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Edited Transcript of 4966.TWO earnings conference call or presentation 1-Aug-19 6:00am GMT

Q2 2019 Parade Technologies Ltd Earnings Call

SANTA CLARA Aug 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Parade Technologies Ltd earnings conference call or presentation Thursday, August 1, 2019 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. - Associate Director of Finance

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Conference Call Participants

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* 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

* Samson Hung

HSBC, Research Division - Research Technology Analyst

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Presentation

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Operator [1]

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Welcome, everyone, to Parade Technologies, Ltd. 2019 Second Quarter Webcast Investor Conference. Investor Relations of Parade Technologies, Mr. Yo-Ming Chang, will present 2019 second quarter financial results first. (Operator Instructions) And 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 also will remain last 15 minutes for the attendees who would like to ask questions in Chinese. Please follow the instructions given at that time if you would like to ask a question.

(foreign language)

And now I would 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. - Associate Director of Finance [2]

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Thanks, Jason. Welcome, everyone, to Parade Technologies' 2019 Q2 Webcast Investor Conference. Parade Technologies' second quarter 2019 consolidated revenue was USD 90.7 million, and the net income was USD 17.57 million. Its both basic and fully diluted after-tax earnings per share were USD 0.23 and USD 0.22, respectively. These results compared to consolidated revenue USD 75.67 million and a net income of USD 12.32 million or USD 0.16 and USD 0.16 per basic and fully diluted share in the year ago quarter.

In U.S. dollars, the second quarter revenue decreased 3.22% sequentially and was up 19.86% year-over-year. The gross profit in the second quarter of 2019 was USD 38.1 million, a decrease of 2.91% from the previous quarter and an increase of 22.71% compared to the same quarter of last year.

Based on the current business outlook, Parade is providing the following guidance for the third quarter of 2019. Revenue is between USD 95 million to USD 105 million. Gross margin is between 40% to 43%. Operating expense is between USD 20.75 million to USD 21.75 million.

(foreign language)

It is my presentation for the 2019 Q2 financial result. Now I transfer to CEO, Dr. Jack Zhao, to answer your questions. Jason, you may begin.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is coming from Jerry Su of Crédit Suisse.

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Jerry Su, Crédit Suisse AG, Research Division - Director [2]

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I think the first question I have is can you give us a breakdown of your second quarter revenue by each segment? And then what do you think about the outlook for the third quarter based on the revenue guidance you have provided?

And then the second question is more related on the new products side. I think we would like to have an update on your latest progress on the data center, especially I think the CPU -- I think both AMD, Intel have different timing of launching their new server CPUs. So what do you think about -- when can we see the PCIe4 business start to contribute revenue? And then the other new products are related to mini-LED backlighting. I think can you give us more color on Parade's role if the industry adopts these kind of solutions?

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

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Okay. Thanks. And I believe the first question is about the percentage of sales in the past quarter. In the past quarter, which is Q2 2019, our DP is slightly below 50%. Our PS is way above 35%. Our TC is below -- slightly below 10%. And our TT is higher than 5%.

The second question, I believe, is related to the -- want to have an update for our data center or our PCIe Gen 4, the status. Yes, we have a couple of design wins with our OEM. Really, it's on the other so-called [graphics card], which [proceed] to the PCIe Gen 4, the slot. And the graphics card is not related to which system to use, whether the AMD or Intel, they are the same. And we are doing -- currently doing the verification, qualification with our OEM customers. And hopefully, by the -- sometime, a couple of quarters, will be in the production.

And I would like to further report our 16-channel device, which is 16-channel PCIe Gen 4 in the lab, in the [Fab X]. We also really hope 16-channel device will come out soon. And I understand lots of the OEM customers are waiting for the 16-channel device. And so that's the -- we are exciting to see the PCIe Gen 4 device can go into the market quickly.

In terms of another side of our progress on the leading technology on the mini-LED type of backlight, as I have reported, we had the big first design into the production already. And many of you guys already hear announcement and now also being invited to attend the greater event to see this state of the art monitor. And we're already into the second-generation design to -- for the similar -- the technology and for other applications. So we're excited about the technology itself, and we think it will have applications for the high end, whether the monitor or type of thing or the monitor or other display segments.

Yes, the mini-LED -- the device for the controller is complicated because you would like to have timing sync for the front side and the back side. And you have to control the lighting such that the pixel by -- you're pixelate-focused and will allow the cross on the point.

So those are in good progress. And I would like to share with the investment community, those are the leading technology and hopefully and soon we'll have a revenue contribution to our business.

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Jerry Su, Crédit Suisse AG, Research Division - Director [4]

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Just a follow-up on the mini-LED. So I think you're implying that this should be -- the controller should be a different chip versus your current eDP.

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

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Yes. eDP is only interface, right? And depend on how would you sort of separate the chip. You could have a -- complete one chip, and then you may have multiple chips to have a different approach and to make the overall system more efficient.

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Jerry Su, Crédit Suisse AG, Research Division - Director [6]

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Okay. And what should we think about the content increase or value-add of -- if you use the timing control asset base, what kind of content increase can we forethink for coming into the mini-LED?

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

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It's a bit harder this moment to share with you the content information. I would like to wait for our customer to introduce this to the market. And I don't want to say too much and I may implicate the customer systems.

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Jerry Su, Crédit Suisse AG, Research Division - Director [8]

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Okay. Got it. And then back to the first question about the revenue breakdown. Can you give us more color about the outlook for third quarter by each different segment? Which one should see the stronger growth or which one is the weaker?

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

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We have been seeing our high-speed device and -- had pretty good accruals and actually, in fact, are getting stronger because the market adopt more high-speed device and the speed that goes higher. So that's doing very well. Our bundled sales, which is faster when we take them together, also doing quite well. I think mainly those are the drivers, and we continue to see those through the driver [wealth] going to the current quarter. And that's what I would like to say that we see the strength for our high-speed device, and the source driver bundled sale will kick off.

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Operator [10]

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And the next question is coming from [Rommel Chen] of Nomura.

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Unidentified Analyst, [11]

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And I have 2 questions. Regarding the PCIe retimer, I was wondering if there's any change on your TAM and market share expansion for this product. And how should we -- the second question is about how should we think of the growth momentum of the high-speed segment in next 1 to 2 years? Can we say it could be as strong as it was in 2018?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [12]

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Okay. We -- I think we'll continue modeling our PCIe Gen 4 business as what we think the market TAM, that would be like a 200 million to 300 million. And now we would like to be a key player in this market. And it looks like we are moving forward in terms of our technology, in terms of our position pretty nicely. And PCIe Gen 4 is a one-off generation. For us, we already start to move on to other things, start to develop the next-generation PCIe Gen 5, which has a speed of 32 gigabit per second and has been much more challenging technically. And so we hope we can have a -- pull up the gap so that we have a better market position and a technology position.

Okay. That's the -- in terms of PCIe Gen 4. And in terms of our overall high speed, the growth rate, we had a fantastic growth in 2018. I would think 2019 will be in a similar kind of growth momentum or strength as was 2018. And because we have that first half already gone and we see pretty good -- pretty happy to see our strength of growth rate for 2019 for high-speed device.

I think moving forward, in 2020, and I only can see that the driving force for us, which is really the PCIe Gen 4 is a new device coming, and the demand for the speed goes higher. For example, there's a USB 4.0 go to 20 gigabit per second, and HDMI 2.1 go to 12 gigabit per second. And those other things, which, fitting to our expertise, allow us to introduce more high-content device and go to the market. And certainly, the price and the ASP associated with those devices are relatively high. So we have positive to see the high-speed device continue moving along in the next couple of years with a pretty decent growth rate.

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Operator [13]

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And the next one is coming from [Jamie Yin, Allianz].

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Unidentified Analyst, [14]

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Congratulation for the result and also the good momentum into third quarter. I would like to ask -- the first question is about your touch [card] business, which is DP. Seems that your second quarter DP, mix-wise, is coming down a little bit, while revenue is flattish. And also the other thing is from your standards-plus customers' transcript, seemed that more price hike coming from accessories but not the existing devices. I'm wondering how do you think of this DP business in terms of standards-plus or standard products in terms of growth. Should we expect it will be like flattish in the future? Or can we expect some more good momentum in terms of units or ASP in which ways that we can think of your original and touch card business?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [15]

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Okay. Thanks. And I think the -- let's talk about the standard product line and our DP Tcon. And our new technology device, which is our TED, and also the -- we have a more advanced Tcon device for gaming, had a pretty good rate in the second quarter. And we continue a few -- those at high end of device will be adopted for the thing -- gaming type of -- 2 sides, the same panel, the narrow board panel, which is for business, and another side is for gaming player. And also we kind of continue to push the bundled sales for the low end on the eDP 1.2. That's our strategy for standard product and compete pretty well.

In terms of Q2, what you just said, I said Q2 is a typical and low season Q. And besides that, we also [ran in] to the [wealth] customer, putting to the flat desk and impact our panel shipment a little bit on the Q2. And in terms of our standards-plus customer, I think we're happy to see their quarterly report and the number actually is pretty good. I would think the iPad and the MacBook and the -- I think it's kind of normal, but it's better than the last year, right?

And with the new feature, especially I'm excited to see they had a dedicated iPad OS, and I believe we'll kind of generate to the market more momentum to use those device. So I would be -- I think it is positive for those features. And hopefully, on the September time frame, iPad will be much more useful. And a lot of rumor already out, and they are going to introduce more different type of notebook and/or size difference and those kinds. We are pretty positive for that business. And there are really headwind for us, and we try to see how to make -- everybody [ran] to those uncertainties. Hopefully, the uncertainty can be cooled down.

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Unidentified Analyst, [16]

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And how about the competition side in the standards-plus products? Any changes from your dominant position?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [17]

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Okay. I don't know -- we have any of those -- the competitor in our space, in our customers. And so far, we are doing very well, and our customers are very happy. We continue to work together, execute multiple projects together.

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Unidentified Analyst, [18]

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And my second question is more like financial maintenance issue. One is that for gross margin, seems that you have been doing a very good job beating gross margin, moving toward to the higher end of your guidance. Do you think that the product mix change can somehow lift your guidance range in the future? Or you are happy with the current 40% to 43% guidance for a while?

And also the tax rate, seems that the first half tax rate is relatively low compared with the previous guidance, 8%. How do we think about the second half and also the 2020?

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

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Okay. I would like to take the first question on the gross margin side. And I would like the second portion that Judy to answer for the tax rate type of thing. Okay? We are doing -- we are on our high-speed device. And as the device speed that goes higher, the complexity of the device increase significantly. And the customer base for those high-speed device are different. We were used to do on the PC tablet-centric and it may move to more on the data center, on the server side. And people on the high end side, they are looking for the solution, less concerned about the gross margin or the price for the chip. So that allows us to have a better product mix. So that's really, you'll refer to -- if you correlate our gross margin with our -- the high-speed device, you see a pretty strong correlation of that type of business, and we'll continue to see this.

And yes, we expect that the gross margin might continue appreciating that is favored to us. But when the -- we're ahead exceeding -- or exceed our current -- the guidance range, we were ahead of time report to share with you, the investment community. And so far, we are happy with our range. And we do see kind of -- as we're exceeding more on the high-speed device, and the gross margin will get better for product mix.

Judy, you might want to answer for second question for the tax rate.

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Judy Wang, Parade Technologies, Ltd. - CFO [20]

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Yes. Thank you for the question. Regarding the tax rate, like I mentioned in the previous couple of same earnings release conference, that we did mention the 8% is a model we use to do our income tax accrual. And this year, in the beginning, we already say we do expect some kind of a reversal of our previous year's income tax accrual. And also, we do enjoy some tax credit as a result of our -- because of the stock, people, they do the disqualified disposition. And the employee, they pay more tax, and then company enjoy that kind of tax benefit from our employees, paying more tax in the U.S. side.

So the effective tax rate will be low, especially in Q2 because we do have our employees, the executives that they receive their invested shares and they sell that and we see that in the 12 months' period, and then we create some tax benefits. I hope this answer your question.

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Unidentified Analyst, [21]

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Okay. So for the second half and 2020, should we still expect 8%, that kind of rate, if we do...

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Judy Wang, Parade Technologies, Ltd. - CFO [22]

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Say it again. Sorry, I missed your question. It's unclear.

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Unidentified Analyst, [23]

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Yes, we understand the second quarter why it's that low, but for second half and also 2020, should we expect the guidance -- your guidance before like 8% if we want to do the modeling?

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Judy Wang, Parade Technologies, Ltd. - CFO [24]

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Yes. You will not use 8% for your model. But in addition to the 8%, you -- we need to consider -- we do expect another median, the income tax reversal in the second half.

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Unidentified Analyst, [25]

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$1 million reversal. So that's...

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Judy Wang, Parade Technologies, Ltd. - CFO [26]

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Yes. That means a credit to the tax side.

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Unidentified Analyst, [27]

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Okay. So as high as 8%.

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Judy Wang, Parade Technologies, Ltd. - CFO [28]

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So will be lower than 8%.

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Unidentified Analyst, [29]

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Lower than 8%. Okay.

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Judy Wang, Parade Technologies, Ltd. - CFO [30]

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Yes. Because you use the 8% to calculate the tax expense, right? And then you deduct $1 million from that number.

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Operator [31]

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And the next one is from Samson Hung of HSBC.

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Samson Hung, HSBC, Research Division - Research Technology Analyst [32]

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My first question is the TDDI side. Could you share with us the progress in TDDI right now in terms of the customer adoption? And also I think because your TDDI is using the CoG packaging, so it has some cost advantage. But if we are looking for, say, like the material on the COF side coming down, do you still expect this kind of cost advantage to continue for you to compete with other competitors? That's the first one.

And the second question is on the longer-time side. When you look at -- I think you were now very promising on the PCIe 4 to be launching later this year or 2020. But there is also some talks regarding the PCIe 5, that's actually coming out soon. Just wanted to get your thought regarding PCIe 4 and 5. So do you think the PCIe 4 could be -- like how long do you think it will last? And then if the PCIe 5 coming out, do you still able to catch the first wave of the adoption? So that's my question.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [33]

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Okay. Let me answer this -- the PCIe question -- for PCIe question first, then I'll go back to answer the TDDI side, okay? PCIe Gen 4 is a significant technology, and we are -- as we explained, we have a device 4-channel. We've got a 16-channel, and we have an 8-channel as well. And we think that we'll have a pretty large deployment on the 2020 and moving on in the -- for many years. PCIe Gen 5 is a 32 gig per second device. As I reported, we already start the IP development and those kind of things, work with OEM and people like Intel to really define the device. And for such significant device development, in terms of technology on the speed side, you will take a pretty longer time. However, you might hear the people will have a first device such as for us, maybe next year, sometimes and wherever, such a first device come out. However, for people really put a system working the 32 gig and deploy it to market, it might take a couple of years.

And so I would think the PCIe Gen 4 at least has several years of lifetime before move to the PCIe Gen 5. It's just because of the complexity of a technology and leading the speed that goes up, there are many things where the impact include your cash, equipment and everything, okay? It's the infrastructure has to go out. So how I think of the PCIe Gen 4, at least a few years of life time, even though you start to see people like us already start to develop the PCIe Gen 5 device.

In terms of TDDI, and I would like to report, we have a few customers already using our TDDI device, already introduced their smartphone in the market. So you may happen to the people can buy our smartphone with our TDDI device there. And yes, as well you said that we have the CoG solutions. And that's different from the COF. And what a COF can provide you really is you can do very thin bezel for the smartphone, right? So -- and however, the COF, the solution is quite expensive. Even you use low-cost COF, you might do -- you have to add up $1 or $2 into the chip and into the -- on top of CoG.

And whether we have to introduce the so-called a 126 max solution, which make the CoG chip very thin, which means height very low, such that the people still can do narrow border but it's not as narrow as the COF. I understand probably 1 millimeter difference in their -- however, the cost side is it become more kind of advantage there. So that -- there is a competition between the COF and the CoG solutions. And we think on the mainstream and maybe lower and most of the smartphone continue use the CoG solutions. That's the answer to your first question, okay?

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Operator [34]

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And the next question is coming from Martina Huang of Fubon.

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Ruijun Huang, Fubon Securities Investment Services Co., Ltd. - Research Analyst [35]

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My first question is a follow-up question on PCIe Gen 4. Can we still expect PCIe Gen 4 retimer will have more small volume in the end of this year or early next year?

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

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Certainly, I probably -- the confidence for that increased versus the last conference call. Because we already see the customer, the testing and the results and those kind. So the confidence for that has increased.

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Ruijun Huang, Fubon Securities Investment Services Co., Ltd. - Research Analyst [37]

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We're talking about like a PCIe Gen 4 retimer as the market cap will reached USD 200 million to USD 300 million. Do we expect -- when can we expect this market cap?

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

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In terms of market cap, I would think it might be 2020, 2021 type of thing -- to fully appreciate that for to reach those kind of levels.

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Ruijun Huang, Fubon Securities Investment Services Co., Ltd. - Research Analyst [39]

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My second question is, can we talk about more about our bundle sales because after Huawei ban, do we see any change on vendor sale in market or -- because we talk about workforce customer to adopt more of [1.2] integrity cost?

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

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Bundle sales is our strategy. We pushed harder for -- started from eDP 1.3. And then now we go to more low end of eDP 1.2, and we have a pretty good success, as you clearly see our TC going up. I don't think that, that bundle sale has that much related to the Huawei ban. But we do -- because we had a -- the [3] kind software of Huawei's notebook. And I think that the notebook got a kind of -- because the CPU -- if you don't have a CPU, a customer has to, kind of, stop for a while. And that's a little bit impact, but not that significant for us that much. So we continue to push our bundle sales solution into the now extended the eDP 1.2 side. On the further but equivalent to our bundle sales with our TD solution, right? Because with Tcon, the software are integrate together. So that -- it's another force for us going to the more higher-end segment for customers to achieve very narrow results and the panel is very beautiful and the people start to see, and we know the multiple OEM adopt those panels.

And it looks good. So the TED deployed very quickly. The TED is a kind of your integrated bundle sales, if you were, right?

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Ruijun Huang, Fubon Securities Investment Services Co., Ltd. - Research Analyst [41]

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So do we think that the TED adoption rate is faster than bundle sale in the following quarters?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [42]

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TED is ramping up, and I think about the immediate current quarters different TED because the numbers start more and going up quite quickly and the several models going up. So in that sense, it is.

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Operator [43]

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And next, we'll have Steve Huang of Yuanta Research.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [44]

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Jack, I have a few questions for you. First, you mentioned that the confidence level for you to see initial sales contribution for PCIe Gen 4 in late of this year or early next year's increase. My question is, how about your confidence level for the second half revenue to be much stronger than first half? Also increase?

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

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Okay. Yes, I had to report a bit. That really relate to the particular product and a particular experience and a design stage with our customer, right? So that's what I say, the increase. And for the second half business versus the first half, in our industry, the semiconductor industry, especially consumer industry, traditionally, we're always, the second half is better than first half, right? And that this year has a lot of the headwind or a lot of the uncertainty amount -- our operating environment, because of tariffs, because of the spending and those kind of things.

However, we are pretty, kind of, positive or kind of confidence in our second half might still be better than the first half, I will say. And so that's what we -- so far, what we think. But it is very true, that the uncertainty on the market is pretty high because who knows, that something happen and suddenly cannot ship the product, and those kind of things, right? Or the customer suddenly got a more tax then they have to reduce it.

So uncertainty increased, but with the -- if a [security as of] today, in the second half, who will think that our second half was better than first half?

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [46]

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Okay. Yes. Because according to many, like camera makers, follow guidance, I think, almost often mentioned, that the consumer device for the second half is not as strong as the previous years. So I think the key reason that we have a higher visibility because of [comping that] increased higher ASP or are that instead of bundles solution that works, can we explain that for the second half was stronger than other semiconductor peers?

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

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I think the most -- that our business, why would it go, sort of, not for the quality with [panel guys,] our high-speed device, right? But which is pretty big, the chunk of our device. And I would always think that our standard process customer continue to do reasonably well, that's what we always knew. They're going to introduce a new device and there's iPad IOS will come out.

And we already gave our guidance for the Q3 which has a pretty strong confidence. So that really left Q4. And that's really the longer time and the availability is a nice, as good as Q3. So yes, I'm not sure how much we should call it with the [panel] guy. I would think, we see a lot of uncertainty, which in fact is that you have a lot of short-term people coming. And then you see the customers don't have a forecast, suddenly put a [queueing] and want to deliver in couple of weeks. And then you see a lot of those things coming in and you have to do a lot to achieve this. But I think we may end up with another side that as we gain in market share. Especially, we have now reported that much in before with a gaming platform. And recently, we do ship quite a lot of the gaming platform -- the panels. And that's kind of new to us, and we kind of enjoyed the gaming platform.

And so with the Q3, the number there are -- I think that's the uncertainty is the Q4. And I think we have a good chance to make a second half better than the first half.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [48]

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Yes. And Jack, you mentioned that you're standards-plus customers expected to launch more new tablet/notebook products. But how come -- when you mentioned the area of strength for Q3, you only say PS will be stronger, PC will be stronger, but you didn't mention DP. I think most of your standards-plus adoption is in the DP side. If they are going to launch more new products, how come DP cannot be your growth driver for Q3?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [49]

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Last year, if you compare sequentially, it is, okay? If you compare with year-over-year, it's not that obvious. Yes. Probably it's been better. It depends on what I was trying to say as a year-over-year type of advise.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [50]

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So PS and the PC are year-on-year comparison.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [51]

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I think that PS in particular, both year-over-year and quarter-to-quarter might go better. But the rest of -- we're using year-over-year type of comparison.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [52]

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Okay. So if we use the quarter-on-quarter, PS and the DP will be strong and PC probably not that strong?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [53]

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I think if we look at the season -- the quarter-to-quarter, I would think about, yes, DP definitely will go -- it's better than the -- DP will go stronger.

And I think whether PS will go stronger -- will struggle well but will be better as well, yes.

Yes. Yes, you look at the number we have guided it. That's a pretty big difference there, right?

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [54]

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Yes.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [55]

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Yes, it's pretty very different. I kind of more towards the year-over-year thinking that.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [56]

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All right. Asia investors, they tend to think your Q2 -- from Q2 perspective. That's why I need to clarify. Okay. And there's some technological questions, I would like to ask about, one is for the PCIe 4.0. So you always mentioned the 2 major platforms, like AMD or Intel, and my question is regarding like Asian chip makers, like high silicon, they also have their un-based CPU for their [survey] equipment, like Huawei, they have a compound -- CPU. Do those guys also collaborate with you for the PCIe 4.0?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [57]

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I'm not aware of this.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [58]

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Okay. So probably un-based CPU server is still not your third priority?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [59]

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We have a field of dedicated customer, which use the (inaudible) kind and it's keep us very, very busy. And yes, so are the Intel and these type of based solution.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [60]

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All right. And also, the AMD's new PC platform, they also have a PCI 4.0 as a key feature. Are we insisted in PCIe Gen 4 in the PC market? Or are we maybe target at the data center?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [61]

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Data center.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [62]

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Okay. So not just in PC.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [63]

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Yes, not on the desktop or those kind of things because I don't think at that stage -- any desktop is doing this. And besides, I would like to make sure that people understand, we are on a rising card, that's more where we play, not on the motherboard type of thing, right? Majority is on the rising card. [Especially] for several design we are doing with the customer or other rising card type of thing.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [64]

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All right. And then next is for the CEP, if they -- you see several models will come out in this current quarter. My question is in our product road map. Do you think about CEP for standards-plus customer, in the future?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [65]

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Not convenient for me to answer this one. I think it's very attractive and people look at it as very nice and very beautiful -- yes. I don't want to comment at this point.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [66]

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All right. But you, you can do a thing, the streamer or boarders, narrow-bezel for (inaudible) tablet, it's going to be a right trend in the future, right?

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

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For high end of business, it is. For the gaming, may not be that good, they go very different direction. And I think it moves very quickly, and that's another sort of direction, we put a lot of -- start to put many effort to see it. And it actually is a surprise for me, the gaming is going very strong.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [68]

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All right. And the next one is in terms of mini-LED, what do you think the first application would be? Would that be the smartwatch or a notebook or a tablet?

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

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The monitor already came out, right? It's a monitor.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [70]

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Monitor, you mean the one just released like HDR, that kind of just came?

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

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Yes.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [72]

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So when you refer to first-generation, you refer to this one, right?

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

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Yes. That's already there. That's a statement for the technology, right?

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [74]

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So that's a so-called first-generation mini-LED solution?

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

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Correct. And I had a opportunity to see -- invited to attend the WWDC, and I see this beautiful monitor. Actually, I think the next few months, it will come out, and it will be -- people will start to see how good it is.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [76]

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Yes. And my question is, though, what kind of application will it be, will a tablet second-generation mini-LED solution?

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

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I -- I don't exactly know, but I would think in a more common volume platform we have some lag where you will see a similar technology.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [78]

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All right. And regarding the first-generation, your key customer just only used like less than [600 bulb] LED to support this pick. Building a few, or not as many as mini-LED in those higher solution display is going to be a key trend? Or you still think a part of LED to support hybrid solution will be the key trend in the future?

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

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I think that that's too technical. I don't want to more discussion on this thing. And that -- but it is a lot of factor, how good your display is, how thin your panel is and how much cost you can tolerate, right? So those are the factors and those are factors. And our customer tend to do most of kind of decent display or most advanced display. So that -- they are also doing the trade-off and those kind of thing. But after, you need to see how good the -- how advanced the panel is. You need to appreciate how much electronics doing the device -- especially Tcon doing to make that happen. You need to think about how much you would do, and I hope the chip will come out and people will open up and see how complicated it is. A lot of thing is very different from the people had reported on the demo on the thing, and there are a lot of defects. And this one is perfect, okay?

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [80]

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All right. And next one is about TDDI. You mentioned that in Q4 and this Q1 your shipment volumes dipped to 1 million units. How about in Q2 and Q3?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [81]

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I don't know, but Q3 is -- I think is still I think in the -- getting close. And I didn't exactly know the number yet, but I think we are shipping some volumes, I will say.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [82]

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Okay. And the last question is about financial statement. I would like to ask Judy. Judy, for Q1 and Q2, we will see higher operating income compared with the previous several quarters. Could you give us some color what kind of nonop income in our Q1 and Q2 income statement?

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Judy Wang, Parade Technologies, Ltd. - CFO [83]

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Sure. You are talking about the other income, right?

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

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Yes, yes.

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Judy Wang, Parade Technologies, Ltd. - CFO [85]

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Yes. That's primarily a result of -- we make the investment in T bills. That's so-called a treasury bill. They bear the interest -- the annual interest rate about 2%. Especially in the beginning of the year, the interest rate is about 2%-plus. And recently especially the Fed has cut down the interest rate. So interest rate will be going down. So that is the primary reason for the other income.

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

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All right. So I remember in the old days, like previous years, Jack mentioned that the cash -- you just only put on the cash, that's you're -- based on your investment committee. So now that we put the cash into treasury, how could we model the nonoperating income going forward, either like maybe USD 500,000 or USD 1 million per quarter? What's the decent assumption for the nonoperating income per quarter going forward?

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Judy Wang, Parade Technologies, Ltd. - CFO [87]

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Okay. In...

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [88]

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Before Judy, I want to correct what Steve had said. Steve, we had said we put on the cash as cash. Our investment policy do allow us to invest in the U.S. treasury.

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Judy Wang, Parade Technologies, Ltd. - CFO [89]

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Yes.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [90]

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Okay. And previously, U.S. treasury does not getting too much of because the interest rate was very low with all the...

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Judy Wang, Parade Technologies, Ltd. - CFO [91]

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Very low, yes.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [92]

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Yes. It was like the market -- the money market and similar. I think recently or particularly the Q1 that had a more appreciable -- the money. We always thought the kind of T bill is like -- almost like a cash, very safe in terms of safety. Yes, okay. Yes. I think the second one probably, Judy, you go ahead and answer.

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Judy Wang, Parade Technologies, Ltd. - CFO [93]

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Yes. So I would say for your modeling I will use about $750,000 per quarter.

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

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USD 700,000?

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Judy Wang, Parade Technologies, Ltd. - CFO [95]

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$750,000.

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

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Oh, $750,000 per quarter?

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Judy Wang, Parade Technologies, Ltd. - CFO [97]

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Yes. This is for the interest income.

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

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$750,000 per quarter for the interest income?

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Judy Wang, Parade Technologies, Ltd. - CFO [99]

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Yes.

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Operator [100]

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Ladies and gentlemen, we're taking the last English question. And the last question is coming from (inaudible) of Continuum Investment.

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Unidentified Analyst, [101]

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I just wanted to understand the competitive scenario in the PCIe Gen 4. How is it currently in terms of where your peers are in qualification with the OEMs? And when we look at the $200 million to $300 million market size over 2021, what's the kind of market share that we are looking for ourselves in this segment?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [102]

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Okay. Yes. In terms of chip level, you would have the TIA that's the key and the competitor. And we start to hear by brokers who may do some, and we are the one. But so far, we have not seen the TIA has been delivered any meaningful -- the example to the customer yet. It may have a few of the Asia, the company or start-up between those, but we're not aware of customer use it or customer serious test it. And in terms of what you had, we had a report to our -- the investment community. And one of our goal we would like to achieve as a key player -- like the market share would be like 30% and type of the measurement. And that's what we have -- why we've put a lot of investment, a lot of effort into try to achieve those kind of market share.

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Unidentified Analyst, [103]

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Perfect. That's really helpful. In terms of the mix in the second half, I understand that we are -- at the current juncture, we are pretty confident of second half being much better than the first half. Could you provide us the driver between...

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [104]

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Yes. I think a bad...

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Unidentified Analyst, [105]

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Okay. I stand corrected in terms of -- okay. But so what would be the key monitorables that would lead to a much better second half, A? And for the current -- a better second half or first half, what's the kind of mix that we're looking at?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [106]

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Okay. And as we explained previously, our standard-plus customer for the DP side, for sure, we have pretty good under Q3 side. And I think those we're already taking consideration. And I think I'm certain in the Q4, if we continue to have our standard-plus customer maintain the momentum at the nominal seasonality, and I think we have a cash charge for the -- better than the second half to the first half. And then really the less impact or more, in Q3, sort of the stress for us is a high-speed device. Now our high-speed device -- the growth are very strong, and our customer demands are very strong. And also, those customer is not from 1 or 2 customer. Those customer is a part of pretty broad base, and our product portfolio for the high-speed is a product pretty broad. And I had a joke with the -- our -- internally. Our high-speed device, we decided 10 years ago, now still we feel pretty good about it. That's how big is product portfolio and the customer broadened it. So those are the pretty diversified customer and also diversify our product portfolio into the market. So our hybrid device still will continue to be the strength for our second half. And that's what I see the key point there.

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Unidentified Analyst, [107]

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Sir, I mean, in terms of the display drivers, Huawei's notebook did not see much in the first half so far. But I did read somewhere that the CPUs for the notebook, et cetera, has started coming in for Huawei. And the orders or supplies from them has started to begun. So what would be our take on that in terms of how much of a trigger could that be for our display drivers and the eDP Tcon segment from that notebook?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [108]

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Yes. We -- and if people know that -- and our customers, for example, the Huawei had forecasted a pretty big number for the Q2 to the moving forward. And it was before the thing happened. And unfortunate thing happened. And now as you said, we see they are starting flowing the CPU by starting computer, the notebook. We also think, yes, it is -- start to restart some of notebook computing. But the momentum compare what had us -- and what had forecast is very different, okay? And -- because it's only just started. I don't even know what it looks like in the moving forward. And so I'm not able to share much of information. I just confirm one thing. It is to -- we start to see some movement for the -- for our panel side again, yes.

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Unidentified Analyst, [109]

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So in your outlook for the second half, are we baking in anything for the panel segment to come in, in Q4 maybe? Or if that's something, then that would lead to a much better second half? I mean I'm just trying to...

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [110]

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We are not baking anything related to the server and data center at all. So if they are in, it will be a small amount, just started.

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Unidentified Analyst, [111]

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On the panel side?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [112]

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On the panel side, we took a pretty conservative approach. And we are -- our forecast always is a bottom-up. As I said in the beginning conference call, our customer and the impact of the semiconductor environment, customer are very conservative. And a customer do not want to get a bit long-term forecast. And you often see customer know forecast, but they need a part urgent. And more and more we see this kind of situation. So the -- I think you interest probably too many customers, and that's what we observe. Our customer are pretty conservative right now. Customer does not have -- kind of give us a lot of visibility there.

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Unidentified Analyst, [113]

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Got it. And sir, finally, I mean, when we look at the second half mix with high-speed being a much better margin profile compared to your display drivers or touch drivers, shouldn't our margin profile expand from here on, at least in the second half and then, subsequently in 2020, when you're in high-speed and data servers, et cetera, start picking in?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [114]

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We certainly hope so. We certainly hope so. We share your view. And if there are the favorable high-speed mix, our margin -- we are continuing to improve through the year. And I will think that yes, we are kind of typical power tool for that kind of the rush, but I really want to see the momentum continue to happen because that's where we are, yes.

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Unidentified Analyst, [115]

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Got it. And congratulations for your great execution.

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Operator [116]

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And we will now begin our Chinese question-and-answer session. (foreign language)

We thank you for all your questions. That concludes our conference for today. Thank you for your participation in Parade Technologies 2019 Second Quarter Webcast Investor Conference. You may now disconnect. Goodbye.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [117]

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Okay. Thank you very much, and goodbye.

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Judy Wang, Parade Technologies, Ltd. - CFO [118]

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Goodbye.

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Yo-Ming Chang, Parade Technologies, Ltd. - Associate Director of Finance [119]

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Thank you.

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Operator [120]

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(foreign language)