everybody.

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Judy Wang, Parade Technologies, Ltd. - CFO [130]

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(foreign language)

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Yo-Ming Chang, Parade Technologies, Ltd. - IR Officer [131]

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(foreign language)