Mr. Wu continued, "In our CMOS image sensor product line, on top of shipment for handsets, we started small volume shipments of notebook PC applications to one of the world's top notebook brands. The adoption by this world-class brand validates our product and technology competitiveness. With the sampling of our next generation CMOS image sensors, we are on track to be awarded with more design-in projects for a wider range of customers."
Mr. Wu added, "We are seeing softening demand since June with talks of end product sell-through noticeably slowing down and customers getting cautious on inventory levels. Over the past ten days, in particular, we have seen our customers significantly cut back their forecasts for August and September. While we are actively talking to our customers, we have not yet come to a conclusion as to whether this is a short-term over-reaction or if it has long-term implications. We are uncertain if this is specific to Himax or this is an industry-wide phenomenon."
Mr. Wu continued, "Despite recent concerns over excess inventory and weakening demand industry-wide, we have seen our gross margin improve since the beginning of the year. We expect this trend to continue due to better product mix, and solid execution of our price strategies and cost reduction measures. In particular, we are pleased to see improved gross margins for some of our major non-driver products. Take our LCOS pico-projector product line for example, with increased shipment and higher capacity utilization, gross margin and gross profit continue to grow. We believe similar economies of scale are taking place in some of our other non-driver product lines, which will eventually be growth drivers of both our top line revenue and bottom line profit in the not too distant future."
Mr. Wu added, "For the third quarter 2010, we expect revenues to decline by 13% to 18%, gross margin to increase by 1-2 percentage points, and GAAP earnings per ADS to be in the range of $0-0.02. Our third quarter GAAP earnings per ADS guidance takes into account our 2010 grant of restricted share units, or RSUs, at the end of September. The 2010 RSUs, subject to Himax' Board approval, is assumed to be valued in the range of $9 to $10 million, of which approximately 60% will be vested and expensed immediately on the grant date. Excluding share-based compensation and acquisition-related charges, our third quarter 2010 non-GAAP earnings per ADS guidance is $0.04-0.06."