Good morning. Welcome to Sunny Optical Technology (Group) Company Limited's 2026 interim results announcement. I am Christina Liu from the IR department of Sunny Optical. Thank you for your long-term interest and support for the company. Today we have in attendance Executive Director and Chairman, Mr. Wang Tan Jiong. Executive Director and CEO, Mr. Wang Wenjie. Director of Finance Center, Mr. Wang Youjun. Senior Director of IR Department and Company Secretary, Ms. Wong Pui Ling. Ms. Liu Yunhong, Director of IR. Now we will invite Mr. Wang Tan Jiong to deliver opening remarks, please.
Honorable investors, analysts, good morning. Welcome to our results announcement. On behalf of Sunny Optical Technology, I would like to thank you all for your continuous interest and support for the company. In the first half of the year, given the very difficult industrial environment, we achieved expectation in terms of revenue and profit growth.
This shows that our strategic judgment is effective, and we have shown some operation results. Looking into the future, we are confident in the future. First of all, optical market is in structural growth cycle. There is a rapid release of demand for the relevant products. The overall logic in the industry development has not changed. In core verticals, our market position is very firm. Vehicle handset products as well as AI, XR, these are all very good verticals for us. Then we also have very adequate resource guarantee. The management had encountered different market cycles. When the market is volatile, we have the capability to seize opportunities. With optics and AI strategy, we are implementing this strategy in an orderly way. We have confidence to be able to turn end-to-end optical capability into our growth momentum.
Now we'll defer to our CEO, Mr. Wang Wenjie, to present our interim results in detail. After that, our management team will answer questions that you have in mind. Thank you.
Friends from the investment community, good morning. Now I will present our interim results. In the first half of the year, global geopolitical uncertainties persisted, compounded by rising memory prices, impacting costs and intensifying competition in the vehicles market and handset product market, creating a turbulent external environment. Despite this, Sunny Optical maintains steady progress. Our core businesses in handsets and vehicles, with our leading positions, remain solid and are key pillars of our revenue. XR and Pan-IoT businesses, two growth drivers, continued to demonstrate their full chain vertical integration and hardware, software combination capabilities, showing significant growth momentum across multiple areas.
Furthermore, we actively develop our optical interconnect and embodied intelligence sectors, accelerating commercialization and creating new growth engines. Overall, all business segments made steady progress in the first half of the year, solidifying the present and anchoring the future. Next, I will share with you in greater detail a review of our performance, business highlights, future outlook, and ESG achievements. First, business performance review. In the first half of the year, our company achieved revenue of RMB 21.9 billion, up 11.5% year-on-year, with revenue growth coming from the combined effort of the three major segments; vehicle products, XR, and IoT. Gross profit side, our gross profit margin in the first half was 19.5%, down 0.3 percentage point year-on-year. On the profit side, net profit attributable to shareholders was RMB 1.81 billion, up 9.9% year-on-year.
Despite increasing pressure of rising memory prices, we still achieved double-digit growth in both revenue and profit, demonstrating our resilience through economic cycles and validating our operational capabilities. In the first half of the year, I said that revenue growth and profit growth will not be lower than 7%, and some people asked why 7%? I just said that it is roughly around, well, 7% means up and then 8% means down. In the first half of the year, we have achieved our mission, and we have not changed our full year guidance. On this slide here, you can see other products centered around Pan-IoT. The revenue share of other products has increased from 10.9% in the same period last year to 18.4%. You can see from this pie chart the change in the share of this segment.
While this is a part where we need investors understanding more than in other areas, there are actual changes in the overall gross profit structure. Besides handsets, vehicles, and XR products, revenue share of other products, mainly in the broader Pan-IoT sector, has increased from 10.9% in the same period last year to 18.4%. Gross profit share has risen from 18.2% to 32.6%, making it the company's second-largest source of gross profit. The market's perception of Sunny Optical is largely limited to the handset industry. Today's data shows that businesses such as Pan-IoT sector have not only contributed to revenue growth but have also played a major role in profit generation, indicating our diversified strategy is rapidly entering a harvest period. As Mr. Wang just mentioned, this is structural change in the optical industry, and overall speaking, the trend is a very positive favorable one.
On this slide, it is about management efficiency solidifying the foundation for long-term development. Regarding cost control, total operating expenses was down 0.2% year-on-year in the first half of the year. Expense ratio decreased by 1.3 percentage point from 12.3% in the same period last year to 11%, offsetting external pressures through improved management efficiency. It is important to note that the decrease in expense ratio while revenue growth was achieved was not due to a reduction in R&D expenses. R&D expenses reached RMB 1.65 billion in the first half, a year-on-year increase of 1%. Sales and distribution expenses and administrative expenses both decreased. While effectively controlling non-R&D expenses, we continued to maintain future-oriented R&D investment, balancing current operating results with long-term capacity building. Rise in operating quality can be testified in the following areas.
First, we have very good asset liquidity, strong debt repayment ability, and we maintain a low interest-bearing debt ratio. Our return on net assets has steadily increased for four consecutive years and profitability has continued to improve. Second, net cash flow from operating activities increased by 45% year-on-year. Quality of profits continued to improve. CapEx was up 10.6% year-on-year, with continued investment in strategic initiatives, mainly directed towards major overseas clients, XR, Pan-IoT, and production-based construction, providing strong support for future revenue growth. Now let me talk about our business highlights. Handset products. Global smartphone shipments declined by about 6%-8% year-on-year in the first half of the year. In the second half of the year, the number will even be bigger. At least in the first half of the year, there was the impact from memory costs.
In the second half of the year, I think that this number is going to be even bigger. Facing this downward pressure, our company accurately identified industry trends, focused on high-end market demand, and delivered strong results. Handset products revenue remained generally stable, with slight year-on-year decrease of 0.8%. Leveraging our industry-leading five-group AOA technology and comprehensive miniaturized packaging processes, we achieved mass production and delivery of multiple high-end products. Periscope prism products, supported by core capabilities in ultra-precision optical processing and molded glass, have undergone continuous iteration and upgrades, achieving breakthroughs in optical performance and structural design. Market share of high-value main cameras and periscope lenses steadily increased, and supply share of high-end product lines for several key customers further expanded.
Furthermore, substantial progress was made in expanding the lens sets business, with related products successfully entering mass production and being delivered, establishing our benchmark position in the portable telephoto lens field. Regarding major overseas clients, the revenue share of our handset optical lenses has increased significantly. An introduction of new product categories will also contribute new growth, laying a solid foundation for achieving our annual growth targets. For overseas key client last year, in the first half this year. Actually, the guidance is more than 100%. We won't change this guidance. Actually, the pace will even be faster. For vehicle products business. First of all, let me update you on the latest progress of the spin-off listing. The company submitted application on 26th January 2026, and we're currently awaiting regulatory review.
Due to the large number of IPO applications at present, we're updating the prospectus and financial data until 30th June 2026 while awaiting regulatory review. After the end of June, they will have to start a whole cycle of data. Regarding performance, although the overall vehicle product market faced pressure in the first half of the year, we achieved a 10.6% year-on-year revenue increase by driving technological breakthrough and product launches, further consolidating our leading position. XR business. Revenue was up 11% year-on-year with SG and AR glasses related products growing by over 50%, serving as the core engine for our company's XR business revenue growth. Meanwhile, addressing the core demands for lightweight and highly integrated AR glasses, the company leveraged its advanced optical design and ultra-precision mode processing capabilities to achieve breakthroughs in products such as high-performance lightweight prisms and ultra-thin VID lenses.
With industry-leading miniaturization packaging technology and large-scale high-precision assembly processes, we achieved a dual improvement in performance and size of optomechanical products, accelerating mass production and delivery. Relying on industry-leading assembly and testing processes, we achieved small batch mass production of lightweight full-color AR display modules. Next year, there will be even bigger production. This is a business that is very positive in the future. For AR glasses in the first half of the year in our report, at that time, we were not very optimistic because comparing last year and this year, the revenue will decline further slightly. But right now, revenue will not fall. But when it comes to big explosive growth, that has to be next year. For Pan-IoT business, this is a better area. Optical components are our core underlying capability.
We have built a complete technology chain, including optical design, optical processing, mode processing, and optical coating. This chain serves as the common technological foundation for all business areas and is the fundamental support for our expansion into forward-looking directions. In the field of robotics, our full-stack vision solutions cover a variety of technical routes, including monocular, ToF, binocular, and multi-view fusion. The entire process from camera modules, system solutions to complete our whole device, JDM, is completed independently. Lawn mower vision system solution integrates computing power based on multiple well-known chip platforms. Natively supports complete functions such as depth engine, neural network engine, visual accelerating engine, and ISP, and has been mass-produced and deployed by several leading robot brands. Achieving end-to-end delivery of optics, algorithms, computing power, platform, and whole device integration.
In terms of warehousing and logistics, the full-stack vision solution has covered scenarios such as AGV, AMR, and warehouse management, and has been applied in the logistics scenarios of leading overseas companies. The active binocular depth camera has been extended to industrial scenarios such as robotic arm positioning and grasping. High-end microscopy instrument market is showing strong growth momentum. AI medical microscopy products have achieved breakthrough in pathological testing, gene diagnosis, and other scenarios, resulting in significant increase in orders. Semiconductor wafer defect detection equipment has achieved major breakthrough with leading industry clients and has expanded horizontally to fields such as glass wafers. The concentrated implementation of these achievements strongly demonstrates our integrated vertical integration capabilities.
Leveraging our technological accumulation and continuous innovation in the broader IoT field, our advantages in combining software and hardware and in optics plus intelligent manufacturing of complete systems will continue to be strengthened, further solidifying the foundation for multi-scenario expansion and complete system business. This summarizes the achievements and progress of our various business units in the first half of the year. Future outlook. This is still about handset products. Rising memory prices. There is a shortage of capacitors. There is a delay at return of semiconductors. All these factors continue to impact the handset industry, with overall shipments expected to decline 13.9% year-on-year for the year. This is an estimate. Perhaps, it will be even bigger and continued pressure expected next year. However, amidst this pressure, structural opportunities are also clear.
The trend towards high-end products continues to strengthen, and the direction of optical upgrades remains definite. For our company, the fundamentals of our handset business remain solid. We will continue to cultivate the high-end market, strengthen core capabilities such as actuator technology and multi-group AOA technology, delve deeper into vertically integrated module solutions, and further enhance product coverage and supply share with core customers. At the same time, more and more handset customers are extending into new areas such as handheld imaging and extended lenses. The demand for optical capabilities in these new scenarios is highly compatible with our underlying capabilities, which will bring more growth opportunities to us. Furthermore, revenue from major overseas clients is projected to grow by over 100% in 2026. I mentioned this point earlier. This brings substantial revenue and profit increase to our handset business.
Full-year handset product business revenue is expected to remain flat year-on-year. In the vehicle business sector, the trend of autonomous driving upgrades remains clear. In 2026, the global L3 regulatory framework will be implemented more rapidly, and Robotaxi will launch commercial operations in multiple cities. There would be an increase in the number of cameras in vehicles. There is a faster iteration in functions. Our multi-sensor fusion solutions combining vision and lidar are gradually becoming mainstream, which will be an opportunity for our vehicle product business to grow in the future. Leveraging our longstanding market-proven innovation capabilities, diversified product portfolio, and cross-business synergy advantages, we have established deep partnerships with global customers.
When it comes to Ningbo Sunny Smart Autotech Company Limited, we are now in the quiet period of IPO process, and we are not able to provide specific revenue and gross margin guidance at this time. But overall speaking, for vehicle products, there would be very good prospects. Apart from handsets, lens, and also AR, there would be quite a good enhancement in prospect for lidar and so on. All these need our optical core capabilities and other module capabilities as foundation. XR. The focus of the XR market is shifting entirely from traditional head-mounted displays to Smart Glasses. Among them, Smart Glasses without displays have already achieved large-scale demand, mainly driving demand for lenses, camera modules, and overall system integration.
While AR glasses with display functions are in the accelerated product verification stage, which places higher demands on optical wave guides, display optical engines, spatial perception and system integration, and significantly increases optical value of individual units. Behind these two product lines lies our deep expertise in optics, precision manufacturing, and mass production delivery. We have built a vertically integrated system-level capability across the entire XR value chain, encompassing optical-based components, multi-element optical modules, optomechanical systems, integrated hardware and software systems, and enabling it to flexibly seize market opportunities based on different technology routes and customer needs. Leveraging this foundation, we have established deep partnerships with leading global brands and have successfully secured large-scale AR product orders from top clients, which will contribute significantly to growth starting next year.
As AR glasses move from technology verification to mass production, we can expect more and more end-user brands to establish comprehensive collaborations with Sunny Optical. Full-year XR business revenue is expected to exceed RMB 2 billion and is expected to achieve year-on-year growth. In the first half of the year, it is around RMB 8 billion. Looking at the current progress, I think there are a lot of opportunities. AI is moving from cloud-based question and answer to on-device interaction and from virtual world into real-world scenarios. End devices need to continuously perceive their environment, understand their space, and then translate judgments into actions. Visual perception has therefore become an indispensable foundational capability for AI hardware. I think you all know this, and this trend presents two types of opportunities. One is the emergence of new hardware driven by AI, such as Smart Glasses, wearable devices. Not only wearable devices.
Some companies, in terms of soundbox, stage lights, and also pens, well, they have added AI to all these different items or devices. These are new categories that have grown from scratch. The other is the reshaping of traditional optical equipment by AI. Intelligent imaging, industrial vision, microscopic instruments, and high-end testing equipment are moving from simply capturing and seeing clearly to automatic analysis and decision support. Imaging equipment is transforming into intelligent decision-making equipment. These two types of opportunities mature at different paces. Our strategy is very clear. The demand is clear, and we prioritize opportunities with clear demand and the conditions for mass production and scale up quickly. At the same time, we continuously validate commercial value of areas such as robot vision, data acquisition in intelligent industry devices through real projects. If there is the opportunity for mass production, then we'll prioritize it.
At the same time, we'll continue to invest into further R&D. These will present important opportunities for the future. To seize these opportunities, we will deeply integrate our three capabilities: optical sensing, hardware and software collaboration, and large-scale manufacturing. Technically, we possess complete capabilities from optical design and ultra-precision machining to imaging, display, and spatial perception modules. In terms of products, we focus on image enhancement, multi-sensor fusion, 3D vision, and edge intelligence, strengthening algorithm-hardware synergy and extending towards system and complete device integration. In terms of industrialization, we collaborate with customers to define products, streamlining the entire process from verification, quality control, cost optimization to large-scale delivery. This capability has already been validated in Smart Glasses and smart imaging products. Next, we'll leverage customer projects and mass production results to replicate this capability in areas such as robot vision, data acquisition, industrial inspection, and intelligent microscopy.
The significant growth in Pan-IoT and related businesses that you've seen earlier is a direct result of this strategic move. As AI hardware is deployed in more scenarios, our value as a comprehensive optical component and system solution provider will become increasingly prominent. This growth curve has only just begun to rise. Revenue from Pan-IoT business within other products grew by about 50% throughout the year. The group maintains our original guidance for full-year revenue and net profits growth, with revenue and net profits excluding the share swap transaction expected to grow by no less than 7% year-on-year. We will continue to develop new sectors and verticals. There are two clear directions already. One approach is to enter the optical interconnect field by focusing on core optical components. Our precision optical design manufacturing processes and large-scale mass production capabilities are highly aligned with optical requirements of optical interconnect.
Its core capabilities, such as glass molding technology and precision structural component processing, enable us to undertake the production of key optical components for optical modules such as lens arrays, isolators, and FAUs. On the left, these are already been produced.
Second, we will focus on embodied intelligence and build a full dimensional perception product matrix. The core of embodied intelligence is a complete closed loop of perception, decision, execution. We will take vision perception as the core, leverage our advantages in sensor hardware, and coordinate with multidimensional capabilities, such as visual algorithms and joint encoders, to gradually extend from industrial and commercial robots to humanoid robots, providing full stack vision solution that integrates software and hardware, and deeply empowering the embodied intelligence industrial chain. Regarding these two directions, we will increase resource investment to transform our technological capabilities into commercial results. The new track is not a crossover, but a natural extension of the same core competencies. In the optical area with core components being our entry point, we will expand the area and develop the area. That is our capabilities and assets. Next, ESG achievements.
In 2026, we also made solid progress in ESG governance. In terms of external ratings, the FTSE Russell ESG score improved from 4.0 to 4.5, reflecting the recognition of Sunny Optical's sustainable development practice by international authoritative institutions. Regarding internal objectives, the 2025 performance target for sustainability-linked bonds was successfully achieved. Greenhouse gas emission intensity decreased by 32% in 2025 compared to the 2021 baseline year, exceeding the established target of a 20% reduction. This is not merely an improvement in data, but also a proof that the company has integrated the concept of sustainable development into our long-term strategy.
In the second half of the year, we will continue to maintain a steady and progressive development of our core businesses, deepen the cultivation of our common technology platform capabilities, continue to consolidate our leading position in existing businesses, seize the industry opportunities brought about by expansion of AI industry, accelerate commercialization of emerging tracks, and repay the market's long-term trust with certain growth. This concludes my presentation. Thank you.
Thank you, CEO, for the presentation. Now we will move on to Q&A. If you have questions, please raise your hands and state your own name and your organization. Lady on the second row, please. The lady in white.
Thank you, management. I am Kina from Citi. I have two questions. Looking at your results and the resilience of your results, we feel very encouraged. In the second half of the year, can you elaborate on which businesses will exceed original expectations? For pressure on handsets in the second half of the year, which businesses will be more resilient? For gross profit margin in the second half, what will be its direction? Product structure will continue to see changes. That is my first question.
Second question. Just now, regarding progress in the associated or affiliated companies, there has been some progress, and there is investment from Beijing on the company. It seems that in terms of spare parts and components, you have accumulated some achievements. For customer resources, you had mentioned a bit, so can you share more? Regarding customer resources, penetration, and strategies, can you share more information? Thank you.
You asked two questions, right? The first question is regarding gross margin in the second half of the year of the old products. How can we improve it further? The second question is about optical communication area, right? You are talking about optical technology? The lady is not using microphone. The interpreter can't hear her. Okay, how are we acquiring customers? How can we develop business? Okay, one is a question on gross margin, the other is about customer development. For gross profit margin, for mature and stable gross margin, our direction is very clear. We can only do it by enhancing our own production capabilities. As you know, no matter whether we talk about handsets or vehicles, looking at the current condition, there would be big change in gross margin because the demand and supply relationship will determine the basic price already.
Technological innovation is the major direction, and we have to enhance our overall internal production capability to enhance cost control. In the Wednesday meeting, for the first half this year, I said already that competency enhancement must be our internal core direction. AI and also our internal intelligent or smart production and cost control should be closely integrated so that our overall efficiency, product quality and cost can be effectively controlled. That is the only way. It is not possible to see a substantial increase in gross profit. The next question is about new product direction. Actually, I made very clear points in my presentation already. You want me to share more specifics on developments of some specific areas. Well, it is difficult to answer this question. Now, changes are very fast, and there are many changes.
In the first half, we thought about the roadmap of a certain industry, but when Trump made some remarks, the situation will all of a sudden change. The situation is very complicated. Despite that, we will further solidify our core competencies. We are talking about sharing the same competencies. We're not trying to find a brand new large area to invest. I think we should be able to seize this direction. Core optical components and large parts and so on, these are all needed. There's the need for them. When it comes to development direction of interconnect, now there are many different technologies emerging, and we are also following up. For these new technologies, definitely, we will have to understand them. But when it comes to actual product use, I think our core optical components and optical instruments will be the core things.
From this perspective, most of our optical communication top vendors will be our customers. I think this is a very reasonable ecosystem structure. You talked about investment, right? Well, there is no relationship with optical communication. Well, the technology may be related. Their products are multi-spectrum chips. We hope that in the handset area, we can see a new product innovation. Every day, we want to see new product innovation. Of course, it can be used in other areas. Just now we talked about optical perception and edge AI, so there will be the need of the optical chips, and now we mostly talk about RGB and RGB-D for such acquisition. Internally, we try to develop binocular RGB spectrum information and infrared information for the whole wavelength. There's different information that can be obtained.
We are talking about multidimensional information, and we want to integrate it to make our products. I think this is the perspective or direction of investment. Thank you, Kina, for the question. Next question, please.
The gentleman on the first row.
Good morning. I am Huang Leping from Huatai . I have two questions. First, just now, when I looked at the handsets business, in the second half of the year, what is the growth rate of handset modules business? Because for whole device manufacturers and upstream vendors in the first half of the year, they differ a lot. Whole device manufacturers decline rate is still okay, but stocks manufacturers experienced a 30% decline in business results.
In the second half of the year, regarding handset product volume, is it going to be flat with the first half, or is it because of inventory, then the decline in the second half of the year will be bigger? Will that be the case? What is the opportunity of a turnaround? For memory, according to market expectation, it seems that the increase is slowing down. For handset manufacturers, when it comes to specifications and also the mentality in the second half of the year, will specifications stabilize? My second question is about optical communications. You just said clearly that you would work on optical components and optical instruments. I think this is very in line with your strategy. When it comes to optical module, how big will be the room for market development?
Of course, for optical components, revenue growth is going to be slower. In one module, how much value is it? Thank you.
Thank you. First question is about handsets. In first half this year, there was some past inventory, so relatively speaking, things are slower for CIS. I think there is a clear decline in subsequent orders. If you look at the situation in different markets, there are some dilemmas or conflicts, but in fact, there is none. There is a single-digit decline only. This is surprising, but that's the fact. The number is indeed so. At first, I thought that was not possible, but in fact, this is reflected in the data. In the second half, there will still be decline and the decline will continue next year.
As you all know, for sure, it won't be good. At first, we thought that in the second half of the year, there won't be increase in memory price, then the situation will improve later. But no, that would not happen. There is no volume. There is no volume, anyway. The core is about quantity or volume, and it's not only about memory. If you look at circuits and other components, there is the same situation. Of course, there are also some lithium batteries for handsets. There are now small manufacturers. It's not that they don't have production capacity or production capabilities, but then there may not be any supply to them. If there is no supply for them, then what can you do? They may not even have power supply.
When it comes to memory, there is increase in price. Can you choose not to buy memory? For them, it does not matter. The ratio, the proportion is small. Handsets will definitely not be good. When our company was, last time I said that we had overseas key customers and there is a big increase in the business, and that can offset the decline in other areas. Of course, there will be individual differences. Our high-end business is relatively better, but the overall is still falling. I can still see some supplementary business or replenishment. There is single-digit change only. If we can maintain this level, then we are already very lucky. The situation is indeed not very positive. You talked about optical communication. We will move on to, we will center around optical components and big parts and so on.
Basically, as you said, that is our strategy, and this is also in line with our capabilities. This is more reasonable. Otherwise, from LPO, NPO to CPO, there is CW and VCSEL, MicroLED. Short range, medium range, long range, where I have reviewed all of them. They are very complicated. Yes, we can talk about them, but if we want to work on it, we need more capabilities. Our components are in line with the direction. FAU is of this shape now, so when can there be a transition to glass? If we do not understand this, then we may make mistakes, right? Overall speaking, there are not many companies working on components. Besides, there are very few companies which can achieve very big scale. I think our positioning is reasonable. You talked about the ratio or weight.
This is a matter of data. I think the weight is also changing for optical engines, PIC or EOS. In that area, the weight is increasing. How big is the overall volume? That is a big market. I think we are talking about over RMB 100 billion, if we can have a share. If we enter, it is not right for us not to be in top three. Then, I think there would be a share of at least 10%-20%. We are talking about a scale of a few, RMB 10 billion, so there is room for us, but of course, investment will not be small. My overall conclusion is that we can look forward to it, but there will not be sudden explosive growth. In the past, I was driven by emotions. I thought there would be explosive growth, but in fact, there is not going to be one, so it has to be gradual.
Okay, the lady on the second row, please.
Mr. Jie, I have a few questions. First, to follow up on handsets. You just said that there is a shortage of many things and price is high. Some manufacturers want to use overseas chips starting next year. Will there be some higher tier projects? In order to maintain stability, will they use some cheaper made in China chips, CIS, so that your handset module ASP will be under pressure? That is my first question.
Second, semiconductor wafer testing machine. You mentioned that in your presentation. In the past, I seldom heard you talking about this, so can you elaborate? What does this engine do, and what is the new market like, and what is the room for development in the future? For R&D resources allocation in the first half, your gross profits increase, all of it is from Pan-IoT. For new products, R&D resource distribution, how is it going to be like? Thank you.
China made CIS chips and overseas modules. I think this is a matter about configuration of modules. What you said is the fact. Price is now more expensive, so people will tend to use cheaper substitutes. For us, I think we are not the main players here. We work on medium to high-end business. For the large companies, for the big companies, there isn't much impact. We want to get into Korea because we think that Samsung will not decline.
Samsung Semiconductor and Samsung handsets belong to the same Samsung Group. They internally can do their own distribution and allocation. They earn a lot of money from memory, and they don't care that there is a small loss for handsets, so they won't lower price. Our person -in -charge for optoelectronics is in Korea, so there is going to be big opportunity there. We are working seriously on it. Domestic CIS chips do not cause much impact on our modules. Sony, Samsung, there are many other companies. We have got a normal competitive landscape already. As regards testing, you talked about our testing equipment, wafer testing. Our microscope, how can it be used in semiconductor testing? I think you can understand. What we are doing, we seldom talk about it in the past. Microscopes are used for testing.
In the future, for this testing, when our lens for microscope is enhanced, then we will be able to get into a lot of testing scenarios for semiconductors. In the first half of this year, our equipment company achieved quite good results. What about R&D expenses distribution? This is a very good question. For our original layout and also handset vehicle business R&D, when projects are being adjusted, this will also be adjusted. Investment will be strengthened when there is the need for capabilities. We can use the same group of people in other module design. We are enhancing our overall system solution, algorithms, software capabilities. This is what we are doing constantly. Of course, every year we will increase the weight of new areas. I think in the new categories, of course, product sales is rising. Profit is also rising.
Of course, we have to do R&D in order to make things happen. The system R&D people will increase in number. System solutions R&D people. Okay, next.
This gentleman first.
Thank you. I'm Jimmy from UBS. First question is related to handsets. Wafer manufacturers are lowering price or they are increasing price, so will there be some impact on your modules? What is the impact on your gross profit? Second, inventory. Just now you said that in the first half, there is a mismatch because of handset inventory. Actual procurement and delivery or shipment has mismatched. Now, do you have a match between shipments and procurement? For suppliers, even though demand is still weak, but for suppliers, will there be some marginal improvement? Thank you. The next question is about glass, packaging, and so on. Will there be opportunities for the future? I think that is going to be for the long term. What is your entry point? Thank you.
Gross profit about modules. Price increased, does that mean that gross margin will change? Gross margin will not improve. Yes, it is possible that price will increase because chip prices increased, so we have to increase price, but gross margin will not go up, I can say for sure. Gross margin improvement relies on or is determined by supply chain control, and we are not positive about it. The only way is vertical integration. That will give positive contribution, but that involves actuator, lens, and module assembly prisms. If all these are integrated, then we can lower wastage, then our gross profits margin can go up. There are no other ways. Single product price may increase, but there is no way to change it. Procurements and inventory.
There is no inventory already. No. The situation is tight. Every day, companies don't know when there will be a shortage of products, and when products are out of stock, it is difficult to handle the situation. The focus is turned to other areas. Let's say if there is continued shortage of capacitor, then many consumer electronic companies will experience problem. They can't face up to the situation. For domestic capacitor manufacturers, there will be opportunities for them. But some capacitors cannot be replaced. This is also another big trouble. Jimmy, what's your third question? This gentleman is not coming through. The interpreter can't hear him. Semiconductor testing, right? The interpreter can't hear him because he is not using microphone. For semiconductors, many of our optical technologies are used, but this is rather fragmented. We do not elaborate much on it.
The value isn't huge. You are very sensitive. You realized this issue, but now the volume is small, so we did not talk too much about it. Next question, please.
The gentleman on the first row.
I am Tony Zhang from CLSA. Two questions. In the first half this year, you have other product business, which grew strongly, 100% growth. Right. 100%, right? Other products, RMB 2 billion, RMB 2.1 billion last year, and this time RMB 4 billion, right? My question is, what products are included under this segment? What is the momentum that drove such growth? Secondly, our products may be better than expected. Is the reason related to the industry or are there changes in the customer, so the situation differs from expectation?
Let me answer your first question. There is adjustment in the customer's processes, and I think this is quite positive.
Originally, last year, all of a sudden they increased volume, all of a sudden they decreased volume. But now, the progress has been more substantial. In 2028, they have adjusted downward the number, and this adjustment or revision is reasonable. Looking at the data, I think that is the really reasonable rhythm. The person in charge of that business is experienced in being CEO in other companies, so I think their overall grasp of the situation is better than before. There is not a very big adjustment. It is just that they have accelerated things a bit, and they have sent a lot of people to our site. Next year there would be a big increase. Definitely you have to deliver small batches, EVT, DVT. I think all these are according to a certain rhythm.
I think this is adjustment on top clients. At the beginning of the year, we set less than RMB 2 billion. Now we exceeded RMB 2 billion. There will be even more. Next year, it will also increase. Their increase will be fast. It may not be like RMB 1 billion and so on. The growth will be even bigger next year. I will not cheat him or deceive him. Please rest assured. There may be some special black swan incidents, then it is difficult to tell. If everything is normal, then we will see normal rhythm. Your next question is? This is complicated. Because actually in the past, when volume was RMB 10+ billion , some business might be good. This year, other products or other business growth is significant. It is related to the overall optical cycle.
Theoretically speaking, it is optics plus AI, so optical perception development. Starting last year, since 2025, I have been saying that in the future, one very effective development will be in our system solution, Pan-IoT system solution. It is very fragmented. You talked about robots and so on. It is going to be like RMB 1 billion. It is not possible to achieve RMB 5 billion or RMB 10 billion. Amazon Warehouse, for example, it is very big, but it is not like handsets and vehicle categories. It is very fragmented. Customer groups, while there are quite good customer groups, they are not purchases made by domestic customers. They are big overseas customers from Europe and U.S. For startup customers, that will not be reliable because there will be business today but not tomorrow. We are talking about very big customers. This is normal.
There will be subsequent growth. Now, there are emerging new technologies, and these will be related to PV area with new connection methods that would be far-reaching impacts. For example, in terms of assembly. We are talking about use of new structure and also components. You may not have noticed that recently NVIDIA and other big companies have launched new structures. Low latency directions and so on. These are all related with communication, optoelectro conversion and so on. I think the prospect is going to be good.
Because of time, we will now take the last question. The gentleman there.
Thank you. I am Andy from Morgan Stanley. My question is about exchange gain and loss just now. No question was asked. In the first half concerning exchange rates, is there impact on your operation in the second half of this year or next year? Regarding pricing of new products, will you consider exchange rates impact? Will you raise price? Will you do some hedging or other solutions to alleviate impact on your business because of exchange rate?
Let me take this question. In the first half of the year, exchange loss was RMB 126 million. This is because in the first half of the year, USD against RMB rate had changed. Our sale structure is that USD assets exposure is bigger than USD payables. For exchange rate in the vehicle area, our revenue scale is almost RMB 20 billion. In the first half, exchange loss and gain is 7 points. Last year is negative. RMB 1.4 billion now is RMB 122 million. Now we are using some tools for hedging. Thank you.
Thank you for all the questions. We will conclude the session here. Thank you for joining. Goodbye.