ASUSTeK Computer Inc. (AKCPF) Q3 2022 Earnings

ASUSTeK Computer Inc. (OTC:AKCPF) Q3 2022 Earnings Conference Call November 10, 2022 3:00 AM ET Company Participants S.Y. Hsu – Co-Chief Executive Officer Samson Hu – Co-Chief Executive Officer Nick Wu – Chief Financial Officer Operator Hello and welcome to ASUS’ Online Investors Conference for the Third Quarter of 2022. Today’s conference will be hosted by our Co-CEOs, S.Y. Hsu and Samson Hu and our CFO. First, our CFO, will go over our third quarter financial results, then our Co-CEOs will explain our strategy and operational outlook, then will be the Q&A segment. You may ask any of your questions through the online interface, and we will collect and answer them at the end. Now, let us turn the floor to the CFO. Nick Wu Thank you. Please look to Slide #5, which shows our P&L for the third quarter of 2022. You can see that the PC industry is still facing many challenges, including inflation, economic adjustments, pandemic restrictions, lowering consumer confidence and changes to the industry. So overall, our brand net revenue was about TWD132.9 billion for the quarter, a year-over-year growth of 2%. So we are one of the few PC brands to maintain positive growth despite the challenges of this quarter. However, with the shifts in the industry and our adjustments to our inventory, our profit was about TWD3.06 billion, which is a growth quarter-over-quarter of 56%, but it’s down year-over-year. Our net profit was TWD6.19 billion for an EPS of TWD8.3. Looking to the next slide, our non-operational items. You can see that in the third quarter, our main investment subsidiary, Askey, after a long period of adjustment, finally achieved quarterly profit. So we recognized TWD185 million in profit. And we are looking to maintain profitability for Askey over the coming quarters. Our other investments are also doing quite well. So we recognized TWD840 million total in non-operating profit. We also saw good dividend income of TWD3.08 billion, of which TWD800 million was from Advantech and TWD2.2 billion was from Pegatron. Looking at Slide #7. This is our combined balance sheet. You can see that our inventory has declined from TWD206.2 billion to TWD174.5 billion. And the number of days of turnover has gone down from 180 to 148 days. So the pace of inventory adjustment has met or even slightly exceeded our targets. Looking at Slide #8, our product mix. You can see that PCs account for 71%; components, 27%; and phones, 2%, compared to the same period in 2021, because last year there was a relatively high base for video cards. Now that the market is normalizing with this adjustment, our share of components in our revenues has gone down. Looking to Slide #9, our region mix. You can see that Europe and the United States and the Americas, because of various issues such as inflation, geopolitical issues and lowering consumer confidence, the share for these two regions has gone down. The share of Asia, in particular, driven by Southeast Asia and India, has grown to 52%. Looking to the next slide, which is our outlook for the fourth quarter of 2022. Overall, we see that the PC industry will continue to face challenges together with the global macroeconomic environment and we may approach what economists call the double-dip recession. So in addition to a low point in the second quarter of this year, we forecast that in the fourth quarter, demand may also see a decline year-over-year. Looking at forecasts by major chip manufacturers, the overall PC market for the fourth quarter this year may see a decline of up to 20% year-over-year. So this could be a second dip in the market. Faced with this challenge in the industry, we are forecasting that shipments of PC products will decline by 15% quarter-over-quarter. As for components, due to our introduction of new platforms and new products, we are still forecasting a growth of 5% quarter-over-quarter. Overall, the industry, as I said, will see a dip in both the second and fourth quarters of this year. But looking ahead, although for the first half of 2023, the industry will still be in an adjustment period, we still are fairly confident about the overall long-term growth in the industry and the demand for productivity growth. So we believe that ASUS’ operational momentum will continue. We will maintain revenue growth and shipments growth, and we will continue to optimize our brand and our product portfolio. So we believe that our continued work in the PC market will continue to build upon our advantages and value to our customers. And I think our Co-CEOs will discuss more on this issue in their respective presentations. So thank you. And now, let me hand the floor over to our Co-CEOs about ASUS’ strategy outlook. S.Y. Hsu Good afternoon to our investors and friends from the media. I am S.Y. Hsu, Co-CEO of ASUS. I will begin my presentation now. First of all, thank you for taking the time to participate in this online conference. So here at ASUS, our three key business objectives remain unchanged. First is One ASUS, which is to align our culture and our practices within ASUS. We have many different business groups across components, across systems, et cetera. So how these business units can all leverage our collective capability is a major goal for us. Second, we will continue to pursue product innovation to offer the best experiences for our customers. And third, currently, we are facing a very competitive market, but we will continue to have highly aspirational targets. Despite the headwinds in the market, we will continue to expand our business, so that we can finish off this period of adjustment and reach the targets that are beyond those of our competitors. In practice, we will really look to these three major approaches versus managing market dynamics. And I see that there were a lot of questions in our past conferences about our inventories. So back then, in the second quarter, we said that we will adjust our inventories over the next two quarters. And as our CFO said, our pace of adjustment has actually beaten our targets. Second is strengthening competitiveness. And so, currently, the market is down year-over-year, but actually, for the first three quarters of 2022, ASUS’ PC shipments were actually up by 1%. So compared to the overall market, we actually outperformed the market by 15%. ASUS will also continue to invest in our long-term value to expand our market and accumulate long-term competitive advantages in value. Over the past few years of the pandemic, I think we can all agree that PCs are still unbeaten as productivity tools. Of course, now that the pandemic conditions have changed, the market demand has slowed, so there is a downward adjustment. But we do
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