奇景光電 (HIMX) 2011 Q4 法說會逐字稿

Greetings and welcome to the Himax Technologies Incorporated 2011 year end unaudited financial and investor update call. (Operator Instructions).

It is now my pleasure to introduce your host John Mattio, Senior Vice President of MZ North America. Thank you Mr Mattio, you may begin.

Thank you very much operator. Welcome everyone to Himax's fourth quarter and full year 2011 earnings call. Joining us from the Company are Mr Jordan Wu, President and Chief Executive Officer; and Ms Jackie Chang, Chief Financial Officer.

After the Company's prepared comments we will have time for questions today. If you have not received a copy of today's results release, please call MZ Group at 212 301 7130 or access the press release on financial portals like Bloomberg, Yahoo, Google, or you can download a copy from Himax website at www.himax.com.tw. A copy of the release was also sent to the Himax distribution list. If you would like to be included on future updates please submit your request to us.

Before we begin formal comments I would like to remind everyone that statements made in this conference call, including statements regarding expected future financial results and industry growth are forward looking statements that involve a number of risks and uncertainties that could cause actual results or events to differ materially from those described in this conference call. Factors that could cause actual results to differ include, but are not limited to, general business and economic conditions and the state of the semiconductor industry, market acceptance, and competitiveness of the driver and non-driver products developed by the Company, the demand for Himax products, reliance on a group of principle customers, the uncertainty of continued success in technological innovations, and other operational and market challenges.

This also includes the Company's Taiwan depository listing TDR, the capacity to maintain the full two-way fungibles between the Company's ordinary shares and ADS and other risks described from time-to-time in the Company's SEC filings, including those risk identified in the sections entitled Risk Factors, in its Forms 20-F for the year ended 31 December 2010, filed with the SEC dated 20 May 2011, as amended.

Except for the Company's full year 2010 financials which were provided on the Company's 20-F filed with the SEC, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with US GAAP. Such financial information is generally internal and has not been subjected to the same review and scrutiny, including internal auditing procedures and audit by independent auditors, to which we subject our annual consolidated financial statements, and may materially differ from the audited consolidated financial information for the same period.

Any evaluation of the financial information included in this conference call should also take into account our published audited consolidated financial statements and the notes to those statements.

In addition, the financial information included in this conference call is not necessarily indicative of our results for any future period. The Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events, or otherwise.

At this time I would now like to turn the call over to Mr Jordan Wu, President and Chief Executive Officer of Himax Technologies. Jordan, the floor is yours.

Thank you John, and thank you everyone for joining today's call. In today's earnings call, in addition to reporting our performance in the fourth quarter, I will also summarize our results for 2011 and highlight key milestones we achieved last year.

I will then provide our outlook for the first quarter 2012 and outline our strategic focus areas for the full year 2012.

Our CFO Jackie Chang will then provide further details of our financial performance.

Our fourth quarter revenue gross margin earnings per ADS all met or exceeded our guidance. Our fourth quarter revenues came in at $169.2 million representing 19.8% growth year-over-year and 4.4% sequentially.

Revenues from large panel display drivers was $67 million, up 8% sequentially and down 5.8% from a year ago.

The quarter-over-quarter increase was mainly due to the strong rush order demand from TV segment as many Chinese end customers pulled in their demands into Q4 to make up for the loss of working days during the Chinese New Year holidays in January. Large panel drivers accounted for 39.6% of our total revenues for the fourth quarter compared to 50.3% a year ago and 38.3% in the third quarter.

We are happy to report that sales of small and medium size applications were a record high for us in the fourth quarter of 2011. (Inaudible) revenues from small and medium size applications were $80.6 million, up 14.2% from the same period last year and up 1.1% sequentially.

Driver IT for small and medium size applications accounted for 47.6% of total revenue for the fourth quarter, as compared to 40.7% for the same period last year, and 49.2% in the previous quarter.

Sales from cell phone applications in particular enjoyed a spectacular 53% growth in the fourth quarter on a year-over-year basis, and up 2.5% sequentially, mostly thanks to strong demand of smartphones which nearly tripled year-over-year and doubled sequentially.

We are extremely excited about the strong and steady growth in this sector which more or less offset low level sales in large panel display drivers versus last year. I will elaborate more on this later.

Fourth quarter revenues from non-driver businesses were $21.7 million, an increase of 71.3% from the same period last year and up 6.4% sequentially. Non-driver products accounted for 12.8% of our total revenues in the fourth quarter, as compared to 9% a year ago and 12.5% in the previous quarter.

With double digit sales growth from many of our customers, revenues from related parties remained below 40% at 35.1% of total sales in Q4 last year, compared to 52.5% a year ago and 39.3% in the previous quarter.

We believe we have transformed our product mix and expanded our reach to other customers successfully. A more diversified customer base will reduce our dependence on any one single customer and help minimize our business risk.

Our GAAP gross margin for the fourth quarter was 22.1%, as compared to 21.5% a year earlier, and 18.1% in the previous quarter. The primary drive for the year-over-year and quarter-over-quarter increase in gross margin was the shift of our product mix.

Smartphone and non-driver segments were the major contributors to the improvement of gross margin in Q4.

Operating expenses for the fourth quarter were $26.2 million, [down] $4.3 million from the previous quarter. The reduction is partially the result of our higher RSU charges in Q3.

In the (inaudible) protocol, we grant any RSUs to our staff at the end of September each year, which given (inaudible), leads to higher third quarter GAAP operating expenses compared to the other quarters of the year.

The total value of our 2011 RSUs is approximately $3 million, out of which 97% were immediately (inaudible) expense in the fourth quarter 2011.

The bottom line performance of our last quarter was complicated by a few factors, most of which are one-off in nature. This makes it hard for straightforward comparison on both quarterly and annual basis. I will therefore give you adjusted pre-tax results for now. Jackie will elaborate the full details a bit later.

Our non-GAAP adjusted pre-tax income for the fourth quarter was $10.3 million, up 51.5% year-over-year and up 83% from the previous quarter. The non-GAAP adjusted pre-tax income does not take into account such factors as RSU expenses, acquisition-related charges, bad debt collections, income taxes and tax credit provisions.

The strong bottom line improvement for the fourth quarter was mainly a result of strong smartphone sales, which enjoyed higher margins, and our well controlled operating expenses.

I will now ask Jackie Chang, our CFO, to provide more clarity and detail on our financials. After Jackie's presentation we will further discuss our full year results and then 2012 outlook. Jackie.

Thank you Jordan. With that introduction we thought it best to address our appropriate adjustments and reasons to report our non-GAAP adjusted pre-tax income and earnings per share.

As mentioned earlier, our fourth quarter 2011 GAAP operating expenses were $26.2 million, up 50.2% from $17.4 million a year ago, and down 14.1% from $30.5 million in the previous quarter. The significant increase from last year was largely due to a bad debt collection of $8.6 million from SVA-NEC in Q4 2010, which was an offset against the sales expenses, whereas the significant sequential decrease was primarily due to the charge of 2011 RSU granted in the third quarter.

Ignoring the bad debt collection of Q4 2010 and the higher RSU charges of Q3 2011, our Q4 operating expenses actually stayed stable, compared to the previous quarter in the same period last year.

Without counting the bad debt collection, RSU expenses, and acquisition related charges, our pre-tax income was $10.3 million in Q4 2010, up 61.5% from $6.8 million year-over-year and up 83.3% from $5.6 million in the previous quarter.

Now let me spend a few minutes to explain our effective tax rate. Our Q4 2011 income tax expense were affected by two issues. First, high effective tax rate, which was resulted from two reasons -- one, our consolidated effective tax rate was artificially high because while our subsidiaries were loss making, their losses could not be used to offset against the profit made by the parent. This will reverse as the subsidiaries start to turn profitable, as we believe many of them will in the near future. Because their early profits will be tax-free due to their past losses, that can be carried forward for tax purposes.

Another factor to lead to our higher effective tax rate was the New Taiwan dollar depreciation against the US dollar for the whole year last year. There are two areas of impact here. Firstly, while the our reporting currency is the US dollar, super majority of taxes incur Taiwan on the basis of our NT dollar book, which is the required reporting currency for the Taiwan tax authority. The NT dollar depreciation resulted in foreign exchange gains for our US dollar assets and therefore higher tax payable in Taiwan.

The second impact was related to (inaudible) of deferred tax assets, which naturally is NT dollar based. The total additional income tax for the reason of NT dollar depreciation amounted to $5.5 million in the fourth quarter of 2011.

The second issue impacting our fourth quarter 2011 taxes was non-cash tax credit provisions. As part of our typical accounting practices we reviewed our balance sheet in Q4 and decided to make provisions of approximately $3.3 million of tax credits. We applied for and were granted these tax credits in the past years mainly out of our R&D expenditure.

We believe it is prudent to make such provisions given the uncertain global economic outlook.

Notwithstanding the provisions, these tax credits remain effective for the local tax authorities', meaning if we should make more pre-tax profits than we currently anticipated for this year, we will still be eligible to enjoy such tax credits.

Excluding the aforementioned tax credit provisions, our GAAP net income for fourth quarter would be $6.7 million, or $0.038 per ADS. GAAP net income attributable to shareholders for the fourth quarter was $3.7 million, or $0.021 per diluted ADS, compared to $11.7 million or $0.066 per diluted ADS a year, and $0.6 million or $0.004 per diluted ADS in the prior quarter.

The significant decrease from last year was primarily due to the $8.6 million bad debt collected from SVA-NEC in Q4 2010. Excluding the bad debt recovery, net of [these associated tax] benefits at time of the bad debt expense was charged. GAAP net income for fourth quarter of 2010 was $5.4 million or $0.031 per ADS.

We have provided the reconciliation detailing the above in the earnings release for those of you who wish to follow along. We believe non-GAAP adjusted figures can best provide investors with a picture which is more reflective of our underlying performance.

I will talk about the fourth quarter and full year balance sheet analysis together a bit later, after Jordan gives the 2011 full year business review.

Jordan.

Thank you Jackie.

Now let me summarize our 2011 full year performance.

2011 was a year full of both challenges and progress. While we lost share in large panel drivers, we also benefited from small and medium size panels, especially in the smartphone segment. Meanwhile, we also picked up strong momentum during last year across all our (inaudible) businesses, which we have cultivated for years.

We are confident that the strong momentum will continue through this year and beyond.

Large panel drivers remained [top of] the market with high customer content concentration, as they are still just a small number of large panel makers in the market.

We continued to experience declines in our large panel drivers business last year, primarily because one of our major customers continued to diversify their driver IT supplies (inaudible).

We are confident that our competitiveness in this segment remains strong and will continue to strive towards winning more market share in this account and others.

During 2011 we did gain share in the large panel sector in China, where there are relatively new panel makers emerging in the marketplace with the greatest competitor expansion plan.

We were also able to fill our small and medium size [trial businesses] and significantly expand our market share there. The market for small size panel manufacturing is a lot more fragmented with a much larger number of customers participating in the marketplace.

The fact that we were able to achieve outstanding performance in this area last year was a strong indication of our continued competitiveness in the driver IT industry.

Meanwhile, our non-driver products remained on an excellent growth track, [each showing strong] momentum. 2011 marked the first year in our history where non-driver sales reached a double digit percentage of our total revenue. We believe this growth momentum will continue into 2012 and beyond.

Our revenues totaled $633 million in 2011, representing a 1.1% decline year-over-year. The decline was a result of the 26.2% reduction of large panel driver sales, which represented 32.7% of 2011 revenue as compared to 57% in 2010. We don't expect further loss of market share for large size drivers with our [15] major customers for this year.

Moreover, as we mentioned earlier, we are confident that we will gain share in China where there are great panel capacity expansion plans, providing attractive new driver IT business opportunities for this year, especially in the large panel segment.

Small and medium size drivers on the other hand grew 26.2% year-over-year, representing 34.6% of our total sales, as compared to 34.8% a year ago. This strong growth momentum will continue through this year, thanks mainly to the fast growing smartphone demand.

We believe the increase in sales from the small and medium size drivers will also help boost our growth margin this year.

Non-driver products grew 53.1% year-over-year, representing 12.7% of our total sales, as compared to 8.2% a year ago.

We achieved numerous milestones for non-driver products in 2011. The first year we commenced mass production for several new products areas, including touch controller ICs, CMOS image sensors, wafer-level optics, wafer-level camera modules, and 2D and 3D conversion solutions.

Moreover, our LCOS micro-display solutions, power management ICs and WLED drivers all delivered strong shipments in 2011.

These accomplishments are illustrations of our strong R&D capability and our commitment to a more diversified product portfolio. We are confident that the strong growth momentum from all our non-driver products will continue through 2012 and beyond.

Gross margin in 2011 was 19.8%, compared to 21% in 2010, or (inaudible) income of $10.7 million or $0.061 per ADS, compared to $33.2 million or $0.187 per ADS last year.

We expect our small and medium size driver IT and non-driver products to contribute to our revenue, gross profit and net income growth in 2012.

We are past the period of (inaudible) in the initial stage of mass production in 2011 and expect a further ramp up of our non-driver products to generate higher gross margins in our driver products, leading to higher overall margins.

As I did with our report of the fourth quarter, I will now pass the floor to Jackie again to explain the details for our full year financial results. Jackie.

Thank you again Jordan. First, let me start with our GAAP numbers and I will detail to you our adjusted numbers which we feel will properly reflect our underlying performance.

In terms of 2011 full year performance, our GAAP operating expenses were $109 million, compared to $99.7 million a year earlier. Excluding the bad debt collection from SVA-NEC, GAAP operating expenses were little changed from last year at $110.5 million and $108.5 million for 2011 and 2010, respectively.

GAAP operating income was $16.6 million, as compared to $35.4 million a year earlier. Excluding the bad debt collection from SVA-NEC, GAAP operating income were $15.1 million and $26.6 million for 2011 and 2010, respectively.

With total revenue declining only slightly from the previous year, the operating income decline was primarily due to the lower gross margin from 21.0% to 19.9% , or $9.6 million reduction of gross profit, as well as $2.0 million of higher operating expenses.

Our cash, cash equivalent and marketable securities available for sale went up to $106.3 million at the end of December from $105.5 million a year ago, and $90.8 million a quarter ago.

On top of our above cash position, restricted cash was $84.2 million at end of December, up from $58.5 million during the same period last year, and down from $84.7 million at the end of last quarter.

Inventories at the end of December were $113 million compared to $118 million during the same period last year, and $104.7 million a quarter ago. We had a slight increase in inventories at the quarter end, primarily due to higher rush customer orders to be fulfilled during the first quarter 2012.

Accounts receivables at end of December were $181.1 million as compared to $176.2 million a year, and $174.7 million last quarter.

DSOs were 104 days at end of 2011, little change versus 100 days last year and 204 days at end of last quarter.

Net cash inflow from operating activities for the fourth quarter was $17.3 million, as compared to $29.8 million during the same period last year and $17.4 million in the previous quarter. Cumulative cash flows from operations in 2011 were $43.4 million versus $57.6 million the year before.

With regard to our $25 million dollars share buyback program, we have purchased a total of $9.2 million, or approximately 7.1 million ADS shares through 10 February 2012. We will continue to execute the remaining share repurchase program in accordance with Rule 10b-18.

Jordan.

Looking ahead into year 2012. We believe that our business is bottoming out and we are on track to regain robust top line and bottom line sales growth this year.

We also foresee a more balanced business portfolio with small and medium panel driver and non-driver businesses continue to contribute more significantly to our growth.

We are currently in a strong position in the smartphone sector with [new] technologies, competitive products, and good customer [line up]. We carry a comprehensive range of products, covering both mainstream and high-end smartphones. We are also working with panel maker partners in Taiwan, China, Japan, and Korea to supply drivers for numerous smartphone brand customers.

The growth momentum is expected to continue in 2012 with strong demand coming from both Chinese and international brand customers.

As stated earlier, our non-driver products grew 53.1% last year, with many products experiencing double digit growth. We expect another year of strong growth momentum for our non-driver products.

I will now elaborate a bit on our four particular non-driver segments which we believe will see robust sales growth this year. I will discuss about the repositioning of our TV and monitor [chips] (inaudible).

CMOS image sensor, while in its first year of commercial shipment, already accounted for a significant portion of our non-driver sales last year. We currently offer 3 mega pixel, 2 mega pixel, 1.3 mega pixel, HD, VGA and QVGA products, focusing on handset, laptop and tablet applications.

We plan to release new sensor products this year to further strengthen our product portfolio and to penetrate into new markets such as TV Cam, PC Cam, drive recorder, surveillance and automotive applications.

CMOS image sensor is and will continue to be a fast growing area for us. While we are a newcomer to the market, our sensors have been highly praised by many to have outperformed those offered by the incumbent players in terms of image quality.

Consequently we have numerous design-wins from customers ranging from camera module makers, contract manufacturers to system integrators with world leading brand names. 2011 was the year when we put our name clearly in the map. We are confident that 2012 will be a year of strong sales growth in this product area.

We expect our touch panel controller to be the next bright spot for our non-driver products. In the fourth quarter, we started to ship our multi-finger capacitive touch controllers to a world-leading smartphone maker.

With our proven product quality and first-tier customer shipping record, we are confident that we will continue to gain more new customers in the future. We are now working closely with several touch panel makers and a few leading handset and tablet PC brand names.

We will also leverage our leading market share in the small and medium panel drivers and solid customer relationships we have built over the years for the long-term success in this fast growing segment.

We made solid shipments for LCOS panels last year, mainly from cell phone-embedded PICO projector sales into third world countries as well as sales for certain toy and educational applications.

We remain committed to the long term development of LCOS micro display and its new applications. We achieved major technology breakthroughs in both color and brightness performance for our proprietary color-filter type LCOS panel last year. We are particularly excited about certain projects we are working on with a number of top-tier customers in developing brand new applications using our LCOS panels. We typically receive development fees for such tailor-made products.

We achieved very strong sales growth for our LED driver product line last year. With promising new design-wins across customers in Taiwan, Japan and China, we are looking forward to another year of phenomenal growth this year. We also launched our integrated power management ICs for panels last year and have since won quite a number of new projects from tier one customers - many of them praised the robustness of our products.

Mass production has commenced during this quarter. Again, we are excited about the strong sales prospect for this new product line this year.

We decided to reposition our TV and monitor chipset team at the end of last year. We stopped the development of our integrated TV chipset and turned the team's focus into providing solutions for customers who need sophisticated, tailor-made video processing ICs.

We have had some exciting early successes in the engagement of such customers. We will continue to maintain our monitor scaler business and strengthen our product line there by offering high value added scalers such as one with 3D function.

As part of the repositioning, we transferred some of the manpower internally at the end of last year to enhance our driver IC and touch panel controller teams. By stopping new TV chipset development and transferring manpower internally, we will be able to cut our expenses significantly while better utilizing our resources.

Our goal is to turn this business with substantial historical losses into profitability soon.

In the first quarter, we expect a mid-single-digit decline in our revenues compared to the last quarter with gross margin being flat or down slightly. Given that the first quarter has fewer working days due to Chinese New Year and that it is a cyclically low season, we believe it will be the bottom of the year in terms of sales.

GAAP earnings attributable to shareholders per ADS are expected to be in the range of $0.03 to $0.04 per ADS based on $472 million outstanding ADS.

The (inaudible) each year has improved by (inaudible) the last quarter reversed our expectation that the effective income tax rate will be back to more normal level versus the unusually high level of the last quarter as explained earlier.

Thank you for your interest in Himax. We appreciate you joining today's call and we look forward to a productive and profitable year in 2012.

Operator we will now open the floor for questions.

Thank you. We will now be conducting a question and answer session. (Operator Instructions)

One moment please while we poll for questions.

Thank you. Our first question is from the line of Jay Srivatsa with Chardan Capital Markets. Please proceed with your question.

Yeah, thanks for taking my questions. Congratulations on a good quarter Jordan and Jackie. Let me ask a couple of questions in terms of guidance. You mentioned that there is seasonal weakness largely driven the holidays in China. Are you expecting demand, both in the small panel and large panel, could be down or otherwise?

Thank you Jay, but I'm not sure I got your question clearly. You talk about guidance, right?

Let me repeat. I said, in terms of guidance you said, you've guided for it to be down 5 mid-single digit. Just my question is, is it specifically in one of the segments, meaning large panel or small panel or is it both?

Oh, I see. Okay. If you look at our current forecast, again, this is a disclaimer, the forecast may change and we're just talking about a forecast. I think we are looking at some flash to increase of (inaudible) large panel, am I right? Yes. (Inaudible) rush orders coming from the China market and some decline in small panels.

Okay. Your largest competitor has guided for -- I mean, not only did they have a decline in Q4, they've guided for further decline in Q1 in terms of revenues, much higher than what you've guided to. I guess the question is, are you seeing any market share shift relative to large competitor or is it just you're gaining new customers?

I'm not sure I want to comment too much on our competitor, but I think it really is -- I think -- I mean, we're starting to really rebuild, quote unquote, our momentum since a couple or four years ago when I think we've been regaining our market share in both large panel and small panel sector. I mentioned earlier our small panel design (inaudible), [our product line up] are particularly strong. So I think it's really a combination of all these factors together and on top of the fact that we are actually enjoying strong momentum [for our final quarter].

But something to add Jay -- I'd like to add was that I think for the last couple - for three quarters we've been outperforming our peers in the sector. So I think that if that trend continues I think our forecasts are more -- actually better than the others are probably a reflection of our continuing trends in the past three quarters.

Clearly--

All right.

--we all understand that our downfall over the past few years was primarily due to the fact that a lot of major customers decided to diversify, right? So I think once that they are (inaudible) participation comes to an end, certainly we [are subject the more] level playing field with our competitors. And as you have seen over the last few quarters as Jackie just mentioned, I think we have performed pretty strongly in both large and small panel sectors.

All right. You spoke about the non-driver products, but yet in the last three quarters revenues from non-driver has been virtually flat, give or take. So I guess the question is, when do you expect to see touch control and image sensor business really start to materially increase in terms of revenue contribution?

We do expect -- firstly on image sensor, we do expect our sensor revenue to pick up strongly (inaudible) with the launch of our SP sensor which is soon becoming the mandatory sensor for your laptop and (inaudible) PC. We have good timing for that product, good performance and we have numerous design [wheels] going on at the moment.

So we do believe our sensors segment to pick up particularly strongly starting from Q2 and we are looking ahead with exciting year for our sensor.

As far as touch controller is concerned, it's slightly more difficult to say. I mean, certainly we are newcomer and we started our shipment last quarter -- in Q4 last year with one major customer and meaning our dependence on that major customer at the moment, for the time being, is quite high. Certainly we are working very hard to penetrate to other customers. We have made good progress but touch controllers does require a long design (inaudible) time. So it is -- while we remain very excited about its prospects, I think it is probably -- we probably have a lower degree of certainty in terms of when exactly we'll see the second major customer comes in.

All right. Last question from me. Looking beyond Q1, typically Q2 tends to be a strong quarter for you. Are you seeing signs in the end markets to give you the confidence that you will have a pretty good Q2 as you look beyond your Q1?

Jay, again, we don't typically provide guidance for Q2 but to answer your question, yes, we do see a good visibility from this point of time into Q2. We're pretty sure of the size of customer demand all across large panel, small panel and non-driver product areas.

Thank you very much. Good luck.

Thank you Jay.

(Operator Instructions)

One moment please while we poll for questions.

Thank you. Our next question comes from the line of Jessica Chang with Deutsche Bank. Please proceed with your question.

Hi. Good morning Jordan and Jackie. Glad to see your good first quarter results. Have a few quick questions.

First, can you tell us what your revenue contribution from smartphones, if possible, can you indicate the revenue contribution for Q3, Q4 and the entire 2011?

Thank you Jessica. I will pass the question on to Jackie.

Hi Jessica.

Hi.

Yeah, to answer your question, our Q4 smartphone revenue was around $31 million, representing about 18.3% of our total revenue. The Q3 smartphone revenue was about $15 million, representing 9.6% of our total revenue. For the full year the smartphone revenue was $67 million, representing 10.6% of our total revenue.

Oh, great. Thank you. In terms of the non-driver business, would it be possible you can break it down by the few key areas?

We -- because this field too small in our total revenue, so we don't typically provide the detailed breakdown. I think once certain segments becomes more significant on its own we will start to provide some detail.

Oh, okay. Or would you be able to rank by the revenue contribution?

Okay. In terms of (inaudible) because I mentioned earlier in my prepared remarks, quite a number of segments -- in quite a number of segments we actually had the first year of mass production last year. So I guess it's probably a good idea that we provide you with just Q4--

Okay.

--because if you -- the Q4 picture could be materially different from that of Q1 when (inaudible) actually have -- did they even have any mass production?

Okay.

So I will present here--

Okay.

--so by rank--

So to answer your question to rank the non-driver products for Q4 2011, I guess number one was the CMOS sensor and number two is touch panel controllers and followed by LCOS and the rest.

Oh, okay.

I'm sorry?

Excuse me, no, no. Correction. I think number one would be our timing controller or panel.

So TCON's still the largest?

Yes, TCON's still the largest.

Okay. TCON and then CMOS image sensor and then touch panel controller and LCOS and the others.

Yeah.

Yes. Yeah, that's correct.

Then in terms of the gross margins, can you also rank?

That's a more interesting question. Well actually, seriously, I think we actually mentioned quite a few times in our previous calls that the last year for our non-driver products, gross margins in particular -- last year was a tricky year in the sense that quite a few of our products actually went through very early stage of mass production where we actually suffer from low yields and sometimes even worse, customer returns and so on, a lot of which we did learn a lot of experience. So actually we, in our earlier remarks, we mentioned that last year when we pick up the license and this year is the year when we believe we start to see those products contributing strongly to our gross margin.

Now, to get back to your question, if I want to rank the overall gross margin of each particular segment I would say certainly small items such as 2D to 3D converters enjoyed extremely high margin and I mentioned about our repositioning of our [TV team] and so they are -- we are turning them into a (inaudible) services to customers and (inaudible) the margin is very, very high.

Then touch panel controller is a very high margin business, I would say followed by [WLED] drivers and power management ICs, the analog devices and LCOS, then timing controller and then sensor I think would probably come last in terms of gross margin.

Having said that (inaudible) though, I believe everything is -- everything is generally high gross margin and (inaudible) on average.

Okay. So this rank is like maybe the level for the first half or for this year, right?

I think, barring any major surprises, I think this could potentially be a long term kind of rank for their--

Oh, long term rank, okay.

--their relative gross margins, yes.

All right. Because you had quite good margin expansion in Q4 so given that some of your new products still in the very early production stage well you actually built your margin expansion largely through the smartphone increase in terms of revenue weights in Q4.

Yes, definitely.

And also on your smartphone driver IC, do you also see the segment also improve their margin (inaudible) itself?

Ah, interesting question. We did enjoy a early start, right, and we -- both (inaudible) and Chinese (inaudible) -- by the way, we are very excited about the potential of Chinese local brand names smartphone business, which we believe will be growing very strongly in the foreseeable future and it's an area where we do enjoy a very good customer coverage.

Now, about the -- on the question about whether the smartphone driver IC will continue to enjoy potentially highest gross margin compared to the average driver IC. It's -- driver ICs is always competitive, I don't want to say - I don't want to present a too optimistic view. I think, so far, at the moment certainly it is better margin and we'll certainly continue to fight to defend our margin by offering earlier products, better (inaudible), better shipments and so on. But it's a competitive market so that's all I can say.

Okay. Then given you probably will -- you should still enjoy good market (inaudible) smartphone proliferation and also your non-driver ICs are gaining momentum. What's your gross margin potentially the target for this year -- would it be like maintaining at the Q4 level or even maybe there would be some upside?

I certainly hope we will do better than Q4 for the whole year. And certainly -- we certainly -- it is our chance to improve that (inaudible) our overall gross margin for this year against last.

(Inaudible)--

As you know, our Q4, we did have the best gross margin among the four quarters of last year. So we certainly hope the average margin for this year will be higher than Q4.

Okay. Do you have any preliminary target for your revenue contribution from non-driver segments, overall together?

20%.

20% for this year?

Yeah.

And given the basis you assume you should have revenue growth, right?

Oh, yeah. Of course.

Okay. Yeah. Oh, so my final question is, in terms of the largest sized market segment, you've since mentioning you've been working with customers from China and also you see your share at a major client is getting gradually stabilized. My question is, would it be possible you can maybe see a little bit market recovery (inaudible) the major client or you expect more overall market share upside coming from new customer acquisition?

In terms of market share I think (inaudible) should be the market share increase for Himax naturally I think will come from new customers because of the fact that they are new, right? They come from nowhere. So any gains is a pure gain for us. And we do believe we will enjoy the good market share over those - you mentioned (inaudible) in China. Now back to our major customers, we still think we work extremely hard to make sure we provide the best service possible to our major customers. So it's -- over there in the competitive market, I believe, given the customer has -- from their strategies point of view, right, they've decided to diversify and now they (inaudible) they wanted, I think, from now on it is a case of more level playing field for us and our competitors there.

So we are quite confident. We will fight for a better market share over there, and recently we do see a rush order coming from first customers, not just one but across our large panel customers for TV in particular for the China demand. So that kind of explains our -- somehow our Q1. You mentioned earlier, to address Jay's question, that Q1 is a typical slow season. However we do see large panel demand kind of outgrowing the small panel and I think that is mainly thanks to our rush orders coming from China TV.

Thank you. You mean rush large panel order for TVs from China and it's from -- most of the rush order is from the major client, major customer?

I did say across customers, not just one. But certainly in terms of percentage, certainly it comes largely from the major customer because he has always been our major customer.

Okay. All right. That's the question I have for today. Thank you very much Jordan and Jackie.

Thank you.

Thank you Jessica.

Thank you. Our next question comes from the line of Caroline Wong with Merrill Lynch. Please proceed with your question.

Hello Jordan and Jackie. Hi.

Hi. Morning.

Good morning. I would like to ask about the [ASP] trends for the coming quarters for your overseas trending -- overall trending in 2012. What do you see in the large panel driver IC and also small and medium?

I think (inaudible) receive strong orders from our large panel customers in particular rush orders as I mentioned earlier. In the meantime we do -- we have -- we do face a little bit of product pressure from our large panel customers. As you will appreciate, our customers in large panel (inaudible) in particular, are now in seriously -- in a pretty tough market for them, so I think naturally they would demand for a better product support from their major suppliers. So I would say in Q1 (inaudible) I would say (inaudible) be probably in a range of 2% to 3%, 2 percentage. If -- the product pressure is probably less so for small panel.

I see.

As well as the ASP outlook for the year is hard to say.

Understood.

Did that answer your question?

Yeah.

Thank you. Our next question comes from the line of Jerry Su at Credit Suisse. Please proceed with your question.

Hi Jordan. A few questions here. One is that on the gross margin side, I think the Q4 has seen a pretty good improvement. Because you commented that after your gross margin in fourth quarter, is this mainly from product mix or you have seen some cost reduction?

Oh, it's always both. I mean, cost reduction is an ongoing effort and we do work very hard on cost reduction every quarter, including this quarter and every quarter going forward this year. It comes from a few areas. For example, we would transfer our product from one [foundry] to another to achieve better cost. We will move our process -- sometimes it's a matter of process migration, sometimes it is (inaudible) effort, even test time reduction while [in the meantime] assuring our product quality, et cetera. So there are, indeed, numerous efforts which is ongoing all the time. So cost reduction has always contributed to our gross margin. Certainly I -- and I will leave it for Jackie to come in on the product mix. Certainly I think -- we mentioned earlier our smartphone is a major contributor--

(Inaudible).

--for our gross (inaudible) Jackie.

Yeah. I think, Jerry, to answer your question, yes it did come from product mix, mainly from the smartphone because the smartphone sales represent about 18.3% of our total revenue in Q4 versus 9.86% in Q3. Gross margin, per se, for the smartphone are much higher than most of our large panel driver IC as well as the (inaudible) phones. So I would say that our Q4 gross margin improvement primarily came from the smartphone increase in sales in Q4. Of course mixed with the cost reduction effort that we continue to make.

Having said that though, we embarked on a major cost reduction effort for our (inaudible) product last year and I think it's closing to the end, need such effort towards the end of the year (inaudible) next year. So we do expect some good cost reduction as an effort to improve our gross margin for (inaudible) products. And certainly (inaudible) as Jackie mentioned (inaudible) a low gross margin compared to smartphones but (inaudible) business something we don't intend to give up and it's a long term concern that we do try very hard to improve the costs there as well.

Oh, okay. Thank you. Next question is regarding to all your small medium sized driver IC business. I think recently we have heard that there is some kind of inventory buildup in the Chinese smartphone market for the past month and some panel makers or component makers are saying that the inventory need one or two months to digest. I'm just wondering -- I just wondering if Himax has seen the same trend or in Q1 I think you also commented that small medium sized revenue would decline more. Is this the main reason and when will it start to take off?

I think the answer is yes. It definitely explains partially why we are guiding for a slight decline for Q1 and slight decline for also for small medium sized panels (inaudible). I think certainly the inventory buildup actually starting at the end of Q4 when customers expected a long Chinese New Year holiday so they did build up more inventory and now it's a sell off period. We -- before this conference call we actually (inaudible) customers in China and see if they will give us (inaudible). There are promises starting from March that demand would pick up and the industry will be back to more normal again. So we don't believe on our side we'll see excess inventory on our side at the end of the quarter for small panel in China.

Okay. Thank you. Last question is also regarding to a small medium sized. Could you give us some color on the resolution -- the (inaudible) resolution you are shipping now for the Chinese market?

Okay. I believe you are referring primarily to (inaudible). So we have -- starting from the most high end, we believe we are probably the first to successfully (inaudible) smartphone panel which, however, it's not for Chinese customers. It's for international brands. For China such high resolution is still very, very rare and now the mainstream for smartphone is (inaudible) and to a lesser extent (inaudible) and I think it will remain like this for the rest of the year, and as well as (inaudible) is concerned (inaudible).

Certainly for our product line up we're very low end all the way down to [each year] (inaudible) and again we have higher end product (inaudible) [nHD, WECA] and even all the way up to (inaudible) as I mentioned earlier.

Okay. And for the LHD and qHD products, how do you see the trend to -- in this year?

They are -- it does depend the entire international (inaudible) brand. Somewhere the demand has remained stable and we are hoping demands from (inaudible) will [pick] up this year although we are less certain about that. But China is the real deal I think in my view. It's -- end of last year was the time of their commencement in smartphone shipments but they -- the demand has come in so strongly from Chinese brands and over there (inaudible).

Okay. Thank you.

That is all the time we have for questions. I would now like to turn the floor back over to Jordan for closing comments.

Well thank you everyone for taking the time to join us in today's call and we look forward to talking with you again at our upcoming -- the next earnings call in early May. Thank you and have a nice day.

This concludes today's teleconference. (Operator Instructions) and thank you for your participation.