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Operator: [Interpreted] Welcome to AUO Corporation 2025 Second Quarter Financial Results Conference. [Operator Instructions] I would like now to hand over to Jerry Su, Senior IR Director of AUO.
Jerry Su: [Interpreted] Ladies and gentlemen, good afternoon. I'm Jerry Su from AUO's IR department. On behalf of the company, I would like to welcome you to participate in our second quarter financial results conference. I'm joined by 4 executives. Chairman and Group Chief Strategy Officer, Paul Peng; CEO and President, Frank Ko; Senior VP of the Display Strategy Business Group, James Chen; and our CFO, David Chang. The format of today's meeting is as follows. First of all, our CFO will go over our second quarter financial results and provide you with the guidance for the third quarter. Then Paul and Frank will provide you with opening remarks and business updates, then we will shift into the Q&A session. We have collected questions from analysts before the meeting. We will address those questions in the first part of the Q&A session. Afterwards, if there are still more questions, we will open the line for you to call and post questions. Before I turn over to David, please allow me to remind you that all forward-looking statements contain risks and uncertainties. Please also spend some time to read the safe harbor notice on Slide #2. David, please.
B.Y. Chang: [Interpreted] Ladies and gentlemen, good afternoon. I'm David. I would like to go over our Q2 results and our Q3 outlook. Our Q2 revenue came in at TWD 69.2 billion, down by 4% Q-o-Q, mainly due to the unfavorable impact of the stronger NT dollar against the dollar in Q2, which accounted for about a 4.6% downside. Excluding the impact of exchange rates, our actual revenue showed a slight increase coming in above expectations. In Q2, our display revenue, TV shipments slowed as customers had front-loaded orders in Q1, while high-end IT products posted better-than-expected revenue. Excluding ForEx effects, our display revenue in Q2 was roughly in line with Q1 and performed better than anticipated. Mobility Solution revenue was down Q-o-Q due to custom's project time lines and the higher base period. While the revenue declined this quarter, it was in line with expectations when excluding the impact of exchange rates. Our Vertical Solution segment benefited from continued revenue contributions from smart retail and premium products as well as early shipments by industrial and commercial customers during this tariff pause period, which helped boost our overall revenue excluding the impact of exchange rates, performance actually exceeded expectations. Although the Q2 revenue declined by 4%, gross margin improved to 13.5%, thanks to increased shipments of high-end products and cost improvements, which offset the unfavorable ForEx effect. OpEx remained tightly controlled, though seasonal trade show costs pushed expenses up slightly to 11.4%. OP margin rose to 2.2% with an operating profit of TWD 1.5 billion. Non-GAAP income came in at around TWD 600 million, mainly driven by a onetime gain of roughly TWD 900 million after AUO secured additional board seats at ADLINK in late June, triggering a shift from equity method accounting to full consolidation. However, the appreciation of the NTD led to a ForEx loss of TWD 400 million this quarter. Net profit reached TWD 1.9 billion with an EPS of TWD 0.26. Cumulative EPS for the first half of the year came to TWD 0.69. EBITDA for Q2 was TWD 8.9 billion. EBITDA margin was 12.9%. Overall, while revenue dipped slightly due to the unfavorable ForEx conditions, the company continued to enhance profitability by increasing the proportion of high value-added products and maintaining strict cost and expense controls. This also marks the third consecutive quarter of profitability for AUO and the second straight quarter of profitability at the operating level. Moving on to balance sheet. AUO gained control of ADLINK Technologies in late June. Starting this quarter, ADLINK's assets and liabilities will be included in our consolidated statements, while its P&L will begin to be reflected from next quarter onward. As of the end of Q2, the company held TWD 54.4 billion in cash, a healthy level despite a decrease of TWD 13 billion from the previous quarter. I'll go into more detail on the cash flow statements in the next section. Short- and long-term borrowings declined this quarter, totaling TWD 116.1 billion. At the end of Q2, the gearing ratio was 39.4%, up by 4.9% from Q1, mainly due to the NTD's appreciation, which lowered the converted value of our foreign currency cash holdings. Overall, the company's financial structure remains very sound. Inventory levels increased in Q2 with inventory turnover days rising to 53, primarily due to the consolidation of ADLINK's inventory. Excluding ADLINK's impact, the absolute inventory amount remained stable. So our inventory level was still quite healthy. Cash inflow from operating activities in Q2 was TWD 3.4 billion, while depreciation and amortization totaled TWD 7.4 billion. Cash outflow from investing activities reached TWD 2.4 billion; CapEx, TWD 4.2 billion and TWD 1.7 billion for the ADLINK acquisition. Financing activities saw a cash outflow of TWD 9.7 billion, mainly driven by a TWD 9.4 billion reduction in bank borrowings. Additionally, the stronger NTD in Q2 resulted in a ForEx conversion loss of TWD 4.3 billion on our foreign currency cash positions. The cash inflow statement this quarter already reflects a shift in our strategic direction under the 3 pillars transformation with capital investment trending downward. As a result, the company no longer requires excessive cash reserves and has been proactively repaying bank loans. This was a key reason for the intentional reduction in cash reserves during Q2. Moving on to our revenue breakdown by pillar. Given the steeper drop in revenue, the Display segment saw a 1 percentage point loss in its revenue share to 53%. Vertical Solution gained 2 percentage points to 15% on the back of its higher revenue. Q-o-Q Mobility Solution stayed at 28%. Now about our third quarter business outlook. Due to ForEx fluctuations, Mobility Solution is expected to be down by mid-single- digit percentage point Q-o-Q in its revenue. Vertical Solution despite the ForEx conditions, it is expected to post a low to mid-20s growth in its revenue Q-o-Q due to the consolidation of ADLINK. The Display segment is expected to see modest decline Q-o-Q given the ForEx fluctuations and tariffs and macro conditions related uncertainty. This concludes my presentation.
Jerry Su: [Interpreted] Thank you, David. Now we would like to turn over to Paul for an opening remark.
Shuang-Lang Peng: [Interpreted] Ladies and gentlemen, good afternoon. Welcome to AUO's financial results conference. Looking back at the second quarter, Display and Mobility Solution had experienced strong demand in Q1. So it had -- they had a higher base period. In addition, because of the NTD appreciation in May, these 2 pillars experienced lower revenue Q-o-Q. As for the Vertical Solution, it benefited from stronger industrial and commercial application demand and project volume ramp in application fields. It posted revenue growth despite the ForEx conditions. Our overall revenue was TWD 69.2 billion, down by 4% Q-o-Q and down by 6.8% Y- o-Y. NTD saw a sharp rise against USD in the beginning of May. So our -- we actually saw a 5% impact from the NTD appreciation compared with the previous quarter. 90% of AUO's revenue is denominated in the USD. So the ForEx conditions had a bigger impact on our revenue in the second half of the second quarter. Excluding the impact of the ForEx, we actually saw a flattish revenue in Q2 from Q1, which was actually better than -- was better than our anticipation. So in the face of the headwinds, we continue to work on improving our product mix and controlling our OpEx. We posted sound profitability with our gross margin at 13.5%. OP profit margin was 2.2%, which were both better than the performance in Q1. Inventory turnover was 53 days, up by 5 days. Gearing ratio was 39.4%, up by 5 percentage points Q-o-Q due to the acquisition of ADLINK and the fact that our AR is denominated in the USD. If we exclude the impact from the ADLINK recognition and exchange rate, our gearing ratio and inventory turnover days would have been up slightly, but would still be relatively healthy. Now about the tariff impact and tariff issue. I would like to assure you that panels are components and most of our shipments are delivered on FOB terms. Therefore, tariffs had limited direct impact on our revenue. Most of the products of our customers are on the exemption list or are under the USMCA framework with limited impact from tariffs. In addition, we have been making preparations for our global operation for years. We have now built up our manufacturing operations in both Taiwan and Mainland China as well as manufacturing sites in Southeast Asia, India, Europe, Mexico and North America. So we get to adapt to the changing tariffs conditions and to work with our customers to allocate our capacity flexibly. We also are not discounting possibilities of choosing the most appropriate production methods with our supply chain partner to manufacture at slightly tariff regions. However, tariffs would pass on the higher prices to U.S. consumers ultimately, which would have a negative impact on the U.S. market and global economic growth. Now I'd like to provide an overview on our Display segment performance. Our Display revenue was down by 5% Q-o-Q in Q2. Excluding the impact of the ForEx, the performance was on par with that of Q1. In the TV segment, Q2 pull-in demand went following inventory stocking post the year-end high season in 2024 and the trading program-related momentum in China. In the IT segment, customers continue to front-load their inventory ahead of tariffs. And we continue to focus on high value-added products, including gaming, high-resolution touch and privacy models. As a result, we saw shipment growth in Q3, given the tariff uncertainty and unfavorable ForEx conditions, currently, our customers seem to be more conservative with restocking demand. However, brands have been controlling their inventory levels very prudently, leading to healthy inventory levels at channels. With more clarity from the tariffs front, it is likely that year-end restocking demand will rise. However, some customers have front-loaded their inventories and promotional activities have been distributed. Seasonality may not be as strong as before during the high season. Display -- for the Display sector, NTD-denominated revenue may be down in Q2 -- in Q3 Q-o-Q moderately. However, excluding the impact of ForEx, the performance will be similar with previous quarters. We will continue to strive for more orders and to tighten our inventory management. For the full year, we will focus on pursuing profitability from -- for our Display segment. Last year, in July, we talked to you for the first time of our 3 main business pillars and our strategy under the 3 business pillars. Our midterm goal is for our Mobility Solution and Vertical Solution to have their revenue combined to account for more than half of our total revenue in 2027. Today, we are a year from last year's -- from last July. So I would like to share with you some progress on our transformation so far. First, in terms of the display segment, this segment is underpinned by AUO's expertise. Its mission to select the right products and pursue profitability to generate cash and to focus on LCD and micro LED technology advancements, so as to support the growth of Mobility Solution and Vertical Solution. Over the past few quarters, we have been adjusting our product lines and our customer structures. We continue to focus on churning out stable profits instead of pursuing capacity growth or revenue growth alone. And the results and our efforts have already been reflected in our first half operating performance. In terms of our mobility solution pillar, last December -- November rather, we announced the institution of AMSC, and this new entity will be set up officially on January 1, 2026, which will combine AUO's Mobility Solution business with BHTC. The setup of the new entity is underway as planned. Going forward, AMSC will cover the following businesses, including Tier 2 automotive panels, Tier 1 displays interface, latest display HMI and Smart Cockpit. So this new entity will be missioned to serve the global automotive market as an international business. As for the Vertical Solution, it is divided into 2 parts, Smart Verticals and Green Solutions. Smart Verticals are centering around display-centered solutions underpinned by our advantages in our technologies and with ADP as the main engine of growth. Green Solutions are not a display-centered business. Instead, it provides digital transformation and green sustainability solutions, including our expertise in the solar PV business and Envirotech, AUO Digitech. Green Solutions is focused on providing carbon management and digital transformation solutions. In Q2, Mobility Solution and Vertical Solution together accounted for 43% of our total revenue, up by 2 percentage points Y-o-Y. So we are quite near to our midterm transformation goal. In light of the economic and trade upheaval around the world, in light of the increased complexity in around the world, today, our Board of Directors has decided to set up a new group CEO role, who will be responsible for guiding the group's operating performance and the strategic directions and overseeing the business units and groups under the group. This role will be held by myself. In addition, we also set up another role which is Group COO, which will be held by Dr. Frank Ko, who will be responsible for advancing the collaboration between the 3 major businesses under AUO. Through the organizational transformation, both Frank and I will be together responsible for guiding our company through the changing landscape externally and driving development across AUO Group so as to accelerate the development of the 3 pillars. Next, I will hand over to Frank, who will be talking about the other 2 pillars, Smart Mobility and Vertical Solution.
Fu-Jen Ko: [Interpreted] Thank you. Ladies and gentlemen, good afternoon. Paul just spoke on AUO's operating strategy and the impact from the ForEx conditions and tariffs on the second half. I will speak on the other 2 pillars, Mobility Solution and Vertical Solution. Mobility's revenue was down by 5% slightly in Q2 from Q1. It was actually up by 4% Y-o-Y. Excluding the impact of the ForEx conditions, our revenue in Q2 was on par with that of Q1, and it was actually better than expected. As we talked to you in the first quarter, tariff impact on our shipments -- auto product shipments was not very big. Most of our auto products shipping to the U.S. are exported through Mexico and the country is under the USMCA framework, which gives a zero tariff treatment. At the same time, we are talking actively with our customers on the future capacity allocation, hoping to leverage our diverse distribution in terms of our front-end and back-end capacity in panel manufacturing in Taiwan and Mainland China as well as aided by our assembly capacity in Mexico, Europe and India, so as to strive for more mid- to long-term orders. Also yesterday, BHTC's Bulgaria plant just unveiled its third phase production at the new fab. And this fab is mainly intended for manufacturing display HMI for European customers. Based on our customer orders over the past few years, we decided to expand the capacity as we planned. With the new production capacity online, we expect that new revenue contribution will be made in the following quarters, hoping that our automotive revenue growth will be able to fulfill our customers' requirement for new production -- new product production for our customers. As far as our new orders go, last quarter, I have already told you that we collectively garnered a whole new order from a new customer, which is a large global automotive OEM, and that order was for display HMI. This quarter, I'm also very happy to report to you that with the hard work of our team, we once again gained another order for display HMI for a commercial vehicle as well as for climate control. In the past 1 year or so, since the acquisition and merger with BHTC, aided by the outstanding Tier 1 design and mechanical expertise from BHTC and underpinned by the display technology advancements of AUO, we have gained new orders from international auto OEMs. We have also gained very good and very strong growth for new generation vehicles among our key customers. This has built a very strong groundwork for the AMSC's operations starting from January 1 next year. We have also the confidence that we will be able to achieve our goal for double-digit CAGR growth in the following years. Looking ahead at the third quarter due to the ForEx conditions, we now expect that Mobility Solution revenue will be down by mid-single-digit percentage Q-o-Q. However, excluding the impact of the ForEx, we believe that we should be able to achieve moderate growth -- slight growth for Q2 -- for Q3 versus Q2. As for the full year, we anticipate that the Mobility Solution segment will experience high single-digit percentage growth Y-o-Y. The difference from the low to mid-single-digit percentage projection that we guided previously is attributable to the impact from the unfavorable ForEx condition. If the impact of the ForEx conditions is excluded, the performance would be in line with our previous projections. Now I'd like to talk about our Vertical Solution. Our Q2 revenue grew by 6.5% Q-o-Q, up by 5% Y-o-Y, which is in line with our anticipation. In April, our subsidiary, ADP signed a term sheet with E Ink to establish a joint venture company to set up large-sized EPD module production lines at AUO's Longke site. The buildup of this new line is going as planned, and it has been going through -- ongoing development and verification slated for shipment in the following months. In June, ADP also exhibited in EVO Cam in the U.S. by joining hands with Nanolumens. ADP also demonstrated many new display solutions, including FindARTs high-fidelity display and 60-inch transparent micro LED displays, garnering very positive feedback. What's worth noting is that this transparent micro LED display was showcased at our customers' booth. It has a very special meaning, signaling our joint collaboration with our customers in the commercial landscape. It also proves that we have garnered the recognition of customers in our capability to provide innovative applications utilizing transparent AR solution and our micro LED products. Moving forward, we will continue to join hands with our customers to expand micro LED transparent display solutions and to secure more customers orders across different application fields. Over the past half years or so, our micro LED business has spanned across wearables, large-sized tiling modules, automotive, industrial and commercial interactive displays. We also anticipate that in the following quarters, we will be able to launch more micro LED products into markets. Now let's talk about ADLINK. In the end of June, we held 32.8% of ADLINK. And at the latest election at the Board of Directors at ADLINK, AUO garnered the majority of general directors' seats. Therefore, we will be able to recognize and consolidate the P&L of ADLINK into our financial statements, which will mark a very special step in our strategic deployment. We have been gaining a stake in ADLINK since 2020. So we have built a very strong groundwork for collaboration across both of the companies, including footprint in the vertical fields from commercial industrial applications. ADLINK has been very strong in leading technologies such as edge computing and developing relevant solutions. In the past 2 years, AUO has been very focused on developing Vertical Solution, hoping to build a more comprehensive road map, including smart health care, smart retail, mobility and factory automation as well as entertainment. We also are building upon the collaboration across the 2 companies to build more commercial applications that will benefit both of us. Going forward, we will tighten our collaboration with ADLINK in our business models, sales channels and customer portfolios. The goal is to leverage the advantages of both companies and our expertise in smart mobility and vertical solutions to tighten our ecosystem collaboration so as to capture new opportunity and to elevate the value for both companies. In different vertical fields, we have been deploying AI training and AI-enabled product solutions very actively. Going forward, we will be able to harness the expertise of ADLINK in edge computing and also leverage the ecosystem energy of the AUO Group to capture new business opportunities under the Edge AI trend. Looking back at the past few years, we have been integrating the vertical-specific subsidiaries under the AUO Group into ADP. These subsidiaries included Rise Vision, ComQi, Avocor, Jector and other companies. This has allowed us to be more focused on the development of smart retail, health care, smart enterprises, education and gaming as well as transportation development. This year, we are driving the One America program under ADP to enhance ADP's footprint and sales capabilities and sales enablement in the U.S. Going forward, we hope that with the consolidation of ADLINK and the sales capabilities of ADLINK across the world, we will be able to tighten our performance and enhance the vertical solutions revenue to allow it to account for a bigger share of our total revenue so as to lower AUO's dependence on consumer electronics. As for the third quarter, Vertical Solution is expected to see its revenue growing by low to mid-20 percentage points Q-o-Q. Despite the ForEx conditions, while benefiting from the consolidation of ADLINK into the financial statements. As for the full year, with the consolidation of ADLINK, we are expecting Vertical Solution revenue to post high teens percentage growth for this year versus last year. So these are my statements for the other 2 pillars. Thank you.
Jerry Su: [Interpreted] Thank you, Paul and Frank. Now we would like to proceed with questions and answers, and we will begin by answering the questions that we collected previously. The first questions are related to financial performance. First up, in view of the economic conditions, could you update us on your 2025 D&A and CapEx plan and your continuous shift toward a light asset operating model. Any guidance on future CapEx plans, please? David, please.
B.Y. Chang: [Interpreted] In terms of CapEx, in view of the market conditions and macro conditions, we have reevaluated our CapEx. For 2025, we now anticipate our CapEx to be less -- no more than TWD 28 billion, which will include the delayed amount from last year and the expansion spending for BHTC in Bulgaria. For depreciation and amortization, we maintain our budget at TWD 30 billion. As for 2026 CapEx, in light of our strategic transformation, we will gear more resources toward Mobility and Vertical Solution and advancing our technologies. We will continue to drive towards the asset-light business model. Currently, we do not have plans to expand our front- end panel production capacity. Therefore, we expect our 2026 CapEx to be lower significantly from this year.
Jerry Su: [Interpreted] Next question, another panel maker in Taiwan recently announced plans to shut down older generation production lines. Could you provide more color on how you are handling the idle facilities in Singapore and whether there are any plans to close other production lines? David, would you please?
B.Y. Chang: [Interpreted] As we shared with you previously, we are selling our Singaporean production lines and the prop is still ongoing. Asset revitalization has been a very important part of our transformation strategy in recent years. We continue to evaluate the operating performance of our different generation lines. We also would decide on producing products at the most appropriate production lines. At the same time, we will seek opportunities to replace the old with new ones to optimize our facility use. In places and in circumstances that is appropriate, we will also sell off our assets that would -- that do not -- no longer offer any potential application value. So as to secure more capital to replenish our capital reserve to support our further operations as well as expand our development in the 3 major pillars to ensure stable investor return.
Jerry Su: [Interpreted] The next questions are related to our display business. What are the sell-through and channel inventory levels for TV and IT products in Q2 worldwide? What are your sell-through predictions for S product sell-through in Q3 and the second half? Will panel shipments continue to benefit from pull-in demand ahead of the peak season? James, would you please?
Chien-Pin Chen: [Interpreted] Ladies and gentlemen, good afternoon. I would like to address this question. In Q2, on the back of appliance trading program in China and the pull-in demand due to the tariff concerns, TV and IT demand was relatively steady. In the ITV segment, while Q2 is a slower season for TV, demand was only down by 3% Y-o-Y. And each region posted different performances. In Mainland China, on the back of June 18 promotion and the trading program, growth was quite robust. The U.S. posted steady and flattish performance. However, there was a weaker performance from Europe and Asia Pacific markets. TV as a whole lowered by 3% Y-o-Y, which was better than expected. In Mainland China, during the June 18 promotions, the trading program really helped to boost the unit sales by 10%. 85-inch and above TV segment improved by 36% in sell-through. This is a very positive sign for the industry's supply and demand. In the U.S. market, while the performance was flattish, in the 85-inch and above segment, growth was in the 40% range, also a very positive sign for the long-term panel industry supply and demand. Looking ahead at the third quarter, with the Prime Day in July and Black Friday in July, channels started their promotions ahead of time. We are also anticipating channel inventories to be lower to reasonable levels. As for the IT segment, laptops enjoyed 6% growth Y-o-Y in Q2, amid tariff concerns and the front-loading and earlier purchases by customers. In North America and in China, sales was rather strong, helping the laptop sell-through to improve in Q2. Looking ahead at the third quarter with the Black Friday in July and further promotions, we are expecting that gaming products and our integrated and touch privacy products to enjoy stronger sales. As for the monitors segment, sell-through was down slightly, down by 2% Y-o-Y, given the slower seasonality in Q2. However, in Mainland China, during June 18, sales promotion period and the help of the trading program, Gaming segment enjoyed 36% growth Y-o-Y and the sell-through during June 18 period was even up by 16% Y-o-Y. With Q3 entering a high season for gaming products, helped by the back-to-school demand, we are expecting stronger sales. In terms of the channel inventories, with the continuance of the trading program in China, that has helped the June 18 sell-through to be quite strong. About inventory levels at channels, in China, due to the strong sales in June 18 sales period and the help of the trading programs, channel inventory levels have been quite healthy. In North America, due to the front-loading demand amid tariff uncertainty, inventory levels are slightly higher than normal. However, it is still within a predictable and manageable range. Looking ahead at the second half of this year, our customers and brands as well as channels have been preparing for earlier promotions. Many brands are promoting for their products ahead of time amid tariff uncertainties. And people are saying that the higher seasonality of this year will be more dispersed. Our customers are also telling us that when there is more clarity around tariffs after August, they will consider whether or not to launch promotional programs for the end of this year. And we also believe that after August, there will be more likelihood for year-end promotions to be set in.
Operator: [Operator Instructions] And our first question will be coming from Randy Abrams.
Randy Abrams: I wanted to ask the first question, a follow-up on your remarks on the display business. If you could run through the pull-in effect, how you believe that affected your first half channel shipments, perhaps higher, it sounds like on notebook and IP and how that may affect the second half outlook? And second part of that question is we may get some of the tariffs coming back on reciprocal or Section 632 tariffs. So how do you view customers and channel prepared for expecting any sort of slowdown in those tariffs? That's the first 2-part question. And then I'll just ask the other question. On the vertical business, if you could clarify the guidance, including and excluding the ADLINK's consolidation. And for that vertical segment, how you see the strength continuing? We're tracking well, but how do you see that ongoing just factoring we still have some macro uncertainties.
Unidentified Company Representative: Randy, I think the issue, I think since our customers are still in the exempt list. So for IT products, it's all in exempt list. So far, we still are quite confident that this will continue. And for the TV panel, all the brand customers, they have their production site in Mexico. So they all can meet USMCA requirement. So, so far, if the product meet the USMCA requirement still can roll back. So we are quite optimistic about this policy will remain. So as I just mentioned, a lot of customers are waiting for the final result in August, and then they can train a more aggressive or clear promotion program in the second half. So before we know this final tariff results, our customers already put in their demand and the production plan in the first half. So I believe in the second half, the demand will be optimistic, but we're not like traditional season sales. So that is my answer.
Unidentified Company Representative: So, Randy, about the vertical section, we are talking about excluding the ADLINK, right? So if we exclude the ADLINK consolidation, and we foresee the coming Q3, the Vertical Solution revenue will be decline low to mid-single digits because of also impact by the exchange rate. If we -- however, if we reverse to the original exchange rate, we still see the Vertical Solution can keep the increase in low single digit. And for full year, yes, exclude ADLINK, we see the Vertical Solution, the full year revenue compared with 2024 will increase low single digits.
Randy Abrams: And maybe just to follow up, the low single digit, it's a little bit below maybe the target to expand that more aggressively. If you could recap a bit of the drag on the business here?
Unidentified Company Representative: Thank you, Randy. I think -- yes, originally in February, our target is a 10% Y-o-Y revenue growth. And then because of the exchange rate, so that's the reason why we now forecast low single digit. So if we use the original currency exchange rate, that still follow the original guidance.
Operator: Our next caller is Karen Huang from Citigroup.
Xuwen Huang: [Interpreted] I have 2 questions. First, on the ForEx impact on your profits and your revenue. Have you done any sensitivity analysis? That is how much will your revenue and margin be affected by a certain range of movement of the NTD versus USD rate? That was my first question. Also, I would like to know more about your Q3 guidance. What was the premise for that outlook, what was the premise for your exchange rate? Another question that I have is about area shipment. Could you provide more color on the area shipment growth for the display market for this year? And also your view on the next 2 to 3 years' growth. Are you also sticking with the general view of the industry that the panel size is about to grow by 1 inch per year?
B.Y. Chang: [Interpreted] On your questions for exchange rate in Q2, as mentioned, we had a 4.6% impact from the ForEx conditions. Of our 3 pillars, as we said, 90% of revenue is denominated in USD. So if the impact of the 4.6% ForEx impact is excluded, our displays revenue is on the par with the previous quarter and vertical Solutions will be up. Mobility Solution is also on par with the previous quarter. So that was my answer on the Q2 ForEx impact. For the guidance, our premise is that the exchange rate of USD versus NTD is TWD 1 versus TWD 29. Also for the question on area shipment, currently, in the current quarter, Q3, our customers are still waiting on tariffs announcements. Some customers have front- loaded their inventories in Q2 or even in Q1. We are estimating that Q3's area shipment to be down by low single-digit percentage points slightly, depending on the tariffs situation. And also, it will be depending on whether our customers will resume their pull-in ahead of the year-end high season.
Operator: The next caller is Lisa Chen from Yuanta Securities.
Meifen Chen: [Interpreted] I have several questions. First, on your e-paper strategy, you talked about your joint venture with E Ink. Could you provide us with more color on your progress for the second half of this year and also next year? Also, I have another question on your collaboration with the German railway company, which uses ADP's technology to provide HiRaso Display. HiRaso is also a form of E Ink, and it seems to be in a competitive position against e-paper. So you have both strategies deployment in these 2 kind of technologies. What is the technical barrier in terms of entry into either of the display segments? And how do you foresee the collaboration to benefit your display deployment in the long run?
Fu-Jen Ko: [Interpreted] On your questions, first up, about our joint venture with E Ink. The production line is already entering sampling stage. and it is slated for mass production in the following months. The line will be specifically focused on signage production. We are focusing on Smart Display applications and ESG requirements around the world. The priority will be placed on retail settings and the public places at enterprises. We will harness the mid- and large-sized e-paper modules, which can be operating at nearly zero power for a very long time to capture opportunities in the smart buildings and retail settings. From the perspective of AUO, ADP is not only intended for providing hardware solutions. More importantly, we want to place more focuses on building up the entire ecosystem and to harness our energy saving solutions to provide comprehensive solutions that incorporate advertising content, enterprise information, campus information to provide aecoPost Solutions. We will also be using ADP's LCD and LED expertise to provide one-stop shopping experiences for our customers. This will be the positioning that we are aiming for Smart Vertical Solution so as to form a collaboration mechanism across the entire ecosystem. Because of that, we want to work with E Ink to really form very close relationship with customers and also E Ink to build an entire ecosystem. On your question on the concept trend that we built with the German railway company, we demonstrated the HiRaso Display technology. It is an LCD-based technology that offers reflective and low-power features. It also offers wide temperature range, allowing it to be really unique and enjoy a strong advantage in outdoor environment. So we will aim for providing the most appropriate solutions at specific application fields. AUO is not only about building up our competitive edge, but also we want to provide more diverse display technologies and ecosystem partnerships to provide the most appropriate applications by joining hands with our partners and customers.
Jerry Su: The last caller is Vivi Huang from Morgan Stanley.
Vivi Huang: [Interpreted] I have 2 questions. First off, could you provide an outlook for display supply and demand? Second question is on China's trading program. In the first half of this year, the market was basically propped up by the appliance trading program. I wonder if you could provide some color around your view into the second half and the demand outlook in Mainland China?
Unidentified Company Representative: [Interpreted] I will address the first question relating to the trading program. In Q2, the trading program was suspended helping to boost demand for the TV sector in China. This year, the program expands its scope to monitors, smartphones, tablets and laptops. As a result, the June 18 sell-through was benefiting quite nicely. We also provide some sort of support to the global demand. We have also observed that in the second half, China's government has already set aside TWD 130 billion plus for the trading program, which will likely help prop up the high season demand in the second half. For the supply and demand in the display segment, currently, LCD makers are producing products based on demand and industry players are adjusting their supply and demand quite nimbly. Therefore, we believe supply and demand situation will be more stable with more certainty setting in around tariffs, aided by the high season promotions, improvements to the supply and demand situation will be expected. That said, the industry has been adjusting loading rates quite flexibly and dynamically. So the supply and demand is relatively steady. Thank you.
Jerry Su: [Interpreted] Thank you for your participation. This concludes our Q2 results conference. If you have any other questions, please feel free to contact us at the IR department at AUO. Thank you. You may disconnect now. We'll see you next quarter. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]