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Edited Transcript of 009150.KS earnings conference call or presentation 28-Apr-20 1:00am GMT

Greonggi-do Apr 28, 2020 (Thomson StreetEvents) — Edited Transcript of Samsung Electro-Mechanics Co Ltd earnings conference call or presentation Tuesday, April 28, 2020 at 1:00:00am GMT

Samsung Electro-Mechanics Co., Ltd. – Head of Strategic Marketing

Samsung Electro-Mechanics Co., Ltd. – VP and Head of Corporate Strategy & Planning Team

Daishin Securities Co. Ltd., Research Division – Research Analyst

Kiwoom Securities Co., Ltd., Research Division – Team Leader and Electric & Electronic Analyst

Samsung Securities Co. Ltd., Research Division – Analyst

* S. K. Kim

Daiwa Securities Co. Ltd., Research Division – Research Analyst

Good morning. Thank you very much for joining today’s conference call. We will now start the 2020 First Quarter Earnings Conference Call of Samsung Electro-Mechanics. We will start the conference call with a presentation by the company before taking your questions. (Operator Instructions)

Now we will start the presentation by Samsung Electro-Mechanics.

KwangWook Bae, Samsung Electro-Mechanics Co., Ltd. – VP and Head of Corporate Strategy & Planning Team [2]

Good morning. This is KwangWook Bae, VP and Head of Planning Team and IR at Samsung Electro-Mechanics. Thank you for joining our 2020 First Quarter Earnings Conference Call.

Before going into the presentation, I would like to introduce the management who are present. We have EVP Bo Yun Jung, Head of Business Support Team; SVP Kook-hwan Cho, Head of Strategic Marketing; Cheol-Soon Ga, Head of Support Team, Component Solution division; [Kyung-Won Lee] Head of Support Team, Module Solution division; and [Kwan Choi] Head of Support Team, Substrate Solution division.

We will start with a presentation of our first quarter business results and divisional results, followed by market trends and outlook by product before taking your questions.

First, our Q1 business results. SEMCO’s revenue in Q1 was KRW 2,224.5 billion, which is an increase of about 21% Q-on-Q and about 8% year-on-year. The detailed breakdown of the increase and decrease factors by division will be explained shortly while addressing each division.

In Q1, operating profit was KRW 164.6 billion and approximately 19% Q-on-Q increase but a roughly 32% decrease year-on-year. Pretax profit in Q1 was KRW 156.7 billion, including a total of KRW 7.8 billion in nonoperating expenses, including equity method losses despite improved foreign currency-related gains. Net income after corporate tax was KRW 132.1 billion.

Next, in terms of financials, as of end of March 2020, total assets was KRW 9,484.5 billion, which is a 9% increase from end of the previous quarter. For our major financial indicators, debt-to-equity was 72%; net debt-to-equity, 22%; both increasing versus the previous quarter. And shareholder equity decreased quarter-on-quarter to 58%.

Next is the results and future outlook of each division. First, the Component Solution division. The Component Solution division’s Q1 revenue was KRW 857.6 billion, which is an 11% increase Q-on-Q and a roughly 2% increase Y-o-Y. Even though automotive MLCC revenue from OEMs and Tier 1 suppliers decreased due to the overall weak demand in the auto market, there was an increase in the sales of high capacitance MLCCs to the strategic customer and MLCCs for IT applications, such as PCs and game devices. Also, we saw an increase in supply of industrial high-end MLCCs for servers and power equipment, which helped increase divisional revenue versus the previous quarter.

During Q2, MLCC market is expected to see solid demand in applications, such as PC servers and networks, as people continue to work and study from home due to COVID-19. We will focus on winning new design-ins from global customers to increase our supply. However, demand for MLCCs for mobile and automotive applications is expected to remain weak even in the Q2, and we will be responding flexibly to changes in market demand by monitoring changes in order and sales trends and operating our production flexibly.

Next, the Module Solution division. In Q4 revenue — or Q1 revenue was KRW 983.2 billion, which is roughly 53% increase Q-on-Q, about 4% increase Y-o-Y. Major contributors to revenue growth versus the previous quarter includes the increase in supply of high-performance camera modules, including the folded zoom and WiFi modules for the launch of the new flagship smartphone by the strategic customer. Also, our supply of 100-meg plus ultra-high pixel camera module to Chinese customers also increased.

In Q2, camera module market is expected to see a decrease in demand due to seasonality in COVID-19. Accordingly, we will focus on making up for lost revenue by winning new opportunities in Chinese handset markets with our high-performance camera modules, such as the folded zoom.

Also in the case of communication modules, because 5G communication module market is expected to gradually increase, we will ready — we’ll be ready for the 5G antenna technology and prepare for mass production.

Lastly, our Substrate Solution division. Q1 revenue was KRW 383.7 billion, which is roughly an 11% decrease Q-o-Q but a roughly 37% increase Y-o-Y. For package substrates, even though revenue of substrates for mobile memory somewhat decreased, supply of 5G antenna substrates and RF front-end SIP increased and the supply of Flip Chip BGAs for thin CPUs also increased driven by strong PC demand. As a result, our package substrate revenue increased. However, supply of RFPCB substrates to overseas customers decreased significantly due to seasonality, resulting in revenue of the overall division falling.

In Q2, even though mobile-related demand will remain weak due to COVID-19, package substrate demand for PC applications is expected to remain relatively solid. Accordingly, we will focus on increasing market share with new customers for our PC memory substrates, including those for GDDR and increase supply of Flip Chip BGAs for laptop, thin CPUs where there is increased demand and for automotive and network applications.

Now this completes my presentation on Q1 results. And now the Head of Strategic Marketing will provide an update on market trends and outlook by product.

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Kook-hwan Cho, Samsung Electro-Mechanics Co., Ltd. – Head of Strategic Marketing [3]

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Good morning. This is SVP Kook-hwan Cho, Head of Strategic Marketing. I would like to share our updates on the market situation and outlook for MLCC camera modules and substrates.

First, MLCC. During first quarter, the impact of COVID-19 differed by application and by region. In terms of demand, with the global adoption of social distancing and even lockdown in some countries, the smartphone market underwent contraction, leading to weak demand for smartphone-related MLCCs. Automotive MLCC also saw a decrease in demand due to shutdown of automotive plants in many countries. On the other hand, the pandemic led to wider adoption of new lifestyle, such as online schooling and working from home, which helped keep MLCC demand for applications, such as PCs and servers and game devices, relatively solid.

We — if we look, as example, of demand in China, there has been an increase in orders during March and April to make up for production disruption suffered during January and February, and some MLCCs for PCs are even experiencing some shortages. In terms of supply due to COVID-19, customers were concerned of possible drop in utilization in MLCC plants in China, and the Philippines lockdown possibly causing MLCC supply issues. Such concerns were reflected in MLCC demand, which helped us maintain solid business results for MLCC in Q1.

In Q2, major set sales, including smartphones, are expected to remain weak as the impact of COVID-19 spreads globally to markets, including U.S., Europe and Latin America. On the other hand, in Greater China, set makers have started to call workers back to work and line utilization is starting to rebound. While PC demand is expected to remain solid, thanks to increase in online schooling and working from home, we will focus on increasing our revenue by actively responding to the needs of our key customers.

Looking towards the second half, major set demand, including smartphone demand, may differ greatly depending on whether COVID-19 comes down or not. So there is still a lot of uncertainty about MLCC demand, but we are continuing to win orders for server applications, which are tied to the newly emerging so-called untapped lifestyle. And new 5G smartphone launches are also an area for us, and so — as well as increased network infrastructure investments are being planned. So we expect MLCC demand for these applications to remain solid.

Uncertainty for the second half is increasing, but we will focus on closely monitoring the changes in demand and supply by each application and area and concentrate on meeting customer needs by increasing our product responsiveness.

Next, about camera modules. In the smartphone camera market, the wider adoption of multi-camera continues and high-pixel camera modules up to 108 megapixels are starting to increase. We are also seeing trends such as wider adoption of big size image sensors, such as the 1/1.3-inch for superior low light picture quality as well as the 5x-plus high-power optical zoom. During Q1, build demand increased due to the new flagship launch by the strategic customer and new demand for 48 meg-and-above camera modules increased from Chinese customers.

However, in Q2, on top of the usual seasonality of the strategic customer, overall smartphone sales is expected to be limited due to major cities in the U.S. and Europe remaining in lockdown due to COVID-19, which is likely to have a significant impact on camera module demand.

During Q2, we are focusing on winning design-ins for new flagship models scheduled for launch in the second half.

COVID-19 has limited our face-to-face communication with customers, but we have found ways of continuing close collaboration with customers in order to recover revenue in the second half. We will focus on increasing our market share at strategic customers as well as being adopted on the new phones of the Chinese customers to drive up our revenue.

Lastly, about our substrates. Weak smartphone demand brought about by COVID-19 has led to overall decrease in demand for related substrates, such as mobile APs and mobile displays. But demand for some applications remained strong, such as antenna modules for 5G smartphones, which became a new source of BGA demand, as well as RF front-end SIP demand. Also, growth of the BGA SSD market for PCs has driven up demand for related substrates.

For BGAs, we expect the trend of increasing layers and focus on high-end BGAs to continue driven by factors such as increased number of IOs necessary to support higher performance semiconductor ICs. The supply of Flip Chip BGA remains tight driven by increased demand from servers and increased Flip Chip BGA layers and sizes needed for PCs with the introduction of higher performance PC CPUs.

Flip Chip BGA demand for PC is expected to remain solid for the time being, thanks to increase in PC demand due to online schooling and remote working. Uncertainty for Q2 and second half continues to increase due to the economic difficulties brought on by COVID-19. However, we will focus on increasing our sales by capturing customer demand in areas where there is growth by leveraging our differentiated technology, quality and reliability in higher-layer substrates and by increasing our productivity.

Thank you. We will now start the Q&A session.

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Questions and Answers

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Operator [1]

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(foreign language) Now Q&A session will begin. (Operator Instructions)

(foreign language) The first question will be presented by San Kim from Kiwoom Securities.

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Ji-San Kim, Kiwoom Securities Co., Ltd., Research Division – Team Leader and Electric & Electronic Analyst [2]

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(foreign language) [Interpreted] I have 2 questions. The first question is, you’ve delivered results in the first quarter that is above market consensus. Can you break down some of the major factors contributing to that performance? Second question is what is the impact on your profitability due to the recent increase in the Korean won-dollar exchange rate?

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Unidentified Company Representative, [3]

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(foreign language) [Interpreted] To answer your first question, we were able to deliver performance at slightly above the market consensus in Q1. Some of the major factors behind that would be our Module Solutions division increasing its high-end camera module revenue, thanks to the effects of our strategic customer launching its new flagship smartphone. Also, the Component Solutions division was able to deliver solid business results, especially around the MLCCs for PC and server applications. So with all of our business divisions delivering performance results that’s better or fair compared to expectations, we were able to deliver above-market consensus.

Regarding your second question of the impact on our profitability to higher Korean won-dollar exchange rate, given the relatively higher share of U.S. dollar revenue that we record, an increasing exchange rate, that’s a stronger dollar, actually has a positive effect on our profitability. And so if we take the example of Q1, due to the increase in exchange rate versus Q4, there was about a KRW 10 billion-plus effect on our operating profits.

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Operator [4]

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(foreign language) The next question will presented by Tae Lee from UBS.

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Taewoo Lee, UBS Investment Bank, Research Division – Non-Publishing Analyst [5]

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I got 2 questions, both COVID-19-related. First one is on production. So overall production in China seems to be on recovery, but wanted to get more color for the Philippines and Vietnam. As you mentioned here, we have production sites for MLCCs and camera modules and there have been some lockdown measures from the government as well. So would appreciate if you could comment on the impact we’ve seen on this front.

And then second question is on pricing. So with everything that has happened with COVID-19 and the demand, how is that influencing your MLCC pricing outlook? So interested to see if the company is also seeing potential upside to your overall IT MLCC pricing.

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Unidentified Company Representative, [6]

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(foreign language)

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Unidentified Company Representative, [7]

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(foreign language) [Interpreted] To answer your first question to give you the update of our Philippine operation, first of all, the impact of the Philippine government’s lockdown on our MLCC production in the Philippines, to give you an update, currently about less than 50% of our workers are coming to work in our Philippine local company. And so this does impact and has been decreasing our utilization in the Philippines. And so in the short term, we have not been able to meet 100% of the customers’ upside demand.

But in the long term, we have the inventory that we can use to respond to the market demand. And also, we will be focusing on expanding the operation of our alternative sites, the Tianjin and the Busan sites, in order to make up for any shortfall from the Philippine production so that, in the long term, we will be having no problems in meeting the customers’ demands.

You’ve also asked about our Vietnamese plant, which is the camera module operation. To answer that question, actually, our Vietnamese corp plant, our local company, is operating its production without any disruption currently.

Even though there is still some potential risk of, for example, future travel restrictions due to COVID-19, we have established response plans for any possible scenario, and we will focus on minimizing any potential impact on our business performance due to such risks.

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Unidentified Company Representative, [8]

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You’ve also asked about MLCC pricing, especially about the possibility of being talked about in the market about a price increase on the IT MLCCs. And to answer that question, with utilization in major production sites, for example, in China and Southeast Asia and the industry decreasing, there are market concerns of a possible supply disruption, and this is leading to what you’ve mentioned as a possibility of an increase in prices of some IT MLCCs. And so we do see that there is a possibility of price changes in the market, depending on the market situation, but our basic approach is to focus on building a stable business in the mid to long-term based on strong trust and relationships with our customers.

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Operator [9]

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(foreign language) The next question will be provided by Jong Lee from Samsung Securities.

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Jong Wook Lee, Samsung Securities Co. Ltd., Research Division – Analyst [10]

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(foreign language) [Interpreted] I have 2 questions. First question is a general MLCC question. Can you give us an update on what the MLCC price is or your shipment was in the first quarter and your outlook for second quarter?

Second question is about the camera module demand. Given the expected weak demand at the handset debt level, what is your outlook in terms of camera modules going forward? Do you think that there’s a possibility of your earnings profitability decreasing versus last year on your camera module business?

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Unidentified Company Representative, [11]

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(foreign language) [Interpreted] To answer your first question about our MLCC, in the first quarter, our shipment, MLCC shipment, increased slightly versus Q4, thanks to the effects of our strategic customer launching its flagship handset and also increase in sales of PC and game application MLCCs. Also in terms of prices, the price declining trend started to show signs of stabilizing. And so our blended ASP in Q1 was similar to the previous quarter.

You’ve also asked about our second quarter outlook. Even though we’re expecting the demand from automotive applications to remain weak in Q2, we do expect solid demand from other applications, such as PCs and servers. So as of now, we think that our ASP as well as shipments for MLCC in Q2 would remain similar to the previous quarter. That being said, we would like to wait until around end of May to get better visibility of our Q2 outlook.

You’ve asked also about the camera module outlook. The second quarter, given the seasonality of the Q2 being a slow season for smartphones and also on top of that, with the decrease of that demand to COVID-19, we think that it will be inevitable to see camera module revenue decrease in Q2 versus Q1. But in the second half, we are looking forward to recovering our revenue by increasing the supply of our high end, high-performance camera modules as many of our key customers, both domestic and global, launch their new flagship models.

You’ve also asked about our full year profitability, and we do expect COVID-19 to have some downward pressure on our profitability. But given the extremely high level of revenue volatility that we’re seeing currently, I think it’s difficult for us to provide you with any detailed guidance at this point and would have to come back to you at a later time.

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Operator [12]

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(foreign language) The next question will be presented by Chulhee Cho from Korea Investment & Securities.

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Chulhee Cho, Korea Investment & Securities Co., Ltd., Research Division – Research Analyst [13]

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(foreign language) [Interpreted] I have 2 questions. First question is a follow-up on the MLCC. Can you also provide with us your utilization and inventory situation for MLCC in Q1 as well as your outlook for these in the second quarter for MLCC? Also, the Substrate division performance, what was — can you give us some of the detailed breakdown of the factors that contributed to the performance in Q1 and also your outlook for second quarter as well as full year?

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Unidentified Company Representative, [14]

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(foreign language) [Interpreted] To answer your first question about our MLCC in Q1, our MLCC inventory was at similar level to the previous quarter as we saw an increase in shipments of MLCC to applications such as industrial applications and also the high capacity MLCCs for IT applications. Our utilization in Q1 was at mid-80%, which is an increase versus Q4.

Looking towards the second quarter, there will be impact on the utilization of our Philippine plant due to the Philippine government’s lockdown, but we will focus on making up for any loss using our Tianjin and Busan factories. And we expect our overall utilization for Q2 to be under 80%. And so we will be actually using our inventory to make up for the loss in utilization. So at the end of second quarter, we’re expecting our inventory to be decreased versus end of first quarter.

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Unidentified Company Representative, [15]

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(foreign language) [Interpreted] To answer your question about our substrate business, the detailed factors behind our first quarter performance and full year as well as second quarter outlook. As you know, due to COVID-19, the supply of our substrates for mobile memory decrease, but on the other hand, there was a strong demand for our PC package substrates as well as 5G-related communication module substrates. And so for the first quarter, our Substate Business division recorded a profit.

For the full year, despite the uncertainty, apparent uncertainties in the global markets due to COVID-19, for the substrate business itself, we expect profitability in 2020 to improve versus 2019 as we expand our market share in the high-end package substrates, such as for 5G and thin CPU applications.

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Operator [16]

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(foreign language) The next question will be presented by S. K. Kim from Daiwa Capital Markets.

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S. K. Kim, Daiwa Securities Co. Ltd., Research Division – Research Analyst [17]

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(foreign language) [Interpreted] I have 2 questions. First question is on the component side. Due to COVID-19, I think one of the major decreases that we’re seeing is on the automotive side. Automotive MLCC demand has been decreasing quite significantly. Do you think that, that will give you a cause to delay or postpone the operation of our Tianjin — of your Tianjin MLCC plant?

Second question is about your CapEx guidance. I think during the previous call, you said that already for 2020, your CapEx is going to be less than what you spent in previous years. Do you think that there’s room for additional decrease in CapEx given the current situation, the weak demand? And in that context, can you give us just the overall CapEx guidance update for this year?

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Unidentified Company Representative, [18]

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(foreign language) [Interpreted] To answer your first question about the MLCC, Tianjin, the new plant and the operational timing. Actually, due to the Chinese government’s policies in response to COVID-19, some of the finishing work that was scheduled for the Tianjin new plant got postponed or suspended. And this has ended up delaying all of the follow-up work, including the equipment setup. And so due to this, the original timing of the Tianjin plant operation, which was scheduled for second half, we expect that to be delayed. The exact timing of when the new plant will go into operation, we will communicate that to the market in the future.

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Unidentified Company Representative, [19]

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(foreign language) [Interpreted] Your second question was about our CapEx guidance. As you mentioned, originally, our CapEx guidance was that it will be less than versus the previous year. Our investment items, what we want to invest in still stands despite the changes. But considering various volatilities, including the possible economic weaknesses brought on by COVID-19 and possible weakness in demand from downstream, we are currently revisiting the investment timing of our CapEx plans. Our basic approach towards CapEx is that we will be increasing our capacity when supported by customer demand and to execute our investments with maximum efficiency.

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Operator [20]

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(foreign language) [Interpreted] The next question will be presented by Rok-ho Kim looking from Hana Financial Investment.

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Rok-ho Kim, Hana Financial Investment Co., Ltd., Research Division – Analyst [21]

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(foreign language) [Interpreted] I have 2 questions. First question is, can you give us an update on the Flip Chip BGA, the FCBGA utilization and supply situation for first quarter and share with us your outlook for the second quarter and full year? Second question is about the MLCC. While we see some changes on the application side, the demand side, there’s also the impact due to the lockdown of Philippine — in the Philippines. So given these both demand and supply factors, do you see room for your capacity operation plans for MLCC to change in 2020?

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Unidentified Company Representative, [22]

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(foreign language) [Interpreted] To answer your first question about our Flip Chip BGAs, Flip Chip BGAs, in general, are continuing to see a tight supply situation. And so our utilization is being maintained at full utilization levels. We think that despite COVID-19, the demand for Flip Chip BGA major applications, such as PCs and servers, will remain strong. So the tight situation will probably continue with what we’re expecting. And thanks to our capacity expansion effects, we are expecting to continue revenue growth and secure stable profitability from our Flip Chip BGAs.

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Unidentified Company Representative, [23]

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(foreign language) [Interpreted] You’ve asked about our MLCC capacity operation plans for this year. Our basic approach to MLCC capacity operation is to expand our production, our supply capacity beyond market growth, but also at the same time, operate our capacity flexibly, depending on how the market situation changes. So for our automotive MLCCs, given the uncertainty around MLCC — automotive MLCC demand, we are currently revisiting the timing of when to exactly expand our MLCC automotive, MLCC capacity. Now for IT and industrial MLCCs, we are currently focusing on increasing our supply capabilities through productivity enhancements and gaining efficiency in operational — in manufacturing operations.

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Operator [24]

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(foreign language) [Interpreted] The next question will be presented by Giuni Lee from Goldman Sachs.

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Giuni Lee, Goldman Sachs Group Inc., Research Division – Research Analyst [25]

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I have 2 questions. First, on 5G-related demand, how is your package substrate business coping with this demand currently? And would be keen to know your outlook as well. Second one is on camera module. In the last one year or so, there have been a few launches of foldable smartphones, which we’ve been able to see the ongoing changes in the form factor of smartphones. I guess in this backdrop, how do you expect this will impact your camera module business?

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Unidentified Company Representative, [26]

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(foreign language)

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Unidentified Company Representative, [27]

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(foreign language) [Interpreted] First of all, you’ve asked about the 5G-related package substrate, and I think one of the key — 2 key areas of substrate demand related with 5G would be the antenna substrates of 5G smartphones and also the RF front-end SIP substrates. In both of these areas, we are currently mass producing. And based on our strong package technology capabilities, we are maintaining high market share in these 2 major applications. Looking forward to the second half, we expect to start supply to new overseas customers, smartphones. And so we expect our 5G-related substrate revenue to continue to grow in the second half.

Your second question was about the impact of the foldable form factor on doing a camera module business. As you can imagine, the foldable phones have a challenge, or is technology-wise very challenging for camera modules, given the need to lower the height of the camera module. In other words, to get more slimmer camera modules. We have had an advantage in producing slim camera modules technology-wise and also has a very — we have a very strong manufacturing competitiveness. And thanks to these 2 advantages, we have been supplying a large share to the strategic customers’ foldable phones.

As you mentioned, we think that this form factor will continue to increase. And we think that camera modules for foldable phones will not only require additional reduction in heights of slimmer camera modules for foldable phones, but also from now on, it will also be a game of high pixel counts and additional features on top of the slimness, which are areas that we have advantages in. So we believe that actually, the foldable form factor will provide us with additional opportunities for the camera module business.

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Operator [28]

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(foreign language) [Interpreted] The next question will be presented by Hyung Wou Park from Shinhan investment.

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Hyung Wou Park, Shinhan Investment Corp., Research Division – Research Analyst [29]

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(foreign language) [Interpreted] I have 2 questions about the substrate business. First of all, does the company have plans of possibly increasing its package substrate capacity? If so, what would be the potential applications or product groups? And what would be the potential size of a capacity increase?

Second question is about the RFPCBs. Can you share with us your business plans regarding RFPCBs as well as your outlook?

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Unidentified Company Representative, [30]

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(foreign language) [Interpreted] To answer your first question about package substrate capacity expansion plans and — well, as you know, since last year, we’ve been focusing on increasing our production capacities for package substrates in anticipation of increased demand for package substrates and to respond to that timely. This year, we will continue to increase our capacity, but focus on the areas where there is strong demand, for example, the 5G antenna substrates or the substrates for thin CPUs used on laptop computers. That will be our key areas of capacity increase this year.

Your second question was about our RFPCBs, our full year, for example, outlook and business strategy. As you know, in first quarter, our RFPCB performance — in terms of our RFPCB performance, our revenue decreased versus the fourth quarter last year mainly due to the seasonality of our key overseas customers.

Now looking forward, given the impact of COVID-19, we do see that there could be an increase in the volatility of our supply to our overseas customers’ new OLED-based model in the second half. But then we will focus on improving our revenue and profitability by diversifying our customers and applications such as wearable devices of our strategic customer or increasing our supply for display applications to Chinese customers.

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Operator [31]

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(foreign language) [Interpreted] The next question will be presented by Gang Ho Park from Daishin Securities.

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Gang Ho Park, Daishin Securities Co. Ltd., Research Division – Research Analyst [32]

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(foreign language) [Interpreted] I have 2 questions. First question is actually about an update on your guidance for second quarter revenue as well as op-wise, and possibly for the full year, if that’s possible. Given the fact that demand overall across the board, probably in the second quarter will be weak, not only in IT devices but also in other applications. And that will probably bring a decrease — a large decrease in your revenue, which will impact not only your camera modules, but MLCC and substrates. So can you give us an update on your revenue and op profit guidance for Q2 as well as full year, if possible?

Second question is about your full year CapEx. You’ve already planned in your CapEx for this year to be less than the previous year. Perhaps there’s additional room for decrease in CapEx this year. And given the fact that many companies are currently focusing on building up liquidity, can you give us in that context your expected depreciation for full year 2020 as well as an update on your cash flow?

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Unidentified Company Representative, [33]

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(foreign language) [Interpreted] To answer your first question about our second quarter or full year guidance, as we have talked about, as far as up to Q1, thanks to solid demand from the set side for the sell-in demand, we were able to deliver performance that was not that bad compared to market consensus. But as you mentioned, second quarter will be slightly more difficult. We will see the impact of weakening economies due to COVID-19. And so for us, we’re expecting our Q2 performance to slightly decrease versus our Q1 results.

For the full year, there is so much uncertainty around COVID-19 and its impact, that it’s difficult for us to share specific guidance for full year at this point. We do think that we’ll have better visibility for the second half when we approach perhaps end of May or early June. And we would like to share our guidance at that later point.

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Unidentified Company Representative, [34]

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(foreign language) [Interpreted] To answer your second question about our depreciation and cash flow update. As you know, we have been investing above KRW 1 trillion each year for the past several years. And so due to that effect, our depreciation will probably, for the time being, run around KRW 800 billion to KRW 900 billion for the time being. But we do expect our depreciation-to-revenue ratio to gradually decrease due to various factors, including a possible adjustment of the investment timing to reflect the impact of COVID-19.

Our key focus is in terms of managing the company, cash flow-wise, will be to focus on securing the soundness of our free cash flow by executing CapEx within our investment capacity and also enhancing our management efficiency, while at the same time, focusing on risk management, such as maintaining a sound level of operating capital and also managing our inventory and credits effectively in order to gradually increase our net cash holdings.

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KwangWook Bae, Samsung Electro-Mechanics Co., Ltd. – VP and Head of Corporate Strategy & Planning Team [35]

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(foreign language) [Interpreted] And that completes our earnings conference call. If you have any additional questions, please forward them to our IR team. Thank you very much.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]

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