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Edited Transcript of 4966.TWO earnings conference call or presentation 31-Oct-19 6:00am GMT

Q3 2019 Parade Technologies Ltd Earnings Call

SANTA CLARA Nov 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Parade Technologies Ltd earnings conference call or presentation Thursday, October 31, 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

* Yo-Ming Chang

Parade Technologies, Ltd. - Associate Director of Finance

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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

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Presentation

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Operator [1]

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Welcome, everyone, to Parade Technologies Limited's 2019 Third Quarter Webcast Investor Conference. Investor Relations of Parade Technologies, Mr. Yo-Ming Chang will present 2019 Third Quarter financial results first, and during the presentation, all lines will be placed on mute to prevent background noise. And after the presentation, there will be a question-and-answer session in English by CEO, Dr. Jack Zhao; and CFO, Mr. Ju Wang. And we also will remain last 15 minutes for the attendees who 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 Q3 webcast investor conference. Parade Technologies third quarter 2019 consolidated revenue was $101.45 million, and the net income was $21.87 million. In both basic and fully diluted after tax, earnings per share were $0.28 and $0.28, respectively.

These results compared to consolidated revenue $85.58 million and a net income of $16.48 million or $0.21 and $0.21 per basic and fully dilution in the year-ago quarter. In U.S. dollars, the third quarter revenue increased 11.85% sequentially and was up 18.54% year-over-year. Gross profit in the third quarter of 2019 was $43.56 million, an increase of 14.34% from the previous quarter and an increase of 21.41% compared to the same quarter of last year. On August 29, 2019, Parade announced the PS8822, a USB Type-C 10 gigabits per second retimer. That supports both USB 3.2 Gen-2 single lane operation and the DisplayPort 1.4a Alt Mode. The PS8822 is designed for the USB Type-C upstream-facing ports of peripheral device such as docking stations, monitors and TVs. On September 10, 2019, Parade announced that the PS8769, a linear redriver designed to restore and improve the signal integrity of the high-speed signal passing through the USB Type-C connector. The device is specifically designed to support up to the 10 gigabits per second data rate of USB 3.2 Gen-2 superspeed data channels as well as up to the 8.1 gigabits per second HBR3 link rate for DisplayPort Alt Mode. The PS8769 is designed to accommodate all USB 3.2 and the DisplayPort Alt Mode configurations, supported by the USB Type-C connector. On October 15, 2019, Parade announced another addition to its portfolio of high-speed data interface retimer products. The new PS8419 is the first available retimer chip designed for HDMI 2.1 interface applications. It removes clock and the data jitter as well as data line skew that can be imposed on the high-speed HDMI 2.1 signal as it propagates across the HDMI interconnect cable and connectors, and the system PCB circuit traces. Applications for the PS8419 include at the output of HDMI 2.1 source device, to provide a clean output signal at the HDMI receptacle or at the input of HDMI 2.1 display or A/V receiver to ensure error-free signal reception capability. On October 21, 2019, Parade introduced 2 new products to its portfolio of high-speed data retimer products. The new PS8925 and the PS8926 are retimer chips developed for PCIe 4.0, supporting 4 and 16 bidirectional lanes, respectively. In addition to supporting the 16 gigabits per second data rate offered by the newest PCIe 4.0 specification, they also support 2.5 gigabits per second, 5 gigabits per second and 8 gigabits per second for backward compatibility with earlier PCIe revisions. The PS8925 and the PS8926 are among the first PCIe 4.0 retimer chips available. They are in full compliance with the PCIe 4.0 specification and have been successfully tested in multiple OEM PCIe 4.0 platforms. Both the PS8925 and PS8926 are designed for use in enterprise systems, including servers and data storage and in high-performance workstations. Such retimers are needed in very high-speed data channels to maintain signal integrity across longer PCB traces, connector and the cables. This -- based on the current business outlook, Parade is providing the following guidance for the fourth quarter of 2019. Revenue is between $88 million to $97 million. Gross margin is between 41% to 44%. Operating expense is between $21.5 million to $22.5 million.

(foreign language)

It is my presentation for the 2019 Q3 financial results. 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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Thank you, Yumi. And ladies and gentlemen, we will now begin our English question-and-answer session. (Operator Instruction]

And our 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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So Dr. Zhao, I think my first question is regarding the business outlook in the fourth quarter and also perhaps 2020. Can you give us a breakdown by segment, in terms of the DP or PS or high-speed in terms of the -- for the revenue outlook or momentum in the fourth quarter and also 2020? And then also on the gross margin side, I noticed that you have increased the gross margin range from 40% to 43%, to 41% to 44%. Maybe you can give us more color on that? Should we -- are you expecting a similar range going to 2020 as well? And the second question is, could you give us an update on the current progress on the [PDA4] for the data center. Apparently, you have launched several new products. I'm just wondering, when can we see more meaningful revenue contribution?

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

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Okay. Good afternoon, everyone. I believe your first question was on the Q4 and what is the driver for the Q4 business. That's what your first question was?

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

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Yes, for Q4 and perhaps 2020.

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

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I think that Q4, we continue to see a pretty stable Notebook and PC business and our strength in the high-speed device continues to see its momentum for those segments. And then the reason being really is the Notebook and the PC moved to the more high-speed USB Type-C solution, which is a 10 gigabit per second. And we see more demand on those dongle device as well. For example, our PS186 based dongle and one of our Tier 1 customer had introduced that dongle during the September period. And we also see the panel side, for example, the gaming panel, for example, APTS panel and the demand for our Total Solution is going up. So basically, we see this device and our panel, the general market of panel device is going up, and that's the kind of Q4 the same. Of course, the -- you do see the -- during the Q3 and Q4, there are quite a lot of situation related to the tariff situation.

And during the Q3, and you did see a lot of customer that was deferring to avoid the potential, the tariff situation we had to face at that time. That's kind of 2 quarters in that situation. Move to the 2020. I want to think the semiconductor industry, after the downturn of the 2019 and the semiconductor industry see a general improving situation and will remain, start to grow in 2020. For the Parade, we continue to see the momentum for us to grow above the semiconductor, the average. And then the momentum drive this is first of all, it's our PS product line. And we expect our PS product line continue grow in an appreciable way to the -- because there was stress in our customer base we have. And we also see our bundled sales of Tcon and the first driver become more attractive in the high-end segment. And I think the -- in general, that's the same. I think that we more like to see the growth in our PS product line, including what we just introduced, the device, and we announced and a device in the -- actually, our 2.1 retimer and our 2 device on the PCIe Gen-4, the retimer space.

You had a second question on the PCIe Gen 4, what are the current status. And the PCIe Gen 4, we just introduced 2 devices, the second-generation device, one is supporting 16 lanes and one supports 4 lanes, which we call 8926, 8925. And the device already gone through the industry leader that Intel organized in-house, the so-called Intel test, with many system customers. I think it was very successful. The first generation device, 8924, has been designed to few or for OEMs [retimer] system, retimer boards. And in some case, we are waiting for the customer into the production. And so we may see the continued momentum for our device in 8926 and 8925 into the next year when the PCIe Gen 4 becomes more popular and especially coming to Intel, the Ice Lake system.

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

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Okay. And then on the gross margin side, can you give us gross margin idea?

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

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Yes, gross margin. And we have been affected by a lot on the -- our high-speed product lines. So the product mix did help us to have a better gross margin. And certainly, we do discontinue or disengage a few of low-margin in our TT device. And so that our TT product line, actually, now the margin has improved as well. So that too make our overall gross margin getting better. And then you had a question was what do we see with gross margin, the trend. And we have been -- maintained our guidance for the [REN 40 to 43] for many, many quarters. And we believe -- we treated this gross margin guidance very seriously. So once we are -- make adjustments until we have any other thing and significant to make that change. Otherwise, we'll maintain and a long period of time as we can predict.

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

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Okay. And then lastly, just to clarify the Q4 outlook because you have mentioned that PC -- notebook, PC seems to be stable. But on the other hand, you also mentioned that tariff costs are already pulling. So I'm just wondering, notebook or related DP or CPIC, should these be a bit declining into Q4?

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

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The Q4 situation is changing, it's still very full. What I said was, we saw -- while in the Q3 in the middle of Q3, we saw quite a pulling from the -- to avoid the tariff. And now into the Q4, what do you see actually, you see a lot of shortly-timed orders. And so that's the current situation. That's what a current situation, you see the fabs start to getting full again. And everybody is on a very short lead time, the orders. That's because probably, previously, people had a thought with the tariff and the kind of feel that Q4 is a pretty big quarter. And now the situation is getting better and a lot of orders. And I still think the Q4 situation is quite for -- full, and remains -- and is quite a few change or quite a bit of breadth. I think we give our guidance and will give our guidance very seriously. That's what we see. Certainly, the -- they were quite portion of Q4 had been pulling to the Q3, that was the case.

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Operator [10]

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And the next question is coming from Daniel Yen of Morgan Stanley.

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Daniel Yen, Morgan Stanley, Research Division - Research Associate [11]

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Dr. Zhao, so my first question, regarding the gross margin, you mentioned that your TT product, TrueTouch product, has some gross margin improvement. So I would like to ask the reason behind this? Is it anything related to the more flexible OLED penetration? Or is this because of product mix within your touch product? So this is my first question.

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

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On the touch product. I think, primarily, it's due to the product mix and it's more in favor to the traditional stand-alone device including what you had said a more so-called stand-alone touch device. And then recently, we also win quite a lot on the Smartwatch segment. And we probably have a major share for the -- to support a smartwatch, the touch device. And those ones are better than used to on the so-called, the smartphone side of traditional touch device. I think a primary -- yes, us due to the product mix.

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Daniel Yen, Morgan Stanley, Research Division - Research Associate [13]

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Okay, got it. So my second question is still regarding your gross margin. So I think you speak to your PS, your high-speed interface outgrow others, so your gross margin indeed improved up to nearly 43%. So going forward, you mentioned that your PS product will continue to be strong. And you also revised up your gross margin by one percentage. So I wonder, is this any -- is there any chance that we could use this 41% to 44% as a base to forecast our 2020 gross margin?

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

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That's what I answered that, Jerry, the first question was. Once we made a change and the world remain for pretty long period of time, and we will work hard to make our product line to redeem that margin. Whenever it's possible, we continue to improve our gross margin.

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Daniel Yen, Morgan Stanley, Research Division - Research Associate [15]

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Okay. Okay, got it. So last question is more big picture question. So right now, I think there is U.S. and China tension. And my question is regarding the position for Parade, because Parade basically is a [hard pick quarter] in the U.S. but lifted in Taiwan. So basically, it's also Asia vendors. So I wonder, when you go to the customers, how the customers view Parade? Is it a U.S. company? Or is this Asia vendors? Because this may impact your future, the pipeline and also maybe have some impact to your OLED competition with your peers -- sorry, your U.S. peers.

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

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Okay. I think that we are pretty sort of unique and -- which means many of our management is Asia based, right? And a lot of our operations in Taiwan and in China. And we also have a significant presence in the U.S. as well. So we do list in the [tower] market. And I think most of our customers, we don't see many customers ask that question. The consumer brand, I heard, I don't see either side considered us as the disadvantaged side. Okay? Now I heard or maybe [Luma] said, you have an Asia company or particularly a China company want to go to the kind of [Thailand] base of supply, but you also do see that Tier 1 U.S. customer orders the China semiconductor company? Alright. I hope you guys also heard about those kind of story as well. And so you go to Google, you go to Microsoft and people start to ask those kind of question as well. So we are -- don't see anybody really fit us in any disadvantaged side, I would say. People are -- customers are very friendly to us. And we have been working with our customers, mostly.

I don't see anybody really ask us those questions. And we told them we are the listed in Taiwan and we have a huge presence in China. And on the other side, we are in the Silicon Valley and work with the -- Google, work with Amazon, pretty smoothly. And I do hear few of China supply linked to the situation. They used to work with Amazon, now Amazon also took the, sort of the defensive position. So this thing is more on the critical side. I think as the time goes, my hope is it will smooth out and we will back to the -- what are the original and now it is based on the news, it is a little bit polarized. So I hope the situation will change, but in terms of us, we don't see our customers put us in any disadvantaged side. We work with Huawei, we work with anybody and we don't see any issue. I basically see us work well.

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Operator [17]

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

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Ruijun Huang, Fubon Securities Investment Services Co., Ltd. - Research Analyst [18]

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I think I have some follow-up questions. I think Jerry asked about the third quarter breakdown, could you give us the number by segment?

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

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Okay. Yes, I forgot to answer this. On the third quarter, we had a DP line is lower than -- I think, above 45% or lower than 50%, like DP. And on the PS product line, it's close to the 40%, and our TC product line is above 10%. Our TT product line is lower than 10%.

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Ruijun Huang, Fubon Securities Investment Services Co., Ltd. - Research Analyst [20]

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My second question is, we're talking about a touch business. Could you give some more color on AMOLED driver IC. Do we see any -- like a better position for this product line?

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

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That's a good question. And actually, the MRO levels went back to the 9 months, go back to the stand-alone touch device again, right?

Especially, what do people call the -- if you're using the sensors, the name -- could have Y-OCTA panel, really take a challenge because that's a huge Presidio capacitor associated with the panel. And we have been working with SDC in past 2 years to have a solution or support the so-called Y-OCTA panel. And that's the so-called PMO panel. So yes, we do work with a few for China OLED vendors. So as OEM guys for the P-OLED or Y-OCTA type of solution. I think many touch company also work on this. It's a little bit challenging, that touch device. Yes. So that's the current situation.

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Ruijun Huang, Fubon Securities Investment Services Co., Ltd. - Research Analyst [22]

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So can we expect AMOLED driver IC will be in much production maybe next quarter or in following quarters?

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

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This is touch device and is separate with the MRO and the TDR device. We have developed AMOLED and the TDR device and I've worked with panel guys. I still don't know when the panel guys will go to the production with our device.

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Ruijun Huang, Fubon Securities Investment Services Co., Ltd. - Research Analyst [24]

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We mentioned that the AMOLED touch. So...

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

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That's what I heard of...

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Ruijun Huang, Fubon Securities Investment Services Co., Ltd. - Research Analyst [26]

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Sorry, it is AMOLED touch. And I have a -- my last question is, we're talking about PCIe Gen 4 retimers. So we're still in the schedule, it will be in mass production in early 2020?

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

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I hope so. And actually, we have a device already qualified in the OEM head. It's really subject to what do we talk about is the [laser] card. The server, you have a laser card it's a subject to when the customer will go to that piece and I think a lot is also associated with the AMD system or Intel system, those kinds of things. And we do have a customer qualified, and there are multiple customer qualified our 8924 device to their laser card systems.

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Operator [28]

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And the next question is coming from Steve Huang of Yuanta Research.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [29]

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Jack, my first question is regarding your Q4 guidance. So the guidance is suggesting that Q4 is a down quarter in terms of Q-on-Q. And you mentioned in Q4, PC notebook demand remains good. Do you mean that in Q4, your notebook PCs will continue to grow out on a Q-o-Q basis?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [30]

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I don't think the Q3 is a strong quarter, in answer to expand to Jerry, had a lot of device because of tariff situation, you've got a pulling. And that was the Q3 -- becomes stronger. I don't see the -- I think notebook is -- the PC remain pretty stable. That's what I tried to say. But in terms of number volume, maybe customers had some inventory there and maybe not as need as the traditional quarter and however, as I expected here in -- this few weeks, you do see quite a lot of short-term orders to come in, right? So it may also reflect -- because as we go by the forecast and the customer forecast. It may reflect the situation with the current tariff situation is not as stable. I mean, your customer is going to seek a conservative approach, which was, okay, I had a pulling when -- if tariff coming, and I'll probably just go slower and more or less. However, the tariff did not come in, so customers start to order again. So I don't know. That's the best, my guess. So overall, we see the customer do see -- the customer now is getting to much more optimistic than if we talk today in the Q3 time period. If we ask them to make a forecast for Q4 at that time before the -- pessimistic. So no, it's lot more better, I would say.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [31]

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Okay. So let us put it this way. So among the 4 power segment, PS, DP, TC and TT, which segment do you think will outgrow others in Q4 on a Q-o-Q basis? Q4 versus Q3.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [32]

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On the Q4. I didn't look at it very carefully on that. I would think our TC device would outgrow the Q-over-Q because we have seen the shortages, but I would think about our PS device, probably in line. That's similar to the -- or maybe similar or maybe lower, a little bit lower than the Q3. Because Q3, we already ship a lot of PS device.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [33]

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Okay. So the main, TC will likely see Q-o-Q growth and PS probably slight to down slightly and DP and TT may down more than corporate average. So that's what you mean, right?

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

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Yes. But you don't translate this to the system level, okay? Because the system guys, this tariff thing has already distorted the demand on the system level, right.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [35]

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Okay. All right. And next question, in terms of AMOLED, I think some other analysts, they just ask. Martina and Daniel just ask about AMOLED. So I'm wondering what kind of market you're going to address? You mentioned that AMOLED [TDI] and also mentioned touch. So I'm sort of confused?

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

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What are you talking about? I thought the question was on the touch side, not on TDI side. The touch side, we have a solution developed with the SDC. Because the AMOLED touch as it was for the Y-OCTA device it demands a lot of touch technology. So that's what I thought the question was. And we do have some technology advantages for that, that's why we of course work with the panel, multiple panel guys and OEM system guys. In TDI, we are -- I think we will work with the panel guys, but will remain, I wouldn't think as [coat] because [the process] as a coating as a touch device.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [37]

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So if OLED touch comes out earlier, the first stage of time, you got to be Korean panel maker, is that right?

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

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No. I think the Korean panel guy, they use their own, right? Yes, just use their own solution. We didn't work with them for SDC for long time for a while, that solution.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [39]

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SDC now they use their internal solution and other panel guys, they just seek for your help, so that's a big one, story.

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

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Yes, sort of we help other panel guys.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [41]

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Okay. And then in terms of PCIe Gen 4. I mean, the last time, you mentioned that the initial revenue contribution will emerge in Q4 or early Q1. So I'm just wondering, regarding your guidance, do you already factor in the PCIe 4.0 revenue contribution into Q4?

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

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We consider if their Q4, it may, customer will go to the small working production and, by the way. And we considered also the bluebird and [Munich]. And as I said a couple of times, the PCIe Gen 4, it's on the gross margin contribution more than the revenue contribution.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [43]

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Okay. So that could be the key gross margin driver.

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [44]

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Yes, gross money driver. That's because the gross margins are -- is much higher, yes.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [45]

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And so sort of a technical question regarding the PCIe Gen 4. The first one is, what kind of process node is in this kind of chip? Is it very advanced like a 28 Nano? Or it's still in the mature nodes?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [46]

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It's in the -- for our case, we are -- it's mature. It's better than mature, I would say. It's not a -- the deepest, deepest micron. And because those devices, you still have a price sensitivity there. And in fact, you don't need to have a -- still go to the very, very deepest micron yet. We still have multiple generation to go, right? You have multiple generations to go. I wouldn't think a PCIe Gen 4 16 gig demand you go to the deepest micron. But when you go to the PCIe Gen 5, which is 32 gig, it demand you go even lower or deep to micron technology.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [47]

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Okay. So Gen 4 is still in the mature node. And Gen 5 will probably need more advanced node. That's the case. Okay. And then in September, the Avago, now called Broadcom, they also launched a retimer product, and I'm not sure if you see this competitor?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [48]

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We saw them. We saw them, and we did the Intel test with them as well. The switch -- I mean the retimer is their switch chip, right? It's very expensive switch chip. And also this retimer has one problem, which is they don't follow the standardized pinout, which Intel defined a long time ago. This one is much more expensive than what we are talking about. And I really don't see, until your system is a very expensive. I don't really don't see any system guy put that device in. And I mean, I'm talking about server general purpose of serving the data center and those kinds of things, right? And I don't see this device. So also, that device has a very long latency. So it's a switch chip, as I said, it's a fabric switch chip that became a retimer.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [49]

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All right. So what it means is that their disadvantage is the cost is very high, and the latency are also very high.

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

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Latency, yes, latency.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [51]

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So you met this guy in the customer design platform. And that's how...

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

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Yes we -- we're doing a lot of Intel test with Broadcom fabric switch. And we also know they have that chip as just basically the public -- is a fabric switch chip. We know that. Yes. We do quite a lot of Intel tests.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [53]

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That's why I ask. You also mentioned you achieved the solidified with Broadcom Switch. And now they also launched their own retimer. So I'm sort of confused. Why they are doing that, if they already...

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

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Yes. Their retimer purpose is for the very high-end customers, or the early time when our retimer chip did not come out that they may -- some customer may need it, right? I don't think that they tend to for massive for data tenants, those kind of retimer s -- -- or the retimer switch. It's a very different thing.

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Po-Tsung Huang, Yuanta Securities Investment Consulting Co., Ltd. - Analyst [55]

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Okay. Okay. I understand. So that's not pricing competitive, not performance competitive?

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

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Yes, it's like the cost is probably where they are half, even though the retimer, it is expensive. You have the half cost of something.

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Operator [57]

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And the next one is coming from Bruno Cheng of Nomura.

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Bruno Cheng, Nomura Securities Co. Ltd., Research Division - Analyst [58]

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Jack, could you provide us some updates on China mobile demand. I remember that there was strong demand coming from China notebook vendor in first quarter this year. And I'm wondering, are we going to see it come back in coming quarters and 2020?

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

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Okay. So you basically mean the Huawei, right? That's what you said -- you referred to. The Huawei on the first quarter 2019 was very strong. And we've got to be put on the brakes and a product line got kind of stopped for some time. Coming to the -- I think that this thing does recover in the Q3 and the continued recovery in the Q4. I guess, the reason being is this is the generic offshore and so-called the eAR 99 device. And so it start to recover and continue to recover.

In fact, Q4 demand is getting reasonably good though. I don't know that Q1 and -- but moving forward to Q4, it looks pretty reasonable there.

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Bruno Cheng, Nomura Securities Co. Ltd., Research Division - Analyst [60]

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Got it. And my second question is regarding eDP Tcon. Could you provide some color on the product mix inside the eDP Tcon segment? I mean, what's the -- approximately in the mix for Tcon to announce in first customer now?

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

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You mean the standard customer, right? General?

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Bruno Cheng, Nomura Securities Co. Ltd., Research Division - Analyst [62]

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Yes. Sorry, general customer, okay?

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

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We are shipping both eDP 1.2 and the eDP 1.3 and eDP 1.4 Tcon. And now we might see probably, in terms of unit wise, right, in terms of unit wise, we might see 50-50 or maybe eDP 1.2 or 1.3 or 1.4 in terms of unit wise, could be started more than eDP 1.2. The momentum for current growth of our eDP Tcon is it have a new demand, which is the segment of gaming and segment of LPTs panel. And the new device we call PD device, which integrate Tcon with our [soft driver]. And in the industry segment, all of the solutions we have are totally bundled together, whether LPTs, whether the gaming solution, they are totally bundled together. And we are pretty optimistic for the new application in gaming, demand huge bandwidth, which is highest refresh rate cost. Now you see gaming is to 240 Hertz refresh rate, and we are going to have a new device to support a 350 Hertz refresh rate. And those are a huge advantage for us to -- for the new TDP device. So the dynamic for the panel industry are changing. And it used to, we talk about the PSR and those kind of solution. Now really, you see the new wave of the application or strength leaded by gaming, leaded by LPTs panel leaded by integration solutions.

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Bruno Cheng, Nomura Securities Co. Ltd., Research Division - Analyst [64]

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So is it fair to say that in the long term, the Tcon for Windows camp will outgrow the overall Tcon segment. Is it fair to say that?

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

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I'm not -- in terms of unit wise or in terms of dollar wise?

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Bruno Cheng, Nomura Securities Co. Ltd., Research Division - Analyst [66]

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In terms of units.

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

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I don't know. I think our standard plus customer may do -- it depend on their focus. They may come back very strong, what do you have to say that today, if we look at a notebook, the quarterly announcement that notebook unit was not as good as everybody's wish. But that tablet side doing very well, right? So I don't put it that conclusion. And you may not know, they have a new device come out and they're winning a lot of customers. So I don't put at that assumption there.

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Bruno Cheng, Nomura Securities Co. Ltd., Research Division - Analyst [68]

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Okay, got it, got it. And my final question is, how's the tablet demand in third quarter and fourth quarter?

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

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Quarter tablet demand was very good, very strong. And the fourth quarter, it's a little bit slower. Because I guess there wasn't demand, too strong. And however, the high-end device tablets are getting, demand getting stronger. So I really don't know. But overall, this year, I would say the 2019 tablet has been doing very well.

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Operator [70]

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And the next one is coming from [Mike Young] of Merrill Lynch.

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Unidentified Analyst, [71]

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Dr. Zhou, congratulations on the third quarter results. My first question is that, did you provide a view regarding to, like, say, Intel CPU supply shortage? What's the impact on PCIe?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [72]

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I don't -- the shortage does not impact us on the notebook side. And we're really -- because we'll work with those OEM, and we don't really see the significance in the shortage. But I do hear Intel delayed their product line and impact our PCIe, kind of the -- roll out. But our OEM work very hard with Intel to kind of catch-up with the schedule and all those things. I only hear that they're late, but I'm not sure the shortage is...

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Unidentified Analyst, [73]

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Okay, got it. And next, we've seen that there is a market share struggle between Intel and AMD, and could you provide any more color on that?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [74]

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I don't know, 2 big guys. It's a little bit their business, okay? Intel -- AMD does gain a lot of good momentum, I would think, the -- in -- especially in the server space. And we also work with AMD server solutions. Intel is such a big company and it's many, many times, so for AMD, right? So I still see a lot of typical Tier 1 OEM as they're waiting for Intel patiently for their server solutions. I'll put it this way, I do see a lot of people patiently waiting.

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Unidentified Analyst, [75]

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Okay, okay. Got it. And my final question...

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [76]

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I think what people -- I see a lot of people trust on the Intel. Yes. You can see the Intel, when that they do the Intel test how many people participate on the system level. You can understand what is the overall ecosystem customer base. By the way, that Intel test, we don't see many competitors on the retimer side, but we are doing very well as Intel was very happy.

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Unidentified Analyst, [77]

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Okay. It's clear. And my last question is that, could you have an update regarding to possibly increased mainly LED adoption in notebook?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [78]

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Which -- do you mean the miniLED? That what you ask?

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Unidentified Analyst, [79]

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Yes, yes, yes. What's the impact positively on pure Tcon business?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [80]

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Good question. Okay. I can only talk about more general terms there, right? So people already maybe were very soon to see the real miniLED system on the Apple XDR, which we actually participate in. And the performance for the display quality is very superior. And we do see that technology will be used for the high end, the middle-size with a tablet or notebook will be there for the so-called HDR system for high-end HDR system. When I talk about HDR 1000 panel systems, we're going to the miniLED solution. I don't know how much -- how -- when it will be into the market. And whenever this system sees the market, my imagination will be -- it could be pretty expensive system, because you have many LEDs [long there], and kind of system there.

So that's my general sort of understanding and observation, for both miniLED go to the more general, massive market, might take some time to reach there. It's the consumer business or notebook business. And too, you have a new system, and at the beginning, may expensive -- take a while to lower it. So it may take a while to lower it. But the performance of display qualify is very superior. We're talking about HDR level go more than 1000 and those kind of thing. In typical backlight, you would not be able to do this. You could do 400 -- HDR 400, 600, you'd not able to do it 1000 or above.

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Unidentified Analyst, [81]

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Okay, understood. Just a follow-up. Safely, miniLED notebook is very expensive with better performance. I want to know that, could you provide us a guesstimate regarding to the Tcon ASP, if [it adapted by those]? Yes, yes, yes. Because we get that the eDP, 1.3, 1.4 might have 3 to 4x ASP versus 1.2. So yes, we just want to pinpoint the ASP upside?

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Ji Zhao, Parade Technologies, Ltd. - Co-Founder, Chairman & CEO [82]

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At this moment, it's very inconvenient for me to talk about those things, and probably the reason you understand. There's a lot of the -- how you partition of a whole system. And hopefully, as the system getting mature and the people getting smarter might reduce the costs, not only on the [AD] side but on Tcon and all the controls. And those -- our signals, the most miniLED based type of thing will be first adopter will be people who play games and those kind of areas. (inaudible) What I would say, watch movie and those kind of applications, rather than you do the text and those things. So yes, unfortunately, I cannot provide a lot of the pricing guidance at this moment.

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Operator [83]

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And the next question is coming from Thurston Lee of Goldman Sachs.

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Thurston Lee, Goldman Sachs Group Inc., Research Division - Business Analyst [84]

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Dr. Zhao, I actually just have 2 follow-up questions on -- for my first question is on the Tcon side. Could you just give us a rough estimate of, for example, a 3-year CAGR outlook for that particular segment? And do you see that more being more driven by, a, pricing from upgrades? Or do you see that quite evenly balanced between volume and pricing?

My second question is with regards to your retimer, redriver parts. It seems like you're getting good traction with customers, and you're adding -- you're extending your product pipeline to more peripherals. I just want to see if you can give us an update on what kind of addressable market do you see for that market? And do you think that the company will be working towards adding that product portfolio into the desktop system-level as well?

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

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Okay, good question. Especially your second portion of question, very, very interesting question, actually. Let's answer the first question. We had said the eDP Tcon was outgrew, one, driven by the eDP 1.3, 1.4 and also the transition go to the -- from the traditional eDP 1.2 to 1.2 to 2.4. And that's the -- what the previous years, the previous few years has seen and so far this year, the scene start to change. I would like to have the investment community to be aware of the scene change, the scene changes to the few -- thing. One is the gaming segment become a new driving force for high-quality display. It's actually momentum is so high, a lot of people may not really realize this. And we actually grew our gaming segment, the consumer, in 2019. It's because either very high refresh rate, HDR, and high color depth. So it's very different from what it used to. That's the one thing. The second thing is the low-power LPTS panel coming to the line and it has propagated very quickly, very successfully to very low -- the light weight small notebook business acquisition. And that segment we play significant order. That solution, one is traditional, our soft driver plus Tcon for the LPTS. And another is our PD device, which integrated. And furthermore, we have developed the so called PDE device, which touch, soft driver, Tcon integrate and also support [fiber]. So that's a few trends there. And we are taking our leadership to drive that. And in the same time, we not only provide key [parts] and we provide the driver side. That grew our business and we think those one has been more than like a double digits every year to grow. In terms of our high-speed device, the PS device, the theme remains true that the peripheral go to the even higher speed.

And then you have interface go to 16 gig. You have a USB Type-C go to the 4.0 to 20 gig, right? Both ASP and the unit wise are growing. I remember a few years ago, Andreas asked me a question, what is the size of addressable market. We had said, I remember like 300 million capacity. Now actually, we see the market probably will reach 800 million. If I'm not -- if in the next couple of years, we reach 1 billion, okay? We have put a lot of focus. You probably would say we put a lot of focus to address the new opportunity for us. Whether in the segment of PC, whether in the segment of smartphone, whether in the segment of accessory device and whether on the PCIe Gen 4. In fact, we see our device into the automotive applications quickly as well. So that your highspeed device has a lot of legs move to the everywhere. So we are very excited for this market, and it grows very quickly, and we would like to be the leader for this market.

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Thurston Lee, Goldman Sachs Group Inc., Research Division - Business Analyst [86]

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So to follow-up on my first question, what -- do we expect like a mid to high -- mid-single-digit to double-digit CAGR for the Tcon business? And the second follow-up is, with the retimer business, I guess, I just wanted to figure out if the desktop system-level is one of the potential addressable market and specifically, the addressable market for -- what size is the addressable market for your redriver, retimer business in fact, considering both server side as well as the peripherals?

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

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Yes. I think I'll go back to the second one, the PS product line. I think a CAGR will be like every year, definitely with double digit, or high teen, at least. That's what I say, the market will go to the like a few years ago, 300 million, now probably we see 700 million, 800 million. And will go to the 1 billion. And we would like to be the leader for this market. And if the analysts follow our couple years or not, where PS device growing very quickly. Well, maybe we gain market share. We'll probably just take the right when this market sells, right? In terms of your Tcon and the soft driver panel side to move to the high end. I would think we see the CAGR probably a little bit lower than our PS segment and maybe lower, maybe 10, lower 10 and slight lower or 10, those kind of growth rate.

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Thurston Lee, Goldman Sachs Group Inc., Research Division - Business Analyst [88]

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Got it. Sorry. And then just the last part on the -- your retimer business potentially heading into the -- is there any chance we're heading into the desktop solutions? And then the overall redriver, retimer market -- market side?

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

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What I had to say is that the PS device, including the driver, retimer and convertor, 3 things together, right? In terms of retimer on desktop, we have been in the desktop, well, quite a while. I don't see -- the desktop, we are there. We being the DL, D9, D10, D11 and almost every generation of the device, there on the desktop side.

We're almost reach everywhere people need a high-speed device.

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Operator [90]

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And ladies and gentlemen, there appears to be no further English questions at this point. We will now begin our Chinese question-and-answer session.

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

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Unidentified Analyst, [92]

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

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Unidentified Analyst, [94]

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

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Unidentified Analyst, [96]

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

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Operator [98]

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