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Himax Technologies, Inc. (NASDAQ:HIMX)
Q2 2019 Earnings Call
Aug 8, 2019, 8:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good day, ladies and gentlemen and welcome to the Himax Technologies Second Quarter 2019 Earnings Conference Call.

[Operator Instructions] I would now like to introduce your host for today's conference, Miley Bergman [Phonetic]. You may begin.

Miley Bergman

Welcome everyone to Himax's second quarter 2019 earnings call. Joining us from the company are Mr. Jordan Wu, President and Chief Executive Officer and Ms. Jackie Chang, Chief Financial Officer. After the company's prepared remarks we have allocated time for questions in a Q&A session. If you have not received a copy of today's results release please email himx@mzgroup.us or you may access the press release on financial portals or download a copy from Himax's website at www.himax.com.tw.

Before we begin the formal remarks I'd like to remind everyone that some of the statements in this conference call including statements regarding expected future financial results and industry growth are forward-looking statements that involve a number of risks and uncertainties that could cause actual results or events to differ materially from those described in this conference call. Factors that could cause actual events or results to differ materially from those described in this conference call include but are not limited to general business and economic conditions, the State of the semiconductor industry, market acceptance and competitiveness of the driver and non-driver products developed by Himax, demand for end-use application products, the uncertainty of continued success and technological innovations as well as other operational and market challenges and other risks described from time to time in the company's SEC filings, including those risks identified in the section entitled Risk Factors in its Form 20-F for the year ended December 31, 2018 filed with the SEC in March 2019.

Except for the company's full year of 2018 financials which are provided in the company's 20-F and filed with the SEC on March 28, 2019, the financial information included in this conference call is un-audited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny, including the internal auditing procedures and external audits by the independent auditor to which we subject our annual consolidated financial statements, and may vary materially from the audited consolidated financial information for the same period.

The company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. I will now turn the call over to Ms. Jackie Chang. The floor is yours.

Mr. Jordan Wu -- President and Chief Executive Officer

Thank you, Miley. And thank you everybody for joining us. In today's call we will first review Himax's consolidated financial statements for the second quarter, followed by the third quarter 2019 outlook. Jordan will then give a update on the status of our business after which we will take questions. We will review our financials on both IFRS and non-IFRS basis. The non-IFRS financials exclude share-based compensation and acquisition related charges. Our second quarter 2019 revenues, gross margin and EPS all met our guidance issued on May 9. For the second quarter, we recorded net revenue of $169.3 million, an increase of 3.7% sequentially and a decrease of 6.6% year-over-year. As expected, our smartphone segment recorded a significant sequential growth while automotive business declined amid worldwide sluggish car sales. The TV sales were also hit by the falling panel prices caused by the display industry's oversupply situation. Gross margin was 19.5%, down 310 basis points sequentially due to less favorable product mix. IFRS loss per diluted ADS, were $0.03, in line with guidance range of $0.02 to $0.035. Non-IFRS loss per diluted ADS, were $0.0279, in line with the guidance range of $0.0180 to $0.033.

Revenue from large display drivers was $59.3 million, down 15.3% sequentially and down 2.2% year-over-year. Clouded by weak demand and oversupply, our panel customers have been over-stocked since last year. Our large panel driver ICs experienced lower shipments and pricing erosion in the second quarter as a result. Large panel driver ICs accounted for 35% of our total revenues for the second quarter compared to 42.9% in the first quarter of 2019 and 33.4% a year ago. Revenue for small and medium-size display drivers came in at $81.7 million, up 20.9% sequentially but down 8.5% year-over-year. The segment accounted for 48.3% of total sales for the second quarter, as compared to 41.4% in the first quarter of 2019 and 49.2% a year ago. The sequential revenue increase was mainly from smartphone and tablet sales. Both segments saw stronger shipments to a more diversified customer base in Q2. On year-over-year basis sales for all small and medium-sized business segments declined except for smartphone TDDI. Sales into smartphones were up 60.9% sequentially and flat year-over-year. The strong sequential increase came from high TDDI shipment off a low base and strong shipment of traditional discrete driver IC to a major Chinese smartphone maker. On a year-over-year basis, our TDDI shipment doubled as our shipment was capped last year by capacity constraint. However, sales of the traditional DDICs declined by close to 40% from last year. We expect sales for traditional discrete driver ICs in smartphone segment to decline significantly in the second half of 2019 as its addressable market is being quickly replaced by TDDI and AMOLED. Display drivers for tablet and other consumer products were up 23.7% sequentially through shipments to a leading end-customer and white box market on the backdrop of shrinking global tablet market. Year-over-year sales of this segment declined 17.9%.

Our Driver IC revenue for automotive application was down 10%, both sequentially and year-over-year as car sales remained weak across all major markets worldwide. The $25.6 million sales for the second quarter accounted for 18.2% of our total driver IC revenue. We expect this downward trend to continue in second half 2019. Revenues from non-driver businesses were $28.3 million, up 9.8% sequentially but down 10.1% from last year. Non-driver products accounted for 16.7% of total revenues, as compared to 15.7% in the first quarter of 2019 and 17.4% a year ago. The sequential increase was mainly due to higher timing controller and CMOS image sensor sales offset by lower WLO shipment. On a year-over-year basis, CMOS image sensor enjoyed some growth, while other major products, including WLO and timing controller, experienced decline. The gross margin for the second quarter was 19.5%, down 310 basis points sequentially and down 350 basis points from the same period last year, both a result of product mix. We anticipated the sequential decline and highlighted 3 reasons in the last earnings call. Firstly, our large driver IC business experienced pricing pressure caused by industrywide TV panel oversupply and high material cost. Secondly, the gross margin of the WLO business fell because of reduced shipment per an anchor customer's demand which led to lower capacity utilization. Finally, the significant sequential increase of TDDI for low-end market and certain traditional discrete driver IC for smartphones also led to lower overall gross margin.

Our IFRS operating expenses were $38.9 million in the second quarter, down 3.4% from the preceding quarter and down 5.8% from a year ago. IFRS operating margin for the second quarter was minus 3.5%, down from 0.3% in the same period last year and down from minus 2.1% in the prior quarter. The sequential decrease was primarily a result of lower gross margin. The year-over-year decline was a result of lower sales and gross margin. Second quarter non-IFRS operating loss was $5.5 million, or minus 3.2% of sales, versus non-IFRS operating income of $0.8 million, or 0.5% of sales, for the same period last year and down from minus 1.8% a quarter ago. IFRS loss for the second quarter was $5.2 million, or $0.03 per diluted ADS, compared to a loss of $2.3 million, or $0.0130 per diluted ADS in the previous quarter and IFRS profit of $2 million, or $0.012 per diluted ADS, a year ago. Second quarter non-IFRS loss was $4.8 million, or $0.0279 per diluted ADS, compared to non-IFRS loss of $2 million, or $0.0110 per diluted ADS last quarter and non-IFRS profit of $2.3 million, or $0.0130 per diluted ADS the same period last year.

Turning to the balance sheet, we had $122.4 million of cash, cash equivalents and other financial assets as of the end of June 2019, compared to $126.7 million at the same time last year and $108.2 million a quarter ago. The cash position increased $14.1 million from last quarter due primarily to increased unsecured borrowings of $37 million, offset by CapEx of $5.7 million and cash outflow of $17.7 million from operations. On top of the cash position, restricted cash was $164.3 million at the end of the quarter, the same as preceding quarter and up from $147 million a year ago. The restricted cash is mainly used to guarantee the secured short-term borrowing for the same amount. We had $77 million unsecured short-term loan at the end of second versus $40 million a quarter ago. As reported in the last earnings call, further loan was made to finance the land payment.

Our inventories as of June 30, 2019, were $188.5 million, slightly down from $189.3 million a quarter ago and up from $142.1 million a year ago. Accounts receivable at end of June 2019 were $176.2 million little changed from last quarter and a year ago. Day sales outstanding, was 96 days at end of June 2019, as compared to 93 days a year ago -- at end of the last quarter. As highlighted in the last earnings calls, in response to capacity shortage of foundry and certain packaging material, we had to keep the inventory level higher than usual last year. Given the prevailing uncertain market conditions and ease of foundry capacity, we have has started to control our inventory level from the first quarter of 2019. More sizable reduction in inventory will be seen starting the third quarter.

Net cash outflow from operating activities for the second quarter was $17.7 million as compared to an outflow of $2.8 million for the same period last year and an outflow of $22.1 million last quarter. The increased outflow year-over-year was mainly due to additional inventory buildup and lower profit. Second quarter capital expenditure amounted to $5.7 million, versus $17.7 million a year ago and $6.3 million last quarter. The investment in design tools and R&D related equipment for our traditional IC design business amounted to $1.7 million in the quarter. The remaining $4 million was for the ongoing payments for the new building's construction and WLO capacity expansion. Third quarter Capex is budgeted to be around $33 million, including the payment of $27.7 million for the land purchase which was deferred from the second quarter. By the end of third quarter we will have concluded substantially all the Capex payments for the new land, building and 3D sensing project with just $1 million left to be made in the fourth quarter.

Before concluding my report for the second quarter results I would like to provide an update on dividend information. We typically make annual cash dividend payment at approximately the middle of the year based on the prior year's profitability. Our Board of Directors have decided that we will not pay cash dividend in 2019. The decision was made with full consideration of Himax's 2018 financial results as well as 2019 operations and capital requirements. As of June 30, 2019, Himax had 172.1 million ADS outstanding, unchanged from last quarter. On a fully diluted basis, the total ADS outstanding are 172.6 million.

For the third quarter expect revenue to decrease around 2% to 7% sequentially. Gross margin is expected to be around flat sequentially, depending on our final product mix. IFRS Loss attributable to shareholders are expected to be in the range of around $0.035 to $0.055 per diluted ADS based on 172.6 million outstanding ADSs. Non-IFRS loss attributable to shareholders are expected to be in the range of $0.033 to $0.053 per diluted ADS based on 172.6 million outstanding ADSs. This year we will not issue restricted share units, RSU, to employees in September like previous years. Thus our third quarter guidance has not assumed any RSU expense in the third quarter 2019. RSU is part of our share-based compensation plan which we usually reward employees with an annual bonus at the end of September. In 2018, the RSU grant totaled $3.9 million, out of $3.8 million was vested immediately and expensed in the third quarter. The remainder was vested equally at the first, second and third anniversaries of the grant date. The decision of not issuing RSU in 2019 was made with full consideration of Himax's 2019 financial results and operational requirement.

I will now turn the call over to Jordan.

Thank you, Jackie. Before I discuss our business outlook for the third quarter, I would like to comment on overall industry trends that are currently impacting our businesses. As we mentioned last quarter, market conditions have been challenging and we do not see them improving in the near term. Uncertainty in the global economy continues to overshadow the marketplace where we are seeing softness in all industries that consume display. This combined with prevailing industrywide capacity oversupply has led to severe pricing and cost pressure for panels, which has directly impacted our sales and margin.

Against the backdrop of an unfriendly market environment, we have faced multiple challenges that have had an adverse effect on our overall financial performance over the past 12 months. First, the large display driver IC and small/medium driver IC markets experienced chip-on-film or COF and wafer capacity shortages respectively. The severe shortages significantly affected our ability to fulfill customer orders in the back half of 2018, which not only impacted our 2018 sales, but also jeopardized our ability to win new projects with customers at the time. While these constraints were resolved toward the end of 2018, we are still suffering from the repercussions of the loss of new projects as we did not get to take part in the mass production of those projects, many of which started in the second or third quarter this year. Second, beginning earlier this year, there has been a major pullback in demand for DDICs as panel makers facing an industrywide overcapacity and uncertain economic outlook, cut back their production and, in the meantime, attempt to lower their DDIC inventory which they built earlier to address the IC shortage concern. The combination of these two factors has negatively impacted our performance in the second half of 2018 as well as full year 2019. Separately, in the smartphone segment, new model opportunities which we count on to boost our new generation TDDI product shipment have been limited so far in 2019 due to a slow smartphone market.

In summary, while we expects strong TDDI growth in 2019, its contribution to our overall sales will be offset by decreases in large panel and automotive DDICs, which have been negatively impacted by the unfavorable market environment. Notwithstanding the current business headwinds, we are committed to the long-term strategy of achieving a balanced portfolio of DDIC and non-DDIC products. Looking forward, we believe that as a market and technology leader in DDIC we are positioned well to regain market share in both large and small/medium display segments where we have seen major new project opportunities emerging with our customers. At the same time, we are working toward capitalizing on the unique non-driver technologies where we have invested heavily in the last few years, particularly 3D sensing and ultra-low power smart phone sensing. I will elaborate on some of those areas in a moment.

Last but not least, while we are making good progress in the development of strategic technologies, we have kept R&D expenses approximately flat compared to last year. These include next generation display driver technology for 8K TV and AMOLED, 3D sensing for both mobile phone and non-mobile phone applications and the ultra-low power smart sensing solutions. We are committed to our overall strategy and continue to invest in technology to drive our long-term growth.

Now let me give you further insights we have on 3D -- our third quarter guidance. As usual, let us start with the large panel display driver IC business update. During the second quarter our business, and the overall market, remained weak due to panel overcapacity and high inventory on the backdrop of an uncertain global economy. Panel makers have reduced production output, resulting in decreased demand and price erosion for DDIC products. We expect these trends will continue into Q3 and the remainder of 2019. Another major factor affecting our large display driver IC business is the material cost. Although COF demand has started to show signs of relaxation, the supply remains tight and prices in Q3 remain high. The overall outlook of our large panel DDIC business for the second half of 2019 has reversed since our last report due to the reasons mentioned above. We now expect our third quarter revenue in the large display driver IC segment to decrease sequentially by high-teens with lower gross margin. Based on the information currently available, it is unlikely that overcapacity and weak demand in the large panel will change in the near future. As a result, we expect revenue to decline further in Q4 for this segment with continued margin pressure. Despite the short-term weak outlook we are making good progress securing new design wins from our existing customers. We expect to return to growth starting Q1 2020. Our technology development 8K TVs will continue to hold a small share in the TV market because 8K content and transmission technology are still early in its lifecycle. But 8K TVs remain a strategic area for Himax and are expected to boost demand for higher LCD driver ICs and timing controller contents.

Now let's turn to the small and medium size display driver IC business, beginning with an update on our smartphone segment. The global smartphone market is expected to decline in 2019. On the one hand we are pleased with the strong TDDI growth in the second quarter driven by a more diversified customer base and enriched product portfolio. On the other hand, the speed of growth of TDDI has not been to our satisfaction and we are concerned that the TDDI market is maturing while at the same time experiencing rapid ASP erosion caused by increased competition. Moreover, sluggish smartphone demand and shorter product cycles have led to our slower-than-expected inventory reduction. For the third quarter we expect TDDI shipment to be down by low single digits and revenue to decline by high single digits from the previous quarter due to ASP erosion. As Jackie mentioned earlier, we have taken more aggressive action to control inventory levels and adjust for the weak market environment. We expect a further reduction in inventory level in the third quarter.

As highlighted in the previous earnings call, we remain the industry leader in developing next-generation TDDI's solutions such as MUX6, dual gate and high screen refresh rate TDDIs. We have already begun new design-ins with major smartphones names but do not expect those to take -- to make a meaningful contribution to our sales until 2020. Increased competition in TDDI market combined with accelerating AMOLED display adoption will limit our TDDI growth for smartphone application in Q3 and the remainder of 2019. I mentioned in the last earnings call that we could potentially start shipping TDDI chips for the tablet market in 2019. We expect to see a small revenue contribution during Q4 of this year with a number of leading end customers. Furthermore, we are the industry leader in TDDI with active stylus by partnering with the world's top brands for pen tablets and interactive pen displays. We are pleased to have begun shipments during Q1 of our TDDI for automotive display to a leading panel customer for a prominent auto manufacturer. The initial volume started small but the pipeline for next year's mass production looks promising. While both segments are smaller than smartphone in terms of volume, they enjoy better margin and growth opportunities for our TDDI solutions in the near future.

As expected, our traditional discrete driver IC sales into smartphone increased strongly in Q2 as our design-win with a major Chinese smartphone maker went into production during March and a significant shipment took place in Q2. Despite this rebound, we are seeing the traditional discrete driver ICs' addressable market being quickly replaced by TDDI and AMOLED in smartphone. As a result, we expect traditional discrete driver ICs for smartphone to decline substantially in the third quarter of 2019 and beyond. Combining shipment of TDDI and discrete smartphone driver, our Q3 sales into the smartphone market is expected to decrease by around 10% sequentially. A major development we are seeing is increased utilization of OLED display designs for smartphones, triggered by increased AMOLED capacity and under-display fingerprint sensing technology which is currently only applicable with AMOLED displays. Although we expect this trend to negatively impact the demand for TDDI and corresponding ASP's, we have been collaborating closely with leading panel makers across China for AMOLED product development. While we don't expect revenue contribution anytime soon, we do believe AMOLED driver ICs will be one of the long-term growth engines for our small panel driver IC business.

In the automotive display segment, the market has been depressed by declining new car registrations, particularly in China. We continue to face weak demand and expect Q3 sales to be flat sequentially. Looking forward, against the backdrop of a feeble car market, the penetration of displays into vehicles is maturing. Therefore, we don't expect the same kind of growth that we enjoyed in the last -- in the past several years in the automotive segment. However, we will continue to lead this space by bringing new technologies to market including TDDI, AMOLED and local dimming timing controller. We believe such new technologies will help rejuvenate the industry and bring our automotive sales back to a growth trajectory. Our tablet and consumer electronics businesses represented around 12.4% of our total sales in the second quarter. As the overall markets remain weak we expects tablet business to decrease by more than 30% in the third quarter mainly due to a major end customer's inventory adjustment. As mentioned earlier, we have started to provide OEMs with samples for our world leading in-cell TDDI that supports the use of active stylus for tablet during the first quarter. We will report progress in due course. Combing tablet and consumer electronics businesses, we expect sales to decrease by around 25% sequentially in the third quarter. For the third quarter, revenue for the small- and medium-sized driver IC business is expected to decrease by around 10% sequentially.

Now let me share some of the progress we made on the non-driver IC businesses in the last quarter. First of all, 3D sensing business update. We continue to participate in most of the smartphone OEMs' ongoing 3D sensing projects covering structured light and time-of-flight or ToF. As I reported earlier in the past, our structured light-based 3D sensing total solution targeting Android smartphone's front-facing application was unsuccessful due to high hardware cost, long development lead time and the lack of killer applications. Since then we have adjusted our structured light-based 3D sensing technology development to focus on applications for non-smartphone segments which are typically less sensitive to cost and always require a total solution.

We teamed up with industry-leading facial recognition algorithm and application processor partners to develop new 3D sensing applications for smart door lock and have started designing projects with certain end customers. Separately, we are collaborating with partners who wish to take advantage of our 3D sensing know-how to automate traditional manufacturing and thereby improve its efficiency and cost. A prototype of the cutting-edge manufacturing line is being built on our premises and we believe this project can represent a major step forward in our alternative 3D sensing applications. We are still in the early stage of exploring the full business potential for structured light 3D sensing technology but we believe it will be applicable in a wide range of industries, particularly those demanding high level of depth precision or accuracy. On ToF 3D sensing, we have seen increasing adoption of world-facing solutions to enable advanced photography, distance or dimension measurement and 3D depth information generation for AR applications. Very recently, thanks to ToF sensor technology advancement, some OEMs are also exploring ToF 3D for front-facing facial recognition and payment certification. As a technology leader in the 3D sensing space we are an active participant in smartphone OEMs' design projects for new devices involving ToF technology by offering WLO optics and/or transmitter modules with our unique eye-safety protection design. Next is some discussion on our WLO business. As anticipated, the second quarter WLO revenue declined sequentially due to reduced shipment to our anchor customer as per their lower seasonal demand. The sequential shipment decline led to lower capacity utilization and therefore negatively impacted our Q2 gross margin. That being said our shipment to the anchor customer -- our shipment to the anchor customer in the first half of 2019 recorded a nice growth from last year. Furthermore, based on the customer's shipment forecast we expect the third quarter WLO revenue to rise significantly with the strong momentum expected to carry through the second half of the year.

Our advancements in technology have enabled us to remain an industry leader and an active ecosystem participant for the creation of breakthrough products and technologies. In addition to 3D sensing for smartphone applications we have various engagements in other markets. For example, the automotive sector is developing as an attractive market with substantial opportunities for our WLO product line and 2D/3D in-cabin optical sensing for driver monitoring and identification and advanced parking assist system. Next on WiseEye, our ultra-low power, AI-based, smart sensing solution. During Computex 2019, in partnership with Quanta Computers, the world's largest notebook ODM, we unveiled the world's first human-aware intelligent vision solution for notebooks, WiseEye 2.0 NB. This solution was built on Emza's unique AI-based algorithm as well as Himax's proprietary computer vision processor and CMOS image sensor, all built with ultra-low power design. Emza, based in Israel, is Himax's wholly owned subsidiary and a pioneer specialized in AI-based algorithm for ultra-low power intelligent image sensing. WiseEye 2.0 NB enables seamless integration of sensor -- of sensing user context awareness for an improved notebook user experience and extended battery life. New product features include, among others, device wake-up when user is present, screen lock when absent, screen dimming when disengaged and privacy alerts when a second person is identified in the field of view. Additionally, the AI-based always-on sensor can detect user engagement levels based on presence and face posing, to enable power management of the display and maximize battery life. Since Computex we have extended our dialogue to most OEMs who are all looking to include AI low-power sensors into their platforms. We are targeting their next generation product launches for the 2020 back-to-school season.

While our focus is currently on notebooks, intelligent ultra-low power human detection and people counting can be widely used -- utilized. In the future we will expand into residential security, smart home, smart building, consumer appliances, automotive and industrial segments. On CMOS image sensor business updated. For the traditional human vision segments we see strong demand in notebooks where we are one of the market leaders, and increased shipment for multimedia applications such as car recorders, surveillance, drones, home appliances and consumer electronics among others. Additionally, we have seen increased shipment and new design-wins in our automotive segment, covering before-market solutions such as surround view and rearview cameras. CMOS image sensor is a critical component in the WiseEye solution I mentioned earlier. We have made a huge effort to combine the capabilities of high quality HD image capturing and ultra-low-power, low resolution visual sensing into 1 single sensor, the industry's first with such design. With this 2-in-1 sensor, notebook manufacturers can simplify their product design and save the cost for an additional camera needed for context awareness. The first generation of the 2-in-1 sensor is designed with state-of-the-art stack-die technology to achieve a die size small enough to fit in to the industry's next generation ultra slim notebook computers. In addition, our sensor has incorporated an RGB-IR design to enable Windows Hello facial recognition. The new 2-in-1 CMOS sensor will be available by the end of 2019.

I will now give an update on the LCOS business where our main focus areas are AR goggle devices and head-up display or HUD for automotive. In 2018 many AR goggle devices were launched, targeting primarily niche industrial or business applications, with top name multinationals continuing to invest heavily to develop ecosystem, applications, software, operating system, system electronics and optics. While AR goggles will take a few more years to fully grow into its market potential we believe LCOS remains the mainstream technology in this space. Our technology leadership and proven manufacturing expertise has made us a preferred partner with AR goggle device customers for their ongoing engineering projects. In addition, we continue to make great progress in developing high-end holographic head-up displays for high-end automotive. LCOS for both goggle device and HUD enjoy much higher ASP and better gross margin for us and represents a long-term growth driver for us. For non-driver IC business, driven by strong growth in WLO and CIS, we expect revenue to increase by about 30% sequentially in the third quarter.

That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today's call. And we are now ready to take questions.


Questions and Answers:


[Operator Instructions] And our first question comes from Jerry Su from Credit Suisse. You may proceed.

Jerry Su -- Credit Suisse -- Analyst

I think the first question is more related to our driver IC pack. I think on the smartphone related, our TDDI you have mentioned that you have seen some bottlenecks of getting AMOLED design wins, but I would like to know what's your view on going into 2020 when you have those new partners ready. And at the same time, what is the pricing outlooks for the TDDI in later this year also in 2020? And then second question is more related the wafer-level optics. Because you have expanded, you built a new facility for the WLO for 3D sensing. But as you mentioned, the industry didn't really take off. So, I was also wondering will there be any idle capacity issue and then we need to ask to take some write off in near future? Thanks.

Mr. Jordan Wu -- President and Chief Executive Officer

Thank you, Jerry. Firstly, on TDDI, we are entering to we are launching the second-generation design. And as you know, and we mentioned repeatedly in the past, that our first-generation technology-wise it was OK but we missed the market opportunity slightly compared to our competitors and we had we suffered from a severe, very severe foundry capacity shortage. And that, actually as I mentioned in my prepared remarks, not only impacted our sales at that time but also arguably more significantly also jeopardized our chances for new design opportunities which represent the shipments of the current moment. And so, the growth of TDDI shipment this year came from first generation. And that certainly came from a low pace as the reason I just mentioned above. Now so while we are shipping TDDI products for this year, we are also at the same time right now, starting new design engagements with our customers, primarily utilizing the second generation TDDI products, stuff like high refresh rate 100 megahertz or dual gate designs. So, and some of those will involve COF packaging as well. And again, we are talking about primary two major resolutions, meaning full HD+ and HD+, so we have such engagement or discussions or design wins, a design win already with panel customers and certain major end customers. So, I also mentioned the revenue contribution from such new design wins will only be seen starting next year primarily. There will be very limited such contribution within this year. Pricing erosion continues. And I think you will continue to will continue to see pricing competition. Quite simply, the market is weak. And that only that not only affects the smartphone's total shipments but also their desire or their budget to kick off new projects. And so, with relatively few new project opportunities, I think everybody is chasing on those projects, and pricing competition therefore has intensified. And we really don't see that stopping anytime soon or even into the next year, we'll see. But I think for us we just have to face those competition and address those issues and try to control our cost.

On your question on WLO idle capacity or even whether the so-called idle capacity will lead to the need to write down some of our investment. The answer is no. The bulk of our WLO capacity has been fully utilized by the end customer. So that is vast majority of WLO capacity. We have said we have reserved around 2 million chips of capacity per month for our Socialite total solution of the Android market. That certainly hasn't taken place. And I mentioned earlier we are refocusing our strategy, targeting non-smartphone and so on and there are some design wins, certainly we are yet to see major volumes yet. However, another trend we see happening big time is the adoption of ToF technology for smartphone, primarily forward-facing camera. And we are active participant over there. And to participate in that space what we provide primarily is also WLO optics for BOE or BOE kind of optics. So, we wouldn't have been able to participate in that new opportunity without any spare capacity. I think that's the most important message I want to tell you. And honestly, 2 million chips per month for smartphone is really quite small. And so, with that capacity we are doing R&D, we are providing samples, and we are assuring our customers that we when they start mass production, we do have some initial capacity to address their demand. And if some of those ToF capacity ToF project is turned out to be successful next year, I think there is there are chances that we may have to add more capacity rather than worry about investment right now. So, I hope that answers your question, Jerry?

Jerry Su -- Credit Suisse -- Analyst

Yes, thank you. And then just one quick follow-up, on the TDDI pricing you mentioned that the ASP erosion might continue into next year. I'm just wondering, do you think that we will reach our parity, which means TDI ASP will be similar to the discrete driver plus the touch by next year?

Mr. Jordan Wu -- President and Chief Executive Officer

You mean price? You mean price?

Jerry Su -- Credit Suisse -- Analyst

Yes, ASP.

Mr. Jordan Wu -- President and Chief Executive Officer


Jerry Su -- Credit Suisse -- Analyst


Mr. Jordan Wu -- President and Chief Executive Officer

Price, unlikely because TDDI by definition is a combination of 2 things, right, it's a touch controller and display driver IC. So, on apple-to-apple basis, one chip against one chip TDDI price will always be higher than discrete driver. Having said that, it is also more expensive to make, right, because it is a combination of 2 things. So, when I say pricing pressure, what I meant was the margin pressure. And ASP will always be higher.

Jerry Su -- Credit Suisse -- Analyst


Mr. Jordan Wu -- President and Chief Executive Officer

And certainly, there is also the packaging type, right, with TDDI for the reasons we all know, some phone makers are choosing tougher COF packaging and that in turn has quite a bit of cost. For us, with discrete driver there is no such thing. It's all COG. So, you save the packaging cost as well.

Jerry Su -- Credit Suisse -- Analyst

Yes. But maybe to define this question more precisely, so if on a like-to-like packaging basis, for example, COG, will the TDDI ASP eventually be similar to some of discrete driver IC plus touch in 2020?

Mr. Jordan Wu -- President and Chief Executive Officer

I think let's set aside the additional cost for COF on apple-to-apple basis. Let's say it's both are COG packaging type. I think when TDDI cost started, the cost of TDDI is a combination of display driver and touch panel controller. And you add them together and you'll lose little bit on longer testing time and probably you suffer a little bit because of bigger die size suffer a little bit from year rate. But that is the cost of TDDI. So, it is actually comparable to the traditional discrete driver cost plus the discrete touch panel controller cost, but initially with a higher margin because it's a new product. And now we are talking about margin erosion, while the cost remaining pretty much the same. Certainly, the second generation TDDI we have made some improvement on cost. But likewise, traditional [indiscernible] historically every year we keep on making improvement on cost as well. So, they are really from a cost point of view, by integrating the two things together this in directly save cost for the end customer because of the integration per se. So, it's more of like one plus one equals two and you still have to pay two for the combined TDDI chip initially, so the margin is higher. Now we are seeing margin pressure, that's what I was referring to. I don't know if that answers your question.

Jerry Su -- Credit Suisse -- Analyst

Okay I got it. Okay, thank you.

Mr. Jordan Wu -- President and Chief Executive Officer

Thank you, Jerry.


[Operator Instructions] I'm not showing that we have any further questions at this time. I'd like to turn the call over to Jordan Wu for closing remarks.

Mr. Jordan Wu -- President and Chief Executive Officer

As a final note, Jackie Chang, our CFO, will maintain investor marketing activities and continue to attend investor conferences. We'll announce the details as they come about. Thank you and have a nice day.


[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Miley Bergman

Mr. Jordan Wu -- President and Chief Executive Officer

Jerry Su -- Credit Suisse -- Analyst

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