Yahoo Finance

Question and Answer Session

Operator

(Operator Instructions)
Mike Young, Bank of America.

Thanks management for taking my question. So my first question will be kind of housekeeping. Could you update the third quarter revenue breakdown by business to us? Thank you.

Jack Zhao

Okay, thanks. In the Q3 DP is above 40%. Our high speed PS product is about 45% and the TC or our source driver is about 10% and our TT or true touch is less than 5%.

Okay. Thank you Jack. And then I would like to know further on the new product, cooking schedule, especially on the server and data center side. Can you update us on the PCIe redriver? What's the expected timeline that we, we should be looking for into '25 and '26? Thank you.

Jack Zhao

We have been developed both PCIE redriver and a retirement on the Gen 6 level. And we have PCIe Gen 6 redriver in our lab. In fact, we just received the product a few days ago and which has 16 channel, 8 channel and a 4 channel. So throught the product we will receive it at the same time. So the part looks pretty good and promising. So we still bring up those PCI Gen 6 and we will work with the customer to do the verification. And recently we see more and more customers become more interested on the PCI Gen 6 redriver because of a lower power and lower cost. And we continue to develop PCI Gen 6 retirement, but it will take a longer time for the retirement development.

Thank you Jack. That's very clear. And then my last question will be on the panel solution side. I think previously you mentioned that there is a tougher competition on the general notebook business. So I'm wondering if that is the case and then because you basically give the same growth margin guidance for fourth quarter. So just like to know that whether there is a change regarding to the competition landscape or dynamic on the general notebook side. Thank you.

Jack Zhao

Yeah, thanks. I think the in general after the cover -- the competition on panel side is getting -- especially no competition, the panel side solution getting more high and then -- the higher than the previous before the COVID time. And the notebook panel on the high end start to transition more towards the gaming towards the [AMD]. That's what you heard. We are announced the gaming solution and we also work with the Tier 1 panel guy and continue for the AMD and the development solutions.
On the competition mainly on the low end and on the full HD or HD level, our position is more towards the high end and integrate solution which we had to set the TED or touch enable the TTED and those solutions. And recently we saw the more OEM and panel vendor getting interested on the touch enable the integrated panel solutions. So we are ready for the people to use those solutions for the notebook. While the competition is high, we remain positive for those high end and notebook panel price for integration panel price. And we think we can strive to make a difference for customers.

Okay. That's very clear and insightful.

Operator

Bruce lee, Goldman Sachs.

Bruce Lee

Hi, thank you for taking my question. Can you hear me?

Jack Zhao

Yes.

Bruce Lee

Okay. So I'm happy to see that there is some progress on (technical difficulty) a lower, but the penetration might be higher than the retirement for the server. Can you tell us what kind of address for market you would expect from the redriver market (technical difficulty) then the retirement market? Is that the right understanding?

Jack Zhao

It depends on which generation, right (technical difficulty) speed and the earlier solution provider, the better and as the addressable place and the you have on the mother -- you have on the the card application for SSD or even for the riding car, and as well as a lot of cable application and highly demand on the redriver side for 2 or 3 meters, and recently -- actually we have engaged with the cable guys. And those are for data center applications.
The reason we see the redriver attractive is really the customer come to us to ask such solution because the retirement, why the performance is good, but retirement has issue is the higher power, high cost and almost every ball, the different system you have to tune. So it's a burden for customers to use. That's where we are to develop both solutions and we are pin to pin compatible and for (technical difficulty) so we are open for customers to choose which one to use. And -- so that's the our strategy at this moment.

Bruce Lee

But again what is the -- thank you. But what is the you know, addressable market size for the redriver market for the data center? Is like 100 million -- couple of [$100 million].

Jack Zhao

(inaudible) [Outside the size.]

Bruce Lee

I see. Okay. So the second question I got is that, in addition to the redriver or retirement market in the data center, is there any other new adjustable market or new product you are working on which can be like, a potential revenue growth driver for the company.

Jack Zhao

We -- as we present on the high speed side, we are provide a large portfolio, the high speed solution for the general electronics or general PC, the consumer electronics market. And we recently the US before become a -- start to become a dominant and with a much higher speed of 20 gigabit per second or will go to the 40 gigabits per second on the year before that too.
We are just announced as the -- you mean read through, we have a USB4 hub and with this device, we all provide end to end the USB4 solution, whether you are a transmitter, whether you are redriver, retirement and receive a site, and with PD and coupling with our, the MST, the DP 2.1 hub together. Those have become a pretty powerful complete solution for USB4. And now we're looking forward to speed upgrade to the 40 gigabits per second. We think those are the world make, the business continued growth in our high speed area and has been -- it has been before as we are present in all the tracking data for the high speed segment.

Bruce Lee

Just a quick follow up. When do you expect the USB4 to a surplus or the prior product in terms of revenue contribution in your high speed interface? --

Jack Zhao

Our US if our US for retirement and for the 2024 look at the single product, our USB4 retirement, a loan provides the the highest single product revenue for our (technical difficulty) so that's the magnitude we are talking about. And we introduced and used before the timer about two years ago. So that's the -- this year already exceed any other product. And this single product created most of the revenue for us.

Bruce Lee

I see. Thank.

Operator

(technical difficulty)

Unidentified Participant

About a very preliminary outlook for 4Q. It looks like 4Q maybe overall could be a little bit flattish if I'm not mistaken. Now based (technical difficulty) demand or any product line that we are seeing maybe weak outlook and -- or maybe we can get an update on your 4Q business score between different product lines. So that, that would be my first question mainly on the near term of 4Q revenue side.

Jack Zhao

I think you have a good observation. The first of all in general, the PC notebook demand in the Q4 is lower than then what we had expected. And I think has been reported in the research report, people had a thought and the overall 2024 might be reach the unit noble grows exceed 5%. And in the end, my only reached about 3%. As I talked to the industry (technical difficulty) reflect to that one of the -- this kind (technical difficulty) could have more on the ask your second question for the product line side. We continue to see our highspeed PS product line even in the Q4 are pretty encouraged or promising and has not been seen any weakness.
The weakness are more related to as I described for (technical difficulty) the panel related and it seems panel demand is reduced or as we said, the competition is getting high. So that's the -- that's what we see. Otherwise the high speed side looks good and the general the panel side is a weak.

Unidentified Participant

I see. If assuming the high speed interface remains promising as Jack you mentioned, do you think given the better product portfolio into 4Q, maybe our growth margin can show some recovery or some improvement into 4Q? Just because usually I think our high speed product line bears higher margin. So just a quick follow up.

Jack Zhao

At this moment, I still would like to based on our guidance, and for the guidance range and we have to look at to see the growth margin is complicated, not only the product mix and as well as other factor will factor in. So at this moment, I would still point out to the our guidance we just provided.

Unidentified Participant

Sure. Thanks Jack. If I may, can I just follow up one thing? When you refer to the panel, the competition with the panel -- within the panel solution. I think we are mainly referring to the driver IC segment or we are also referring to the TCOM segment. I just want to clarify. So DP or even the drive IC -- or the drive IC segment, which one we are referring to more.

Jack Zhao

The price side is more on the driver side. On the driver side, however the low end panel solutions and become mature. And especially EDP 1.2 and price become a the dominant factors especially in the China panel vendor place. So those are impact both on the (inaudible) so as the driver side and that's what I refer to the driver is more dominated, but still also impacted. And that's the panel, the current status and the -- so yeah, that's what we observed.

Unidentified Participant

I see. So given, we mentioned about maybe this year, the PC demand is weaker than expected. Do you think given the inventory digestion in 4Q, maybe 1Q next year, we can see a better seasonality. I know it's still a little bit early, but you are always, you have some. So just want to consult you on how do you think about 1Q next year?

Jack Zhao

Based on the current our book -- order book in the Q1 looks stronger than normal seasonality. I think one of the factor my play is the China stimulus package. And this time China stimulus package goes through the channel. So all the way go to the system vendor side, take a little bit longer time. So like a one quarter delay. So you can see the Q1, the order is getting stronger than normal seasonality.
And another thing I hope or industry start to getting excited is the AIPC AI notebook and we continue to see more high end system got introduced and we are pretty luck or pretty strong associated with all of the AR platform except the Intel on the USB4 (inaudible) the rest of the significant player or platform or using our or reference our USB4 retirement.
So we are getting excited for the AI machine applications and those systems when the site is getting bigger, using our chip from two to four on one notebook under those retirement. So that is one of the things getting us excited. And we think by the next year Q1, Q2, they will have a more such system introduced to the market.

Unidentified Participant

I see. Thanks, Jack. That's exactly what I want to ask about the USB4 retirement opportunities. So if I may follow up on your commentary on multiple platforms, design win except for Intel. Can I ask, if I think about more like maybe in the next one to two years, I know Intel right now have their own retirement solutions. But how do you think about the potential order we even in the Intel platform? Do you think it's a -- do you think it's possible? And how do you think about the product road map between your USB4 retirement and Intel? Basically, I just want to understand whether or not our USB4 retirement 10 can also expand to the major CPU platform. So that's something I try to figure out. Thanks Jack.

Jack Zhao

I always (inaudible) Intel. A pretty compatible with support USB4. Our OEMs and has been pushing Intel to allow our chip to on their system. It's a continued effort so far Intel still want to bundle CL their CPU together. We see, as we heard, we just visit Intel, the site and they start to -- I'm not that sure, probably may -- in some systems may well start to evaluate because of the OEM push.
However majority our sales or our wings are based on the other platform, whether [MD], whether [Cocom] with upcoming [videos]. And those are the our core strengths and those are our product -- the customer like our products. And frankly, we helped many of those OEMs to pass rigid CTS test and fundable CTS test, and a customer pretty happy with what the service we provide and all the strength of our product.
So yeah, Intel is the one thing they decided to continue to use their own retirement. And that's unfortunate but the OEM are pushed very hard. And we hope we will see some light. If we see some light, I will report to you. We did a visit to the Intel site and to communicate with them and to compare notes and so on and so forth, yeah.

Unidentified Participant

I see. Very clear. Thanks a lot, Jack. I'll be back in the queue.

Operator

[E Wang , HSBC].

Unidentified Participant

Hi, Jack and Yo-Ming. Can you hear me?

Jack Zhao

Yes.

Unidentified Participant

So the first question is I, I would like to ask, is there a demand for retirement in the [GP200]? And what place is it located? Is it in a computer or a switch trade?

Jack Zhao

Say it again other years before the (inaudible) .

Unidentified Participant

So is there a demand for retirement in the GB200 AI server? And where is it --

Jack Zhao

Okay. Those are not our market. Those are the the Nvidia decide -- as I understand the Nvidia, the new one, the design has been architecture changed and we are not in those systems. (multiple speakers) What I mentioned the Nvidia is upcoming Nvidia AI notebook platform. I just clarify it.

Unidentified Participant

Okay. So is there any new AI server clients and --

Jack Zhao

We have some AI serve clients. Yes, but not in a big scale.

Unidentified Participant

Okay. Let's follow up on the expected mass protection timing for the AI server client.

Jack Zhao

Well, current has the shipping sum but it is a small scale. Yes, what current (inaudible), yes.

Unidentified Participant

Okay. Thank you. That's very clear. I'll get back to the queue.

Operator

Thank you --

Jack Zhao

Again for the investor community, what I mentioned in Nvidia is upcoming AI notebook platform and people getting excited because the platform has very high the -- [MPU] performance and I was told that there will be a big announcement in the [ICs, okay].

Operator

[Jamie], KGI.

Unidentified Participant

Hi Jack and Yo-Ming. I think I have two questions. The first one is about the standards-plus product. I think last year market has been talking about your market shares in standards-plus project. And I remember that was because when customers move to MLA maybe they will use their own design. And I'm wondering what do you think about the situation now. And what do you, are you confident that your market share will at least be now or can even improve in the future?

Jack Zhao

I think what you had mentioned was in the iPad Pro, panel and part of the Samsung a model panel using their own (inaudible) that's what you referred to I believe. And we now clearly know we ship with LDD and a model iPad (inaudible) the totally. And (technical difficulty)

Operator

(Operator Instructions) (inaudible)

Unidentified Participant

(technical difficulty)

Jack Zhao

Sorry, I cannot hear you clearly.

Unidentified Participant

(technical difficulty)

Operator

I'm sorry, by any chance would you please try to redial with another device? The quality is pretty poor. Sorry to say that.

Jack Zhao

Looks like his line has a problem.

Operator

Exactly. We will take the next one then.
Jason John, CLSA.

Jason John

Hello. Can you hear me?

Jack Zhao

Yes, very clear.

Jason John

Okay. Good. Thank you for taking the questions. I just want to know that whether you have any catalyst or drivers for next year for your DP and the high speed segment. Can we expect that there's more design wings or by migration with higher content or ASP for EP or for high speed for next year (technical difficulty)? Can you give us that kind of colors or trend in for next year? Thank you.

Jack Zhao

I think we are by far most excited for our USB4 retirement. And that will bring us more groups in the next year. And hopefully associate with those the AI related to the notebook. And we're also excited for our integrate touch panel solution. We do see the uptake of design wing and design inquiry for those segments and those solutions all together pretty expensive. So customers really like it. So I would think those are the two; one, maybe create a surprise for us. And I think USB4 retirement probably is very sure thing will do pretty good as the design pipeline we knew that. Yeah, among others and our standards-plus customer, they will do better and as we can see the recent their selling and looks good and -- yeah.

Jason John

Got it. So for USB4, can you give us the current penetration rate for USB4 in PC right now? Or how do you expect this number for next year? Thank you.

Jack Zhao

I think in general, USB4 -- next year, penetration will reach to the 30% to 40%. I think more like 40%. And as we said clearly, we are in the customer platform MD (inaudible) the Nvidia (inaudible) notebook and so on and so forth. Those together very likely occupy 30% or 30%-plus of market share, might be reach 35% of market share of total notebook. So that's the -- you make a calculation.

Jason John

Got it. So how about the current penetration rate in Q3 and Q4?

Jack Zhao

The current, what I would think probably 15% to 20%. It will reach to the 40% on the unit of notebook. Okay. And some large notebook needed two or four of such device depends on the number of ports on the notebook put it together. The two is pretty common for the big notebook, and they will need two or four of those devices.

Jason John

Got it. And my second question in terms of the competition in USB4 market, it seems like other competitive players also want to enter into USB4 retirement market. So do we see any market shares risk or price pressure due to this competition?

Jack Zhao

Intel is by their own. And among those we see some in the Taiwan and however, it will remain the -- as we said the -- not able to pass all the CTS test or if people don't put a logo, there can use their device. Previously we have a startup (inaudible) to doing it now, the Candu almost disappeared and from market and -- hopefully the next year is not that big, but I don't know the long term. And the next year, the competition, most of the system already settled down and that already complete. And so that's what we view.
But moving forward to the 2026 our solution will move to the highest speed the USB4 that to 40 gigabit per second. So again, we will take a pretty unique position there and we already start to do the testing with the newer CPU now. And that's the continuity of expect those market for us.

Jason John

Okay. Understood. Thank you. Answer no questions. Get back to the queue. Thank you.

Operator

Thank you and ladies and gentlemen, if there are no further English questions at the point, we will now begin our Chinese question and answer session. (spoken in foreign language)

Jack Zhao

Thank you everybody.

Operator

Thank you. You may disconnect now. Bye-bye.