AU Optronics Corp

OTC:AUOTY

Earnings Call Transcript

[Operator]

Welcome to AU Optronics 2018 Second Quarter Results Conference Call. [Operator Instructions]

Now I would like to hand over to Ms. Julia Chao, AUO's IR Officer.

[Julia Chao, executive]

Thank you. Ladies and gentlemen, good afternoon. On behalf of the company, I would like to welcome all of you for participating in this quarter's results call. Joining me here are 5 executives; Mr. Paul Peng, Chairman and Chief Executive Officer; Mr. Michael Tsai, President and Chief Operating Officer; Mr. Wei-Lung Liau, General Manager of Video Solutions Business Group; Mr. TY Lin, General Manager of Mobile Solutions Business Group; and Mr. Ben Tseng, our CFO.

The agenda of today is as follows: first of all, our CFO will provide you with our recap of Q2 results and Q3 guidance, and then our Chairman will provide you with an opening remark. Afterwards, we will proceed with Q&A.

We have collected questions in advance of the meeting. We will first address these questions. Afterwards, if you still have more questions, then we will open the floor for you to call in. So that was our agenda.

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

Ben, please?

[Benjiamin Tseng, executive]

Good afternoon. I would like to share with you our 2018 second quarter results. Amid downward pressure on TV panel is [ seen ] in Q2, we optimized our product mix and increased the shipment ratio of high-end niche products. As a result, our Q2 results did not decline sharply. Net sales in Q2 came in at NTD 75 billion, up slightly by NTD 600 million Q-o-Q.

Gross profit was NTD 7.3 billion; gross margin, 9.7%. OP profit, NTD 2.1 billion; OP margin, 2.8%; EBITDA margin was 13.5%. These were OP results.

Now I would like to talk about the bigger changes that we had between Q1 and Q2 in terms of non-op performance and tax expense. For non-op results, we made more gains from disposal of fixed assets, and we have subsidies to our subsidiaries.

As for corporate tax expense. In Q1, we recognized DTA. In Q2, we recognized tax on distributed profit of NTD 1.47 billion. As a result, net profit attributable to owners of company was NTD 12.5 billion with a basic EPS of NTD 0.13. The display segments, OP margin was 3.6%.; EBITDA margin, 14.8%.

Moving on to balance sheet. In the end of Q2, cash was NTD 82.3 billion, down by NTD 1.48 billion Q-o-Q, mainly because we made early debt repayment. Because of this, total debt lowered to NTD 94.4 billion, down by NTD 13.7 billion Q-o-Q.

Gearing ratio was 5.6%. Inventory turnover days was 34 days. Both of these are low and healthy levels.

Cash flow. We generated about NTD 9.6 billion from operating activities. CapEx in Q2 was NTD 8.4 billion. We had a cash outflow of NTD 14.2 billion for financing activities due to debt repayment.

Revenue breakdown by application. TV share continued to lower, sitting at 38% this quarter. With a lower TV ASP, we adjusted our capacity allocation leading to higher shares of monitors, mobile and PCs.

Moving on to the next slide, revenue breakdown by size. Again, because of a lower TV ASP, we, in response of this trend, increased our shipment ratio of niche and high-end products, such as gaming monitors and notebook panels, leading to changes in the shares of various size segments. 20-inch to 39-inch and 10-inch to 20-inch classes get shares larger than 19 -- 39-inch segments last years.

Moving on to shipments and ASP by area. Area shipment went down by 2.3% Q-o-Q. ASP per square meter slid by less than 0.6%, thanks to the support of high-end and niche products.

Moving on to small- and medium-sized panel shipments by area and revenues. Area shipment decreased by about 2.8% Q-o-Q. At the same time, revenue gained by about 1.7% Q-o-Q.

For our Q3 guidance. First of all, about large panels, we expect our shipments to be up by mid-single-digit percentage Q-o-Q. Blended ASP denominated in USD is expected to be roughly flat Q-o-Q. For small- and medium-sized panels, shipments are expected to be down by low-teens percentage points Q-o-Q mainly because we now place higher focus on larger-sized panel applications. Q3's overloading rates are expected to be similar to previous quarters to be maintained at high levels.

So this was a quick update of our Q2 results and Q3 guidance. Now I would like to hand over to Paul who will provide you with a business update.

[Shuang Peng, executive]

Ladies and gentlemen, good afternoon. I would like to take this opportunity to share with you our Q2 results and our outlook for Q3. In Q2, customers continue to adjust their inventory levels. This is -- this was especially so for televisions. As a result, TV panel prices were under stronger pressure.

As the market is close to bottoming out, there have been some changes recently I will elaborate later. Despite the imbalanced supply and demand, AUO has been sticking with our value transformation strategy.

With the market changes, we dynamically adjusted our product lines and product mix, and we have been able to deliver particularly strong results for many value-added and high-end products.

For commodity products or standardized products, such as television panels that are under stronger downward pressure, they had a sharper decline. Today, our TV panel share -- as a share of a total display revenue was less than 40%. And between last year to today, it had dropped 11%. But for the TV segment, especially for 75-inch or 85-inch and more high-end products, they had enjoyed good sales results and actually, are in short supply. We are seeing some more significant growth in terms of shipment for these products, and they have received very good responses from customers.

In addition to our efforts to increase the shipment ratio of [ NANG ] TV panel products, there are several highlights that I would like to share with you. Gaming -- the gaming market has been growing very rapidly this year, and we have been developing in this market for many long years. We are now the #1 market share holder in gaming monitor and notebook panels. And our market share is actually larger than the combined market shares of all the other vendors. Secondly, for our commercial and niche products, which include car displays and industrial displays as well as some large synergies, we are seeing that the revenue share's growing. We will continue to boost the shares of these products.

In terms of revenues, Q2 posted similar results with Q1. We still had net profit. The net profit was NTD 2.1 billion for Q2. Because of a higher tax expense, there was a bigger gap between net profit and OP profit, but we still are able to maintain stable profitability. We also have relatively healthy level of inventory. Because of our strong results, our financial structure has been able to continue to become more -- become healthier. Because of our value transformation strategy, we managed to deliver more stable results than our competitors.

With television in Q2, we are seeing that prices bottomed out more rapidly, which -- that the market to adjust their product mix -- in terms of the market because TV sell-through was still strong, especially with the effect of the FIFA World Cup in North America, Eastern Europe, Latin and Central America, they all posted almost double-digit percentage growth.

In addition, in China, because of the June 18 shopping festival promotions, we have observed that inventory levels have returned to healthy levels. Q3 will be the seasonally strong quarter. As inventory levels already lowered, many customers are now restocking. Currently, we are seeing more aggressive pooling activities from our customers, especially for high-end and ultra-large-sized panels. This is because customers generally enjoy higher profitability with these products, so they have stronger demand. We will continue to maintain high UT rates in hopes of utilizing our capacity to our advantage.

Of course, the industry will have its ups and downs. During the high season, we will have to make preparations for the future and for future cyclicity as well. We will stick with what we have mentioned in the beginning of the year. We will have smart scale. We will have smart investment at the right scale, and we will stick with value transformation and also technological innovation. These are what we will be focusing on. And so far, our efforts have paid off. For example, in May this year at the SID Display Week, we showcased our micro LED products. We have been developing this technology for several years. At the moment, we are in the leading pack, but we will continue to accelerate our R&D to capture more business opportunities.

We would also strengthen our efforts to enhance competitiveness. In the first half, we told you that as new capacity from Mainland China being added into the mix, although they will not deal a big impact in the first half, but starting from the end of this year and even for the next 2 to 3 years, there will be bigger impact in -- on the supply and demand. This is why we will have to accelerate our pace to enhance competitiveness.

We are, at the same time, watching the changes of the market closely, including the trade conflicts between states and regions. All in all, our strategies and our principles remain the same. We will continue to work at our outmost to make sure that we have stable operating results and being able to deliver profits.

So this sums up my opening remarks. Thank you.

[Julia Chao, executive]

We would like to start our question-and-answer session. For the first part of this session, we will address market updates and outlook.

The first question in this group is an update on 2018 worldwide television, monitor, notebook supply and demand. And the second question is relating to television sell-through and the impact from FIFA World Cup as well as outlook for the remaining of -- remainder of the year. We have Michael to address them.

[Kuo-Hsin Tsai, executive]

Good afternoon. This is Michael. I would like to first talk about 2018 worldwide television monitor, notebook, smartphone supply and demand. Let me talk about the demand side first. For television, brands continue to make promotions to digest their inventories in the first half. In Q2, sell-through globally was better than expected. Currently, brands continue to restock for the high season, which is the Q -- the third quarter. For PC-related applications, including monitors and notebooks, they are going through commercial replacement demand. IT and PC brand shipments in Q2 posted positive growth for the first time in 6 years. As for other applications, they are also seeing stable growth. We expect that worldwide panel demand will be similar to what we have projected previously. As we told you, worldwide panel demand will be up by 6% to 8%. As for the supply side in 2018 and 2019, there will be new capacity added, but it will still require some time for the new fabs to improve their yield rates and production efficiency. In addition, existing product lines are going through product spec upgrades and manufacturing process transition, so it is still worth paying attention to how effective this new capacity can be or it can be contributing to the overall capacity. As for AUO, we believe that product and technology mix will be the key factors to determine who the winners or losers will be in the market, and we will stick with our principle to work our outmost. As for the overall supply and demand, we think that in the first half, with brands' efforts to digest their excess inventories, supply and demand for the entire year will likely be relatively stable. For the television sell-through and Q3 sales result outlook as well as World Cup impact, I would like to share our viewpoints. In Q2, unit sales and average -- and area sales posted double-digit growth for TV sets. The main drivers were North America and Latin America. And as for Europe, they are -- they also enjoy normal and stable growth momentum. For developed markets, North America and Western Europe posted positive growth for sell-through. Brands aggressively promoted their large-sized televisions. The every size of TV sets grew by more than 1.5 inches Y-o-Y. As for Mainland China, sell-through in Q2 had positive growth Y-o-Y. Large-sized TV sets sell-through growth momentum continued during the June 18 shopping festival. Brands aggressively promoted their products during the 4 weeks of the e-tailers' shopping festival. Sell-through grew by nearly 40% Y-o-Y. For emerging markets in Latin America boosted by digital signal transition in Brazil and Argentina and FIFA World Cup promotions. Q2 sell-through growth rate recorded a 6-year new high. In Russia, which is the host country of FIFA World Cup, promotions were particularly more active. This has led to double-digit percentage growth for Eastern Europe in Q2. Overall, in Q2, unit sales and area sales both posted growth significantly. Size migration also boosted the average size to increase by more than 1.5-inch Y-o-Y. Looking ahead at the third quarter, brands are preparing their inventories for the year-end high season. It is expected that large-sized and high-end products will enjoy stronger demand and growth in several regions. Thank you.

[Julia Chao, executive]

The third group of questions are about the inventory levels for TV sets, monitors, notebook and smartphones. Could Michael please address these questions?

[Kuo-Hsin Tsai, executive]

About the inventory levels for TV sets, monitors, notebooks and smartphones, first of all, for television, in the first half, brands continued their promotions. And the promotions for FIFA World Cup were stronger than expected in several regions. This has brought inventory levels back to healthy levels. In China, given the monthly promotions at e-tailers today, the inventory level of 8 to 9 weeks has actually become a new norm. For Western Europe, they are having slightly higher-than-normal inventory levels after the FIFA World Cup. Monitor is having healthy inventory levels, except for China whose inventory levels were roughly 2 weeks higher after the June 18 promotions, resting at 5 to 6 weeks. For notebooks, brands are restocking for back-to-school demand, leading to slight increase in the inventory level. But the inventory level is still staying at a healthy level, resting at about 5 to 6 weeks. For phones, many brands are launching their new models in Q2. It is expected that a new wave of inventory buildup will be boosted in the second half. The launch of new models is also leading to a wave of higher demand for smartphones. But at the moment, smartphone inventory levels are maintained at healthy levels. Starting from the beginning of the year to the second half, the demand for low-temp smartphones are increasing -- is increasing. New kinds of full-screen smartphones with notch are being launched. The demand for low temp is expected to increase, and inventory levels are relatively normal at the moment. Thank you.

[Julia Chao, executive]

The next group of questions are financial ones. For our UT rates, as we mentioned, Q2 loading rates were similar to previous quarters, exceeding mid-90s. The loading rates for Q3 would also be maintained at high levels for depreciation and amortization. The amount was about NTD 8.1 billion. The amount of 1 -- first half was NTD 16.5 billion. For the entire year of 2018, it will be within NTD 35 billion. For CapEx, the amount was NTD 8.4 billion. First half amount was NTD 18.9 billion. For the entire year of 2018, we expect the CapEx amount to be about NTD 45 billion. For currencies fluctuations impact on our margins, in Q2, based on official data, NTD lost 0.8% against USD and also lost 1.3% against Japanese yen. These 2 factors, combined, had a positive 0.5% impact on our gross margin in Q2.

The third group of questions revolve around AUO's key products and technologies. The first question is relating to TV monitors. Wei-Lung, please talk about AUO's TV-related products and strategies as well as our road map for gaming monitor panels.

[Wei-Lung Liau, executive]

Ladies and gentlemen, good afternoon. This is . I would like to take this opportunity to share with you our large-sized panels strategies, including TV and gaming monitor panels. Let me talk about TV. In Q2, due to the long period of panel price adjustments, television brands became very aggressive in promotions. In addition, FIFA World Cup has boosted demand. Sell-through of television sets in several regions were quite strong, especially in North America and in Latin America. They posted double-digit percentage growth Y-o-Y, bringing inventory levels back to normal levels. We are entering the high season in the second half, and it is expected that end demand momentum will likely sustain. Let me talk about AUO. We are meeting the demands of our brand customers to expand the production ratio of high-end and large-sized products. This has made us reach a position where we -- our high-end products are in short supply in Q3, and we have achieved good progress in several product lines. First of all, in UHD 4K, in Q2, our 4K panel shipment ratio has exceeded 50%. This ratio is larger than 4K panels market penetration. In Q3, we expect our 4K panels shipment ratio to be more than 50%. As for 8K4K, we have already mass-produced our first 8K products, and we will launch a full series of different sizes of products in the second half. 75- and 85-inch large-sized panels of AUO have enjoyed new high in terms of shipments in 2 -- Q2, and quarterly growth was more than 20%, and we are expecting strong momentum in Q3. In addition, we have kicked off our Gen 8.5 production line in Q2 with the demand continuing to grow for high-end products. We expect our Gen 8.5 new production line will be fully ramped in Q3. As for monitor, we have enjoyed significant growth in the gaming monitor market in Q2. Our gaming monitor panels reached a new high in terms of shipment, growing by nearly 30% Q-o-Q. We are the leader in the global gaming monitor panel market. In terms of the most important technology, such as the larger -- the fastest frame rate, 240 hertz; and the highest resolution, UHD 4K; and the fastest response time of 1 millisecond response time or curved display, AUO is fully capable to meet the demands of our customers. Because of our tech leadership, we have been able to enjoy a more than 50% of market share in the gaming market -- monitor segment. Going forward, we believe the demand for gaming monitor will continue to be strong.

[Julia Chao, executive]

Thank you, Wei-Lung. The next question is relating to small- and medium-sized products road map, especially for AUO's notebook and car displays strategies. Could TY please address these questions?

[TY Lin, executive]

Good afternoon. This is TY. I would like to share with you AUO's small- and medium-sized panels development progress. Let me talk about notebook first. Notebooks set demand is flat or down slightly worldwide because this is a mature market segment. So AUO will focus on high-end, value-added niche products. And for this kind of products, we are seeing strong demand. In terms of low-temp notebook, AUO has the low-temp technology in place, and we have led the market to launch a series of low-temp notebook panel products. Taking advantage of their super narrow bezel, low power consumption, high resolution, high color saturation features, we think they are ideal for making high-end commercial notebooks. And in fact, we have received very good feedback from customers. In Q2, our low-temp notebook panel shipments recorded more than 100% growth from Q1, and we expect significant growth in Q3 as well. As for gaming notebook, the Computex this year that concluded in June, gaming products are -- were still the talk of the town. All of the leading brands in the industry showcase professional high-end wide-viewing angle gaming notebooks, meaning that their frame rate are over 144 hertz. Of these products, 90% of them adopted AUO's panels. With gaming notebook, AUO continues to work with -- AUO works with leading brands to develop high-performance products with a ultra-high refresh rate of 104 -- 144 hertz and ultrafast response time of 3 milliseconds. We have been able to enjoy a #1 leadership in the gaming notebook market. As for car displays, today, carmakers are adding more displays to their cars, and they are working on having better interior design for cars. As a result, car display sizes are also getting larger. It is expected that shipments and -- unit shipment and area sales of car displays will continue to grow, and market demand will also be increased. As for AUO, we expect that car displays shipment will grow by double-digit percentage points, which will be better than the market average. Today, we are their #2 car display provider in terms of market share. In terms of the large-sized application, such as CID, we enjoy the #2 position in terms of market share. Going forward, we are -- we will continue to expand our footprint in high end markets with higher technological barriers such as the cluster segment. In 2018, we will leverage our car display touch total solutions to provide added-value services to provide one-stop shopping services for customers. We expect that this year, car display touch total solutions shipment could grow by more than 50% Y-o-Y. In addition, we have low-temp technology in place. Low temp has the advantages of low power consumption, narrow bezel and high reliability. In car display application besides clusters and CIT (sic) [ CID ], [indiscernible] products will also be mass-produced and shipped in the second half of this year. Thank you.

[Julia Chao, executive]

Ladies and gentlemen, we now open the floor for you to call in. [Operator Instructions] Thank you.

[Operator]

[Operator Instructions] Our first caller is Arthur Lai from Citigroup.

[Arthur Lai, analyst]

My first question is about your OP margin. A South Korean company just posted a negative 4% for OP margin. Your results outperform them. This kind of conditions happened before. But this time around, your lead was just particularly strong. Could you tell us if you think that this trend will continue? Is it possible that you can expand your lead on the competitor going forward? Or if you're going to accelerate the product optimization pace? Secondly, I just heard for the first time that you have made some progress in micro LED technology. Could you tell us why you think that micro LED will mean for panel makers in terms of marketing opportunities? Also, we have heard that by the end of this year, 65-inch television sets may be selling at USD 499 in North America or even lower. Will this help boost average size for panels? Or could this have a bigger impact on the demand side next year?

[Shuang Peng, executive]

Arthur, thank you for your questions. This is Paul. I would like to address your first 2 questions, and I will have my colleague to answer your last question. Yes, you are right. Our South Korean competitor announced their results yesterday, and we have visible differences in terms of EBITDA and OP margin performance. AUO has been able to maintain profitability for these 2 quarters. Actually, I think I have talked about this perhaps 1 or 2 years ago. That is we think that panel makers going forward would go -- embark on different kinds of journeys. For Mainland Chinese panel makers, with the support of policy and their government, they will engage in scale competition and capacity competition. South Korean panel makers have the support of their conglomerates, in addition to the support of their government. With regards to these factors, we don't have that much support. That is why we have set our own strategies with our existing production lines, products and technologies, we will leverage our existing scale and our objective to expand quality capacity at the right time. Appropriately, we would not engage in scale competition, but we will focus on value competition. In terms of product or customer portfolio or in the development of future advance display technologies, our objectives will be the same, that is to create more values because we believe our investors are expecting to have high returns from us. In the future, panel makers will deliver different kinds of results at different stages. Unlike crystal cycle in the past, this time around, things are different. Companies will not suffer or prosper together. At AUO, we hope that we can have sustainability. That is why we will prudently execute our strategies. For micro LED, in terms of technologies or products, micro LED really poses many advantages -- possesses many advantages in terms of low power consumption, wide color gamut, high brightness, slimness and lifespan. Micro LED has its advantages. We have been deeply involved in this technology's research and development. And for the past few years, we engage in R&D heavily. After the SID Display Week, we have observed that market responses have become more active and more welcoming. That is why many companies are willing to invest in more resources. This is actually a good result, a very good phenomenon. This shows that many more resources are being diverted in the development of this technology, and this could help fasten time to market and create more possibilities for micro LED. For Taiwan, micro LED is full of promises because we have TFT and LED technologies, and we have quite comprehensive supply chain. If we can leverage these 2 aspects well, many possibilities can be unlocked. But one thing we have to notice that for any new technologies, there are always breakthroughs that need to be made, whether it is about equipment, manufacturing process or engineering process or even how to work with the industry chain. At the moment, we have not achieved mass production, so we still need to collaborate with many more companies. But at least we have made a good start, and we will continue to aggressively invest in this area in hopes of breaking the bottlenecks and achieving commercialization as soon as possible. I apologize for not able to -- not being able to disclose the exact timing. But what I can tell you is that with many more companies investing in this area, I think the commercialization timing of micro LED could be faster than we have imagined.

[Wei-Lung Liau, executive]

Hi, this is Wei-Lung. I would like to talk about 65-inch demand and penetration rate for TV panels. With large generation fabs being added and new capacities are launched, it is expected that larger-sized television sets will have more affordable prices, and customers will inch toward -- will be more inclined to purchase large-sized televisions. Today, the size migration for TV sets is very clear. The average size of TV is projected at 1 to 2 inches per year. This year, 65-inch TV sets sell-through grew by 30% to 40% Y-o-Y, and the growth extent is even larger for 6 -- 75-inch television sets, reaching 50%. AUO has been devoted to developing large-sized panels. We have 75-inch and 85-inch TV panels. In Q2, we posted more than 20% growth Q-o-Q, and we expect that for this year, we can have growth of more than 100% Y-o-Y. Thank you.

[Operator]

Our next caller is Sharon Shih from Morgan Stanley.

[Sharon Shih, analyst]

This is Sharon. I have 2 questions. First, you mentioned that in Q3, your small-sized capacity will be adjusted, so shipments will slide in Q3. Could you tell us why you made the adjustments? Is it because of any specific reason or for any specific product line? Second question, besides DTA, I think the minority interest that you recognized was slightly higher as well. Could you tell us why? How can we model your future minority interest in the future?

[Benjiamin Tseng, executive]

Sharon, this is Ben. I would like to address your questions. In Q1 -- in Q3, the lower shipments for mid- and small-sized panels, because of some larger-sized panels, such as car and notebook panels, would cost the small- and medium-sized panels, which are 10-inch and below panels to see shipments -- shipment decline. As for minority interest loss, it was mainly due to our investment in the Kunshan fab. We have a 51% of stake in the Kunshan fab. The more drastic change between Q1 and Q2 was attributed to the non-op results of Kunshan fab. The Kunshan fab in Q1 had the subsidies from the local government and recognition of ForEx gains, whereas in Q2, there was no subsidies, but there was ForEx loss. That is why we had more drastic changes between Q1 and Q2 for Kunshan. But when it comes to operating level, it was quite stable, although we haven't turned into the black at the operating profitability level, but we have turned to the black at the EBITDA level.

[Sharon Shih, analyst]

So are you saying that the non-op earnings sensitivity is deeply related to the fluctuations of RMB?

[Wei-Lung Liau, executive]

It was partly because of ForEx fluctuations, but we also do hedging. We hedge for all of the subsidiaries that we have in Mainland China. Kunshan had ForEx loss. It has some negative and positive USD positions for Kunshan as it went into negative position. But we have other subsidiaries in China that, with positive positions, they can compensate each other out. But if you look at the Kunshan fab alone, the impact from RMB's exchange rate against USD does have has an effect.

[Julia Chao, executive]

Ladies and gentlemen, in the interest of time, we will take one last caller, questions.

[Operator]

Our last caller is Jerry Su from Crédit Suisse.

[Jerry Su, analyst]

Ben, you talked about that some of the long-temp capacity will be used to create other applications. This fab has actually been running for a period of time. I think the capacity is 25k sheets. I wonder if you have any expansion plan. If so, what is the timing? It seems that the demand is quite strong, and it is clear that it will be required to utilize more low-temp capacity. My second question is about mini LED. If you are using mini LED for backlight, what kind of role can panel makers play in this regard? And what kind of incremental value add can you achieve, also about television, besides adding values and having larger sizes and high resolutions? I think you -- within your group, you also have your own TV set assembly business. Will they also be a future focus of your business in the future?

[Kuo-Hsin Tsai, executive]

This is Michael. I will address your first 2 questions about our low-temp capacity. In Kunshan, we have a capacity of 25k sheets. For the past few quarters, we've been able to maintain full utilization rate to improve the capacity's contribution to our business. At the same time, we are dynamically adjusting the product mix manufactured at Kunshan. We are accelerating the development pace and improving yield rates and improving the production ratio of low-temp notebook panels. We hope we can utilize the capacity of 25k sheets to create the most optimal product mix in order to improve our operating results. Also, we are hoping to leverage touch and total solution as well as some value-added products to further elevate the product ASP of the Kunshan fab in hopes of maximizing the value of the 25k capacity. At the moment, we do not have specific plan for expansion. We are still making our evaluations. For your second question about mini LED, at the SID show, we showcased the full series of relevant products, including 2-inch, 6-inch, 15.6-inch and 27-inch mini LED backlight LCD panels for VR mobile monitor and smartphone applications. Going forward, we will continue to leverage this technology. At the moment, we are mainly utilizing mini LED backlight in niche high-end products. This is because mini LED has some specific characteristics and cost requirements. We hope to utilize its features in high dynamic range, high brightness and local dimming to create better high-end products. We expect that in the second half to launch our gaming monitor or notebook panels, utilizing mini LED backlight technology. So to conclude, we basically are using mini LED for backlight technology in our high-end products. The technology is in place, and we have been engaging our customers, and we will have mass production in the second half.

[Wei-Lung Liau, executive]

This is Wei-Lung. I will address your third question. As you said, in recent years, we do have a TV set assembly business. This is in line with our goal to have solutions. Going forward, TV sets will also be part of our business strategy. As long as we can expand our TV panel revenues and profitability, we will continue to bring this business into fruition. Thank you.

[Julia Chao, executive]

Ladies and gentlemen, in the interest of time, this concludes our conference call. If you still have more questions, please feel free to contact us at the IR department of AUO. Thank you.