奇景光電 (HIMX) 2019 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Himax Technologies Third Quarter 2019 Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference call is being recorded.

(Operator Instructions) I would now like to introduce your host for today's conference, Maili Bergman with MZ Group.

You may begin.

Welcome, everyone, to Himax's Third Quarter 2019 Earnings Call.

Joining us today from the company are Mr. Jordan Wu, President and Chief Executive Officer; and Ms. Jackie Chang, Chief Financial Officer.

After the company's prepared remarks, we have allocated time for questions in a Q&A session.

If you have not received a copy of today's results release, please e-mail himx@mzgroup.us or access the press release on financial portals or download a copy from Himax's website at www.himax.com.tw.

Before we begin the formal remarks, I'd like to remind everyone that some of the statements in the 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 events or results to differ materially from those described in this conference call.

Factors that could cause actual events or results to differ materially from those described in this conference call include, but are not limited to, general business and economic conditions, the state of the semiconductor industry, market acceptance and competitiveness of the driver and non-driver products developed by Himax, demand for end-user application products, the uncertainty of continued success in technological innovations as well as other operational and market challenges and other risks described from time to time in the company's SEC filings, including those risks identified the section entitled Risk Factors in its Form 20-F for the year ended December 31, 2018, filed with the SEC in March of 2019.

Except for the company's full year of 2018 results, which were provided in the company's 20-F and filed with the SEC on March 28, 2019, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting.

Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and external auditing by an independent auditor, to which we subject our annual consolidated financial statements and may vary materially from the audited consolidated financial information for the 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.

I will now turn the call over to Ms. Jackie Chang.

The floor is yours.

Thank you, Maili, and thank you, everybody, for joining us.

In today's call, we will first review the Himax consolidated financial performance for the third quarter, followed by the fourth quarter 2019 outlook.

Jordan will then give an update on the status of our business.

After which, we will take questions.

We will review our financials on both IFRS and non-IFRS basis.

The non-IFRS financials exclude share-based compensation and acquisition-related charges.

Our third quarter 2019 revenues, gross margin and EPS all met our guidance issued on August 8. For the third quarter, we recorded net revenue of $164.3 million, a decrease of 3% sequentially and a decrease of 12.8% year-over-year.

The sequential decline was mainly due to the anticipated lower sales into TV and smartphone segments.

Gross margin was flat sequentially at 19.5%.

IFRS loss per diluted ADS was $0.042.

Non-IFRS loss per diluted ADS was $0.04.

Revenue from large display drivers was $50.1 million, down 15.6% sequentially and down 24.5% year-over-year.

Clouded by panel makers' ongoing inventory correction, driven by weak TV demand and industry-wide oversupply, our large panel driver ICs continue to experience lower shipments and pricing erosion in the third quarter.

Large panel driver ICs accounted for 30.5% of our total revenues for the third quarter compared to 35% in the second quarter of 2019 and 35.2% a year ago.

Revenue for small and medium-sized display drivers came in at $77.1 million, down 5.6% sequentially and down 9.2% year-over-year.

The segment accounted for 46.9% of total sales for the third quarter as compared to 48.3% in the second quarter of 2019 and 45.1% a year ago.

The sequential revenue decrease was mainly due to lower smartphone TDDI and tablet cells, while automotive segment recorded better-than-expected sales.

The year-over-year decline was mainly due to lower automotive and tablet driver IC sales.

Automotive sales worldwide declined sharply since Q4 2018 over worries of economic slowdown and trade conflicts.

Sales into smartphones were down 7.7% sequentially, but up 32.8% year-over-year.

The sequential decline was mainly due to lower TDDI shipments.

As indicated in the last quarter's earnings call, our TDDI sales were challenged by accelerating AMOLED display adoption and rapid ASP erosion caused by increased competition.

On a year-over-year basis, our TDDI shipment doubled as our fulfillment was capped last year at capacity constraint.

Sales of traditional DDICs declined by 1.9% sequentially, but increased 6.4% from last year.

Display drivers for tablet and other consumer products were down 16.1% sequentially, better than our guidance of decrease by around 25% because of customers' inventory replenishment and more sales into white-box market on the backdrop of a shrinking global tablet market.

Year-over-year sales of this segment declined 33.9%.

Our driver IC revenue for the automotive application was up 6.1% sequentially.

It was down 19.7% from the same period last year due to the declining auto shipment for the reasons stated earlier.

Revenues from our non-driver businesses were $37.1 million, up 31.1% sequentially and flat year-over-year.

Non-driver products accounted for 22.6% of total revenues as compared to 16.7% in the second quarter of 2019 and 19.7% a year ago.

The sequential increase was mainly due to higher WLO and CMOS image sensor shipments, offset by lower timing controller sales.

Gross margin for the third quarter was 19.5%, flat sequentially, but down 390 basis points from the same period last year.

The year-over-year decline can largely be attributed to smartphone TDDI ASP erosion due to increased competition and significantly more shipments of TDDI for the low-end market.

Moreover, our large panel driver IC businesses continue to experience pricing pressure caused by industry-wide TV panel oversupply and high material cost.

Nevertheless, the gross margin of the WLO business improved from the same period last year because the increased shipment to an anchor customer have led to higher capacity utilization.

Likewise, on a sequential basis, the gross margin improvement delivered by more WLO shipments was offset by the slowdown in sales and downward price trends for smartphone TDDI and large driver ICs.

Our IFRS operating expenses were $39.7 million in the third quarter, up 2% from the preceding quarter, but down 8.5% from a year ago.

The sequential increase was caused by increased salary expenses.

The year-over-year decrease was mainly a result of reduced restricted share units, RSU, as we did not issue RSU like we did in previous years.

RSU is part of our share-based compensation, which we usually reward employees at the end of each September.

Non-IFRS operating expenses for the third quarter were $39.3 million, up 2.3% from the previous quarter and up 1.2% from the same quarter 2018.

On September 23, 2019, Himax's compensation committee approved an employee stock option plan of up to 3 million units for the same number of Himax ADSs, with exercise price being the fair market value of the grant date.

On September 30, 2019, we granted 2,226,690 units of stock option to certain employees at an exercise price of $2.27.

The remaining 773,310 units of stock option can be granted to employees by September 6, 2022, when the current long-term incentive plan will expire.

For the portion which has been granted, we expect to recognize stock option-related compensation expense of $0.33 million in each of Q4 2019 and Q1 2020 and additional $120,000 in each of Q2 and Q3 2020.

IFRS operating margin for the third quarter was minus 4.7%, down from 0.4% in the same period last year and down from minus 3.5% in the prior quarter.

The sequential decrease was primarily a result of lower sales and higher operating expenses.

The year-over-year decline was a result of lower sales and gross margin, offset by lower operating expenses due to reduced RSU expenses as mentioned earlier.

Third quarter non-IFRS operating loss was $7.3 million or minus 4.4% of sales versus non-IFRS operating income of $5.4 million or 2.9% of sales for the same period last year and down from minus 3.2% a quarter ago.

The sequential and year-over-year declines were for the same reasons stated above.

IFRS loss for the third quarter was $7.2 million or $0.042 per diluted ADS compared to loss of $5.2 million or $0.03 per diluted ADS in the previous quarter and IFRS profit of $0.9 million or $0.005 per diluted ADS a year ago.

Third quarter non-IFRS loss was $6.9 million or $0.04 per diluted ADS compared to non-IFRS loss of $4.8 million or $0.028 per diluted ADS last quarter and non-IFRS profit of $4.5 million or $0.026 per diluted ADS for the same period last year.

Turning to our balance sheet.

We have $128 million of cash, cash equivalents and other financial assets as of end of September 2019 compared to $102.9 million at the same time last year and $122.4 million a quarter ago.

The cash position increased $5.6 million from last quarter due primarily to operating cash inflow of $24 million and additional unsecured borrowings of $13.6 million, offset by a CapEx of $31.2 million.

On top of the cash position, restricted cash was $164 million at the end of the quarter, almost the same as the preceding quarter and a year ago.

The restricted cash is mainly used to guarantee the secure short-term borrowings for the same amount.

We had $90.6 million unsecured short-term loan at the end of third quarter versus $77 million a quarter ago.

Our inventories as of September 30, 2019, were $167.6 million, down from $188.5 million a quarter ago, but up from $145.8 million a year ago.

Accounts receivables at end of September 2019 were $157.3 million, down from $176.2 million last quarter and $187.6 million a year ago.

Day sales outstanding was 86 days at end of September 2019 as compared to 96 days a year ago and 96 days at the end of the last quarter.

As highlighted in the last earnings call, in response to capacity shortage of foundry and certain packaging material, we had to keep the inventory level higher than usual last year.

Given the prevailing uncertain market conditions and easing of foundry capacity, we have started to control our inventory level since the first quarter of 2019.

Net cash inflow from operating activities for the third quarter was $24 million as compared to the inflow of $2.2 million for the same period last year, an outflow of $17.7 million last quarter.

So quarter-over-quarter and year-over-year cash flow change was mainly a result of lower receivables and inventory.

Third quarter capital expenditures amounted to $31.2 million versus $8.2 million a year ago and $5.7 million last quarter.

The majority of third quarter CapEx totaling $29.2 million consisted of $27.5 million payments for land purchase and ongoing payments for the new building's construction and WLO capacity expansion.

The remaining $2 million was the investment in design tools and R&D-related equipment for our traditional IC design business.

By the end of third quarter, we have concluded substantially all the CapEx payments for the new land, building and 3D sensing project with just $1.6 million left to be made in the fourth quarter.

As of September 30, 2019, Himax had 172.2 million ADS outstanding, little change from last quarter.

On a fully diluted basis, the total ADS outstanding are 172.6 million

For the fourth quarter, we expect revenue to be around flat sequentially.

Gross margin is expected to be slightly up sequentially depending on our final product mix.

IFRS loss attributable to shareholders are expected to be in the range of around $0.03 to $0.045 per diluted ADS based on 172.6 million outstanding ADSs.

Non-IFRS loss attributable to shareholders are expected to be in the range of $0.027 to $0.042 per diluted ADS based on 172.6 million outstanding ADS.

I will now turn the call over to Jordan.

Thank you, Jackie.

As I mentioned last quarter, 2019 has been a challenging year for Himax.

Uncertainty in the global economy continues to overshadow the marketplace, where we are seeing waning demand in all industries that consume display.

This, combined with the prevailing LCD industry capacity oversupply, has led to severe pricing pressure for panels, which inevitably affected the sales and margin of display driver IC across all major product segments, including TV, smartphone and automotive.

As we look forward, although at this time, we have limited visibility, we do not anticipate the business environment to improve in the near future.

Our strategy is to focus on delivering P&L improvement by executing on the technologies we already developed for both driver IC and non-driver IC areas.

One of our major focus areas for business during 2019 has been TDDI for smartphone.

This business was negatively impacted by the severe foundry capacity shortage that occurred during 2018 and resulted in our inability to meet our customers' delivery requirements.

Although the capacity constraint was resolved towards the end of 2018, the delay eliminated our ability to participate in major design opportunities that would have driven the business in 2019.

While we expect the 2019 smartphone TDDI sales to increase more than 40% against last year, the growth will be below the target we set for ourselves.

Even the outlook for smartphone TDDI remained weak in Q4, we do anticipate a strong rebound for Q1 2020 and a robust growth for next year.

I will elaborate on this in a few moments.

Now let me give you update for some of our major business areas.

Let us start with the large-panel driver IC business update.

The current market for television sales is weak, driving an overcapacity of LCD display.

As a result, since our last earnings call in August, many large-panel makers have cut back their production output.

The combination of weak TV sales and reduced production output as well as relatively high upstream material costs has put pressure on driver IC demand, negatively impacting our results for the third quarter.

For the fourth quarter, we expect business to remain flat sequentially for our large display driver IC segment.

At this time, we are seeing continued concern in the industry over display capacity oversupply extending into 2020.

Conversely, Himax and some of our major panel customers foresee a potential foundry capacity shortage of a 8-inch silicon wafers for display driver ICs.

Anticipating the 8-inch foundry capacity constraint, we have already prepared to provide 12-inch foundry capacity and back-end packaging and testing to cover the potential 8-inch capacity shortfall for large-panel driver ICS.

We are working closely with panel customers as with our foundry and backend partners to secure production plans for 2020.

Our design project coverage is strong across all leading panel makers.

This provides us with good ongoing opportunities for 2020.

Now let's turn to the small- and medium-sized display driver IC business, beginning with an update on our smartphone segment.

As stated in the previous earnings call, in 2018, limited by capacity constraints, we chose to focus for our shipments of smartphone TDDI to higher-end full HD+ as opposed to HD+ projects in an effort to yield higher revenue and better margin.

As we enter 2019 equipped with our newly-developed foundry capacity, we expected significant TDDI growth from this full HD+ projects during the second half of the year.

Unfortunately, the strong growth from full HD+ projects we expected did not materialize due to accelerating adoption of AMOLED displays like that, unlike TDDI displays, are able to take advantage of under-display fingerprint sensor technology.

Facing the AMOLED competition, TDDI adoption is shifting more towards mid- to low-end models with HD+ resolution.

Since we chose to focus on full HD+ in 2018, we passed on many HD+ opportunities and started 2019 with very low market share of HD+ solutions.

As a result, we have not benefited from the shift in the HD+ marketplace.

The combined result was weaker-than-expected smartphone TDDI growth during the first 9 months of 2019 and a muted outlook for the fourth quarter.

That said, we expect to record more than 40% growth in this segment for the whole year 2019.

Since these missteps, we have worked hard to raise our visibility in the HD+ market and have already begun HD+ mass production with a top-tier end customer earlier this year.

We have also expanded the HD+ coverage to further customers.

Based on the current pipeline, our Q1 TDDI smartphone shipments will include significant amount of both HD+ and full HD+ products.

We anticipate a strong rebound for Q1 2020 and robust growth for the whole of 2020.

For the fourth quarter, we expect TDDI revenue to decline by more than 30% from the previous quarter.

Regarding TDDI for other applications, our solutions for tablet and automotive continue to make good progress.

I will elaborate more a bit later.

While we expect only small volume shipments in 2019, both represent better ASP and margin for our TDDI solutions long term and the tablet products, in particular, are expected to deliver strong volume starting next year.

Our traditional discrete driver IC sales into smartphone posted a slight sequential decline for the third quarter versus our original expectation of a substantial decline due to a Chinese smartphone maker's delivery pull-in request.

Despite this, we continue to see the traditional discrete driver IC addressable market being quickly replaced by TDDI and AMOLED in smartphone.

We expect traditional discrete driver ICs for smartphone to decrease substantially in the fourth quarter of 2019.

Combining TDDI and discrete drivers, our Q4 sales into the smartphone market is expect to decrease by around 25% sequentially.

As discussed earlier, a major development we are seeing is increasing utilization of the OLED display for smartphone triggered by growing AMOLED capacity and the under-display fingerprint technology, which is only applicable in the AMOLED display for the time being.

We have been collaborating closely with leading panel makers across China for AMOLED product development.

While we do not expect revenue contribution anytime soon, we believe AMOLED driver ICs will be one of the long-term growth engines for our small panel driver IC business.

In the automotive display segment, the slowing economy and rising concern over tariffs have caused subdued new car sales across all major markets, particularly in China.

However, our automotive business delivered a modest sequential growth in the third quarter as reported earlier.

We expect the most positive momentum will carry into the fourth quarter attributable to market share gains of a certain of our customers.

Q4 sales for this segment will increase by more than 15% sequentially.

Looking forward, the overall automotive display market is forecast to increase from 2020 onward as the number of displays per vehicle continues to rise.

While we don't expect the same kind of growth that we enjoyed in the last -- in the past several years due to saturation in the automotive space, we believe that by capturing the demand for display specification upgrades, we will deliver automotive sales growth going forward.

The market is quickly shifting towards a number of new technologies, including higher resolution, in-cell touch, slim border, giant pillar-to-pillar screens, local dimming for higher contrast and plastic AMOLED for free-form design, all of which play to our advantage in advanced automotive display technologies.

We are working closely with major automotive panel makers and leading Tier 1 vendors over all the technologies mentioned above.

On tablet and consumer electronics businesses, although the overall market remain weak, we expect the tablet business to increase by around 35% in the fourth quarter, mainly due to mentioned earlier design wins for high-end tablets going to mass production with a number of leading end customers.

The design wins include display driver IC with COF packaging for large-sized tablets with narrow borders and our world-leading in-cell TDDI with active stylus functionality for tablet.

Combining tablet and other consumer electronics businesses, we expect sales to increase by around 20% sequentially in the fourth quarter.

The shipment momentum for these high-end design wins will carry into next year.

For the fourth quarter, revenue for the small- and medium-sized driver IC business is expected to be around flat sequentially.

Now let me share some of the progress we made on the non-driver IC businesses in the last quarter.

First, on our WLO business.

As anticipated, the third quarter WLO revenue increased substantially thanks to a pickup in shipment to fulfill an anchor customer's higher seasonal demand.

The sequential shipment increase has led to higher capacity utilization, also resulting in positive contribution to our Q3 gross margin.

Based on the customer's shipment forecast, we expect a slightly lower shipment volume sequentially in the fourth quarter.

Next is the 3D sensing business update.

In the smartphone segment, we have advanced our WLO optic solution to cover both structured light and time-of-flight, or ToF, 3D sensing.

Separately, as I reported in the last earnings call, our structured light-based 3D sensing total solution business targeting Android smartphones front-facing application was unsuccessful.

We have since adjusted our structured light-based 3D sensing development to focus on applications for non-smartphone segments that require a high level of depth accuracy.

That the customer in smartphone segments almost always require a total solution for 3D sensing also played to our advantage.

Looking at ToF-based 3D sensing solution for smartphone, where our strategy is to provide WLO optics, we are seeing increasing ToF adoption by smartphone makers for rear-side cameras to enable advanced photography distance/dimension measurement and 3D depth information generation to enable AR.

We are actively pursuing smartphone makers ongoing ToF 3D sensing projects by teaming with our ecosystem partners.

Our non-smartphone engagement have been focused on smart door lock and industrial automation segments.

We are collaborating closely with industry-leading facial recognition algorithm and application processor partners to develop new 3D sensing applications for smart door lock and have started design projects with certain end customers.

We are in the process of revamping the solution based on the customer's technical requirement.

Separately, we are working with partners who wish to take advantage of our 3D sensing know-how to automate traditional manufacturing, thereby improving efficiency and reducing costs.

Our 3D sensing solution for shoe factory automation production line announced in August has gained tractions among footwear OEMs, ODMs and machinery suppliers.

Next, on WiseEye, our AI-based ultra-low power smart sensing solution.

The demand for battery power smart device with AI intelligent sensing is rapidly growing.

Our total solution is built on Emza's unique AI-based algorithm on top of Himax proprietary computer vision process and CMOS image sensor, all equipped with ultra-low power design.

Currently, laptop is the market of focus.

Himax's WiseEye 2.0 NB solution provides a laptop-ready 3-in-1 RGB/IR/AI solution, respecting privacy while enhancing security for notebook users.

The prototype we announced during Computex 2019 has been well received by leading CPU platform providers and laptop end customers who are now actively evaluating the technology.

We are expected to demo the mass production version on laptops at the 2020 CES.

In addition to providing a total solution for ultra-low power smart sensing, we also provide individual parts of the total solution separately to address the market's different needs.

For example, the ultra-low power computer vision processor we developed as part of the WiseEye 2.0 NB solution can also be used for AIoT applications.

The WiseEye WE-I Plus, the AI-enhanced ASIC platform that we recently announced can support popular machine learning frameworks for the system customer to develop a wide range of video and audio AI applications where power is a strict constraint and on-device memory is limited.

Typical applications include the smart home applications and surveillance systems.

On CMOS image sensor business update.

CMOS image sensor is another critical part of the WiseEye 2.0 NB solution I just mentioned.

To support the lean camera design and high-quality image needed for laptops with thin bezels, we have made a 2-in-1 sensor that offers the duo capabilities of high-quality HD image capturing and the ultra-low power lower resolution vision sensing in one single sensor, the industry's first with the innovative design.

With this sensor, laptop makers can simplify their next-generation product design and save costs by eliminating the need for an additional camera in their effort to offer context awareness for better user experience.

In addition, our sensor has incorporated an RGB-IR design to enable Windows Hello facial recognition.

The new CMOS image sensor will be available by the end of 2019.

For the traditional human vision segments, we see strong demand in notebooks where we are one of the market leaders and increased shipments for multimedia applications such as car recorders, surveillance, drones, home appliances and other consumer electronics, among others.

Additionally, we have been -- we have seen increased shipments and new design wins in the automotive segment covering before-market solutions such as surround view and rear-view cameras.

Lastly, on LCOS.

We continue to focus on AR goggle devices and head-up displays, or HUD, for automotive.

Our technology leadership and proven manufacturing expertise has made us a preferred partner for customers in both areas for their ongoing engineering projects.

Separately, one of our customers has recently announced an advanced LiDAR solution that utilizes Himax's proven LCOS technology and tailor-made manufacturing service.

This is another solid evidence of our leadership position in this complex emerging technology.

LCOS represents a long-term growth driver for us.

For non-driver IC business, we expect revenue to decrease by around mid-single digits sequentially in the fourth quarter.

That concludes my report for this quarter.

Thank you for your interest in Himax.

We appreciate you joining today's call and are now ready to take questions.

(Operator Instructions) Our first question comes from the line of Jaeson Schmidt with Lake Street.

I just want to get a sense of your confidence that some of these headwinds you're seeing in Q4 will start to abate in 2020.

And more so, could you just talk about your overall visibility beyond Q4?

I assume you refer to our entire portfolio of businesses.

So I'll probably start -- I have to start sector by sector because they do differ.

Firstly, on large panel, I think I mentioned earlier the industry is suffering from overcapacity, and I think that is the consensus among the industry players, so we do have limited visibility.

And the interesting thing is that while the customers are uncertain about the demand outlook for next year, they are seeing the risk of the -- the interest is suffering from foundry capacity shortage for driver IC again because large panel, in particular, depends largely on up to now on 8-inch wafer foundry.

For the 8-inch, because of a few new applications which speak volume, notably under-display fingerprint, has consumed a lot of 8-inch capacity.

So I think it is reasonable to assume that there's a good likelihood we'll see industry-wide tightness again next year for 8-inch.

So I think we've foreseen this quite a long time ago, so we started to get ourselves really well prepared for 12-inch.

That covers both foundry and the back-end.

So I would argue we are among the pioneers and among the most ready in terms of 12-inch preparation.

So a few of our leading customers are working closely with us to try to secure the production plan for the entire of next year.

And this is backed by our pretty comprehensive design portfolio among leading panel makers.

So I think while it is probably too early and a bit hard to predict the industry outlook for the large kind of business next year, I think we are pretty confident about market share because of the reasons I mentioned.

On small panel, firstly, on smartphone, we said it, we repeat it again and again in our prepared remarks, that 2019 has not been a good year for us.

I think we've learned the lesson, so I indicated first quarter we are likely to see a strong rebound.

And we're also likely to see a strong rebound for the entire of next year.

That is back on our new design pipelines covered both our Gen 1 TDDI products as well as certain project engagements we are having with leading several customer for Gen 2 solutions.

So I think next year will be a year where we try to regain our market share for TDDI.

And at the moment, as I indicated in the prepared remarks, I think we have pretty good confidence about that.

On tablet, I think next year will be a good year for us.

Again, tablet has not been a good market for growth for several years already, so we are not seeing anything different for next year.

However, it is our value addition by providing new technologies into high-end tablets with design wins across literally many of the leading tablet makers.

That includes notably TDDI in-cell design with active stylus.

I think active stylus is gaining popularity, and I think we should be able to take advantage of that nicely next year.

So certainly next year we do expect a good growth.

Likewise, for automotive, automotive this year has been a below-average year in terms of growth for us after many years of wonderful growth, which led us to the #1 position in terms of market share worldwide.

And we indicated Q3 was better than expected and likewise for Q4.

I think that is, okay, it's an indication of our leading market position.

And next year, some of the new technologies I indicated, there's a long list of new technology for automotive, sustain technologies.

We would start to see them taking effect starting next year.

So I don't think we were -- there's actually a good likelihood we may actually get a little bit further on market share next year on automotive on top of the new technology introduction and mass production.

I think automotive, hopefully, next year will not be too bad either, although economic uncertainty continues to be -- to overshadow the industry, as we are all aware.

And so that kind of covers the driver IC and the non-driver.

I think timing controller is a similar story to large display driver IC, so I won't repeat that.

And CMOS image sensor is likely to see another strong growth in notebooks, double-digit growth in notebooks as well as our automotive and multimedia businesses.

WLO, we are counting on 1 anchor customer right now, as we said that repeatedly, so I will not comment on the prospect of WLO for next year because that is -- that kind of implies a direct -- implies the anchor customers outlook for us.

But I think I would just make 2 comments.

One, we [stand with the customer].

We continue to enjoy good relationships, and we are actually working very closely together on a few programs, which will take off some time in the future.

And also another major focus of our WLO business is to diversify into other customers.

And we mentioned all of the current short-term focus has been WLO optics to support ToF 3D sensing for Android market.

So we are -- I think we are making good progress together with our ecosystem partners.

Although not being a new market, I'm sure many of you guys also heard about the design traction that the industry sees in terms of applying ToF technology to all facing cameras to enhance their camera features.

So we are seeing the same.

So we are actively participating in that.

But in terms of the volume outlook, I think it's probably too early to tell at this point.

I think we'll update in due course.

And the last couple of areas I want to cover is our new areas.

Firstly, on (inaudible) WiseEye, our ultra-low power total solution.

Our first focus is on output, and I mentioned we are expected by leading brand names to demo a real solution, the mass production business solution, at CES, which is around the corner.

And at the same time, we are actively engaging in technical collaboration.

So we are hoping that soon after CES, we will start to have some real kickoff in mass production projects.

But the design will take time.

So I would -- I think my best estimate would be some early small volume mass production hopefully -- and towards the end of next year with volume production the year after, starting with leading brand names, premium models.

And our target is to take the premium model into a mainstream model in 2022.

So in that area, we're offering a total solution of Emza algorithm, our WE-I ASIC processor as well as the CMOS image sensor -- the 2-in-1 CMOS image sensor I mentioned.

And our WiseEye total solution is likely to see some volume production as well in AIoT next year.

Again, that is something I have to give you an update due course.

Lastly, on 3D sensing, our total solution, (inaudible) in our very short-term focus, there are 2 areas.

One is smart door lock, and the other one is industrial manufacturing automation.

In terms of smart door lock, we do have design in customers.

We are working to improve the performance to -- I mean, firstly, let me just say, smart door lock is a new concept which is really gaining popularity, gaining momentum.

But there are different ways to unlock your doors.

Now the industry is trying to take advantage of 3D sensing technology and try to use that technology for door unlock, which is -- will be the most convenient and also offers a high degree of safety.

And now the industry, they're working on that.

I think we're among the pioneers.

Nobody can claim 3D sensing is already a mature solution for 3D facial recognition unlock at this moment, although I think we are just crossing the last mile.

We are very, very close to reach that point.

And if that is successful -- or I should say, in the meantime, other applications requiring similar technical requirements will be seen by ATM machines, POS device, point-of-sale device, et cetera, right, who are of a similar range of distance, requiring high level of security, facial recognition and so on.

And so we'll be working on that, on those, next year.

So I think it's too early to predict the volume indication or timing for next year at this point.

But hopefully, we can give you better update next quarter or 2.

The industry automation or manufacturing is actually a very interesting concept, a concept we announced firstly in August.

We've actually attracted a lot of interest from the brand names, from shoe -- footwear makers, brand names, leading ODMs and even shoe equipment -- shoe manufacturing and equipment vendors.

Now there are very active technical engagement or assessment going now at this moment.

In the meantime, there are 2 possible business models that we are discussing with our potential customers.

One is of loyalty model, i.e., each time you use or you take a photo, a 3D photo, we charge on a number of times the photo is taken in your shoe manufacturing process.

And the other type is a more straightforward, straight buyout of the device.

But -- although I'm not going to tell in public exact number of sales price, but I can tell you that in the second business model, the kind of price we're talking about is more similar to the industrial equipment rather than the kind of the consumer electronics component kind of price you are used to.

So my best guess is that the first half next year, we will be able to make some sales, although starting with small volume, people are likely to have a few equipment of our devices installed in the different manufacturing premises and tried it and get comfortable with it for a few months before hopefully more significant orders will come through.

So again, we have to give you more updates on that.

So I hope that that kind of covers all areas and that kind of covers -- give you a good insight into our business outlook for next year.

(Operator Instructions) We do have a question from Jerry Su with Crédit Suisse.

I just want to get your thoughts on the TDDI opportunities for next year.

I think you have mentioned that there are some design activities or design wins that you have secured.

So just wondering, for 2020, what do you think of the industry's overall shipments and what's Himax opportunities.

Or if you can give us your target run rate, I think that, that'll be very helpful.

Jerry, I'm afraid I'll be a bit reluctant to give you a run rate forecast for such a long period of time because 1 year is a long time, as you know, in our business.

And I think I don't want to give a premature indication of the so-called run rate.

Some number indication, so to speak.

I can tell you with we're confident that -- we indicated Q1 will see a strong rebound.

I think Q2 visibility remains positive.

The tricky part of this industry is that, as we all know, now the cellphone makers are highly concentrated their business.

So you're talking -- really talking about just a handful of leading makers and you -- and then with those leading makers, they only have a few, a small number of major phone programs each year.

So you hit one of a few of those programs or you don't.

That makes a huge difference.

And so what I can tell you, though, is that we are penetrating.

So but before, that is on the end smartphone device makers' level.

And on the panel makers' level, for us, the TDDI provider, first, we need to get into the panel makers' technology platform, for which, I think, we have achieved a very good success among the -- in particular, Chinese panel makers.

So from those panel makers, we'll then start to engage together with panel makers the end device makers.

And also another point which makes early prediction difficult is that the Gen 2 technology, Gen 2 technology, we talked about a few technologies, but right now, it appears that only the high refresh rate or [what we call 120 hertz] or 90 hertz kind of solution is getting traction because of the requirement for smartphones targeting gaming or 5G, high refresh rates.

Having said that, though, this TDDI or in-cell technology will be competing up against the AMOLED.

So we are one of the pioneers in terms of providing such TDDI, and we are working together with both panel makers and device makers.

But again, success or failure or success or lack of success in a number of major projects can make us -- the picture very, very different.

So I'm afraid we will have to give you updates further down the road.

Having said that, though, I can tell you, capacity is much, much less of a concern for us at the moment.

And certainly -- and then that doesn't mean next year, the industry will not suffer again from capacity shortage, but I think we are much better prepared this time than in 2018.

So I think many of our customers, including end customers, right now turn to us also because of these reasons.

So we are feeling good about 2020, but I'll be reluctant to give early indication on numbers.

Got it.

And then next, on pricing.

I don't know what you are seeing on pricing in the recent months because you have mentioned that previous 1 or 2 quarters have seen some pricing pressure.

I'm just wondering how should we think about the TDDI pricing maybe in 4Q and also in 1Q next year.

I think for pricing pressure still remains in this quarter, but we are seeing signs of easing in pricing pressure exactly because of the reasons I mentioned, the seemingly rising concern of capacity tightness.

So when you see the device makers come in proactively to guys like us and asking for capacity securement and such and such discussion or even signing of contracts and so on, you know something is happening.

And when that happens, certainly, naturally the pricing pressure will be softer.

But I think pricing pressure comes mainly from the competition of AMOLED because in-cell display has to compete with AMOLED and also certainly among the TDDI solution providers, ourselves.

So -- and also the industry right now, you're already talking about 2 mainstream resolutions, full HD+ and HD+.

It used to be full HD+ enjoys better pricing, and that is why we kind of [developed] HD+ when we suffer from capacity constraint last year.

But in terms of margin, I think both are reaching a similar kind of level, so we are not seeing much of a difference.

And again, our strategy has turned, and we are focusing on both rather than just 1 business because we are now fully backed by capacity.

So I think next year, pricing pressure, I can't say is going to go away because the competition continues, right?

And smartphone outlook is not looking very, very promising, I mean certainly with the 5G coming and all that.

But I think the one thing that can change the picture is the capacity situation.

Got it.

And then speaking of capacity, I think previously we have secured some wafer capacities before, I think, early in the year.

But given the slower ramp-up or shipments of your -- of the TDDI, I'm just wondering will there be any impact on those wafers or commitment you have made to the foundries.

We have actually recently engaged and confirmed the 2020 production plan our key foundry partner.

So I think that should not be an issue for Himax.

And I'm not showing any further questions.

I'll now turn the call back over to Mr. Jordan Wu, President and CEO, for closing remarks.

Jackie, our CFO, will maintain investor marketing activities and continue to attend investor conferences.

We'll announce the details as they come about.

So thank you, and have a nice day.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.