Solomon Systech Announces 2024 Interim Results

With Active Expansion of New Product Demand

Net Profit Rose by 21% Compared to 2H2023

Promising Prospect in Large Display IC Business with Future Trends Identified

Financial Highlights:

• Sales revenue amounted to US$61.9 million
• Gross profit was US$19.8 million, with a gross profit margin of 32%
• Profit attributable to the owners of the parent down by 43.3% YoY to US$7.5 million, but up by 21% compared to 2H2023
• Shipment volume was 170 million units, up by 6.6% compared to 2H2023

(22 August 2024 – Hong Kong) Solomon Systech (International) Limited (“Solomon Systech” or the “Company’’; Stock Code: 2878) announced the interim results of the Company and its subsidiaries (collectively, the “Group”) for the six months ended 30 June 2024 (the “Period”).

In the first half of 2024, global economic growth slowed down due to unfavourable factors such as inflation, tightening monetary policies, and geopolitical tensions. The Chinese market was suffering from issues like weak domestic demand, which significantly affected the demand for consumer electronics. Despite the downward price pressure on end products, the destocking of inventory for the overall industry is coming to an end as the balance between market supply and demand is gradually restored. During the Period, the Group’s shipment volume was approximately 170 million units, representing a 3.7% year-on-year decrease but a 6.6% increase compared to that in the second half of 2023.

Amidst the economic slowdown, the Group’s sales revenue decreased by 27.4% to US$61.9 million compared with the same period of last year (US$85.3 million), with a gross profit margin of 32%. Although the Group benefited from cost savings during the Period brought by the price reductions from wafer foundries in the previous year, the decrease in sales revenue led to a year-on-year decrease of 43.3% in the profit attributable to the owners of the parent to US$7.5 million. Earnings per share were 0.30 US cents. The Board resolved not to declare any interim dividend for the six months ended 30 June 2024.

Business Review

New Display ICs

During the Period, the Group’s shipment volume of new display IC products grew steadily. However, as retailers were waiting for the launch of the new generation four-color displays (E5), which affected the sales and the average price of three-color display labels (E4), coupled with the competition in the market, the average selling price of the Group’s new display IC products dropped, resulting in a decrease in revenue. On the other hand, the Group supported E Ink in developing the Display IC Solutions for Spectra™️ 3100, a next-generation specialized platform for ESL and retail signage application. This has successfully enabled a four-color spectrum display which helped place the Group in a leading position in this huge market. The large-size four-color display labels supported by the Group’s IC products were launched to the market in the fourth quarter of 2023, and the small-size four-color display labels are expected to commence trial production soon.

OLED Display ICs

The Group was the world’s number one PMOLED display driver IC player with a dominant market share in terms of shipment volume in the Period. The shipment volume of the Group’s OLED display IC products during the Period remained constant compared to the same period last year, while having increased significantly by nearly 30% compared with the second half of 2023. This was mainly attributable to the Group seizing market opportunities timely and the generation upgrade of certain high-demand electronic products which significantly boosted the demand for OLED display IC products. Additionally, the Group has newly developed IC products that can support transparent PMOLED displays, and its end products were launched in the market during the Period.

Mobile Display and Mobile Touch ICs

During the Period, shipment volume and revenue of the Group’s mobile display and mobile touch IC products significantly declined as the personal consumption market remained weak, with sales of game console controller ICs being particularly affected. The Group provides display with a series of proprietary features that support high-resolution, high-speed and low-power display of

smart devices. During the Period, the Group co-developed a human interface display platform with a number of leading small-to-medium-size TFT-LCD panel makers. The product will enter mass production in the second half of 2024.

Large Display ICs

Benefiting from a series of home appliance subsidy policies in the mainland China that were introduced in the end of 2023, the sales of large-size display such as monitors and smart TVs surged during the Period, which resulted in the shipment volume and revenue of the Group’s large display ICs to more than double compared with the same period of last year. During the Period, the Group carried out mass production of a number of mainstream new products for international brands in conjunction with major panel makers. Furthermore, the Group has also been authorized by a major Chinese display manufacturer to develop a new generation P2P high-speed interface display driver IC, which is expected to commence project implementation in the third quarter of the year.

During the Period, the Group successfully shipped large quantities of full-color electronic paper notebook and e-book reader driver IC packages. The Group also produced prototypes for large-size e-Paper learning whiteboards and large-size color electronic retail signage driver ICs in July 2024.

Innovative Technology and Product Highlights

In the face of the ever-changing market environment, achieving independent innovation and enhancing research and development capabilities are particularly important. During the Period, the small-size four-color display labels supported by the Group’s IC products are undergoing updates and are expected to enter trial production soon. It is anticipated that the mass production of these products will drive an increase in both volume and price for the New Display IC business.

In addition to ESL, which the Group has been deeply engaged in, the Group is also committed to expanding the application of electronic paper IC products to other areas, and is particularly optimistic about the market potential of medium and large-size electronic paper. Three internationally renowned electronic paper notebook and e-book reader brands with which the Group has partnered are expected to launch their end-products in the second half of the year, among which the full-color electronic paper notebooks have adopted the Group’s AMEPD driver IC for Advanced Color e-Paper Active Matrix Electrophoresis Display (ACeP) products. In addition, the Group produced prototypes for large-size e-Paper learning whiteboards and large-size color

electronic retail signage driver ICs in July. The demand for the Group’s IC products is expected to continue to grow in the future.

The Group has identified the main trends in the future and started the development of automotive driver IC solutions. The Group signed a memorandum of understanding on strategic

cooperation with a Shenzhen automotive display manufacturer in the end of 2023 and began cooperation in the design and development of the first automotive-specific integrated driver IC, with a mass production target set at 2025 for application in major automotive systems in the PRC.

At the same time, the Group is actively expanding the applications of the mobile display and mobile touch ICs. The Group is currently developing a mini-LED backlight solution in which the FPGA development platform has been completed and to be followed by the development of standard ICs. The product is expected to be launched in 2025 for automotive applications.

Outlook and Strategies

In the current environment of persistent global inflation, escalating geopolitical risks, and high-interest rates, personal consumption expenditure is being restrained. In the short term, product prices are under pressure, and products previously benefiting from subsidy policies may face pricing adjustments. In terms of costs, it is expected that wafer foundries will maintain stable prices in the second half of the year. In view of the slowdown in economic growth, the Group will put more resources into the development of high value-added new products to enhance its strength and prepare for the economic recovery.

Mr. Wang Wah Chi, Raymond, Chief Executive Officer of Solomon Systech said, “While consolidating our existing business, the Group will actively expand into emerging application areas such as automotive devices and medium to large-size e-paper. We highly look forward to the tremendous market potential for automotive devices presented by the localization of automobile manufacturing in the PRC. The Group will closely monitor market changes, flexibly adjust product strategies and continuously enhance technology, aiming at maintaining our competitive advantages in the rapidly changing markets.”

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