In 2023, the overall market environment was very

Lee Know Industrial KIS Spot Call

1Q24
In 2023, the overall market environment was very challenging and there was a deterioration of the mobile phone market. This atmosphere started at the end of the year and affected until the first quarter of 2024. 1Q24 sales were W54.8 billion, which improved quarter-on-quarter, but fell short of the company's expectations. Moving into the second half of 2024, improvements are expected in emerging markets such as China and India, and based on this, sales figures centered on the mobile phone market are expected to increase.

While there was no significant improvement in terms of operating environment until 2Q24, the market is expected to recover in the second half of 2024, with high expectations for new devices, CPUs, and XL series from its main customers, Qualcomm.

Earnings should improve in the second half of 2024.

The previous operating margin target was 35%, but this year, with the emergence of new devices and applications, we will have much higher margins in terms of operating margins compared to our traditional regular socket line-up. FY24e OPM 40%

Q&A

1. Can you explain the depreciation cost level after the factory relocation?

The company's target for the factory relocation plan remains unchanged and the total investment amount is about 200 billion won.
Once the building is completed after mid-2025, the relevant facilities and equipment will be purchased, at which point we will be able to provide more details on the level of depreciation costs.

2. With an increasing number of companies developing chips, how will these companies affect the company's bottom line in the mid to long term?

Looking at various companies, including Qualcomm, R&D efforts are underway for different types of chips under different architectures such as ARM. The main focus of R&D efforts is functional improvements that reduce power consumption.
For new types of applications and architectures, the use of new devices offers better opportunities in terms of margins and added value.
While the chips under development have significantly improved functional performance, they are not widely used in other electrical or electronic fields and have not been commercialized in terms of their entire applications.

2. How will an increase in Qualcomm X Elite and CPU penetration impact the company's business?
Per-Watt performance improvements are significantly more important, twice as efficient as the Apple M series and five times more efficient than Intel's Core Ultra.
While not directly affecting the company's revenue and revenue numbers, we hope Qualcomm does well in the market, as it accounts for about 30% of the company's revenue. According to a recent announcement, Qualcomm is targeting a 50% desktop market share within five years with an ARM-based X Elite product.

One thing to consider is that Qualcomm doesn't have an independent ecosystem like Apple. Qualcomm only produces chips and sells them to various OEMs, so it doesn't have its own ecosystem on the computer side. It has extensive experience on mobile phones, but no experience on the desktop market.
In terms of the ARM architecture leverage program, our cooperation with Microsoft has been very good, but there is a possibility that the cooperation will not continue.

3. Business situation with Nvidia and HBM

- The company has had a long-standing relationship with Nvidia for more than 20 years and primarily handles R&D testing and small orders, but accounts for less than 1% of total revenue in absolute figures or percentages.
From a direct transaction or relationship point of view, it's not a large scale, and we don't expect it to grow significantly in the future.
Taiwan's Small and Medium Business (SME) and Japanese rivals Yamachi and YOKOGAWA are meeting test socket demand. Sockets they didn't get from the companies are supplied by the companies.
The overall sales volume is not large and we don't expect to grow significantly in the future.
The same goes for HBM business.
In terms of overall business size, it doesn't have a significant impact on the company's business.

4. Key customer configurations

-Qualcom 30%, Siemens 10%, U.S. Company A 16%, TSMC 8%

5. R&D and Bulk Production Product Sales Outlook (2024) and Contribution

- Looking at the 2024 product lineup, 60% of total sales are expected to come from R&D products and 40% from mass production products.
In the past, R&D products accounted for more than 70% of the company's sales.

6. percentage of customers in the Chinese market

In 2022, Chinese or Chinese-flagged companies accounted for 9% of our sales, according to export documents, which are expected to be 6.4% in 2023 and 8.4% in 2024.

7. When is Siemens' sales for ultrasonic diagnostic probe parts expected to increase significantly?
The company has had a very good relationship with Siemens for more than a decade, with stable annual growth of about 10%. However, sales declined in 2023. In 2022, it recorded sales of W28.7 billion, but it fell to W27.3 billion in 2023. This may be due to the overall medical device business and industry not doing well.
I expect a stable business at Siemens this year, but it won't be the same as before.
In terms of contribution ratio, the percentage coming out of Siemens will increase significantly. The company has a realistic goal of continuing growth of about 10-20% per year.
Since 2018, the company has made great efforts to gain new customers by participating in exhibitions and providing samples. While contacts have clearly increased, contact with new customers has not yet been made, which will actually deliver meaningful sales.

8. Additional Signals in the Market in terms of Cooperation in the Smartphone Sector
On an annual basis, the company deals with more than a thousand companies and has a lot of communication with various customers.
I expect things to get better in the second half of 2024, but I think there is still a lot of uncertainty about the actual outcome.

9. Is there a difference in the test cycle of CPU and NPU for PC compared to mobile AP?
Yes, for mobile AP testing, there are physically more CPUs and NPUs, which need to be modularized