Morning, everyone. Welcome to the live audio webcast of FIT Hon Teng's fiscal year 2025 interim results presentation. Today, we are honored to have Mr. Chris Lu, Chief Operating Officer and Chief Financial Officer of FIT Hon Teng, joining us today. During the presentation, Chris will provide a summary of the group's performance for the interim period ended 30th June 2025, and outlook for the second half of 2025. You can download our PowerPoint from the resources box below the webcast window. Kindly note that the language used for this audio webcast is English. If you have any questions for management, kindly submit your questions in English anytime through the Q&A panel.
Before I turn the call over to Chris, I would like to first remind you that while FIT has taken every reasonable care in preparing today's presentation, the information and materials contained in it and discussed in the following Q&A session are all provided on an as-is basis and do not constitute investment advice. Management on today's call may also make forward-looking statements based on the current expectations and assumptions, and those statements are subject to certain risks and uncertainties that could cause the actual results to differ materially.
FIT will not be held liable for any damages arising from the reliance placed on the information and forward-looking statements contained in the presentation and discussed during our Q&A session. For the full details of our disclaimer for this call, please refer to slide two of our PowerPoint. Slide three contains a brief agenda of today's call. Now I will hand it over to Chris. Thank you.
Thank you, Ray. Good morning, and welcome to everybody joining us today. We shall start on slide five. Despite headwinds, our solid next-gen product portfolio allowed us to maintain overall resilience. We have focused our efforts on managing external uncertainty and rapidly changing industry dynamics. The interim results reflected encouraging growth momentum, supported by advancements in AI and the smooth integration of our new total mobility business.
Given the low visibility, we still delivered second quarter revenues of $1.2 billion, a 9% year-on-year increase. With the seasonal factors and a less favorable foreign exchange and change in product mix during the quarter, gross profits declined slightly by 5% year-on-year to $214 million for the period. Gross profit margin correspondingly narrowed to 17.8% during Q2.
During the quarter, enhanced operational efficiencies and ongoing cost-saving initiatives contributed to a 4% rebound in our net income, reaching $24 million, despite the challenging conditions impacting the entire electronics industry. For the interim period, revenue reached $2.3 billion and net profit of $30 million on a six-month basis, slightly lower than our prior guidance.
The easing of tariffs during the quarter was a positive development, though uncertainty remains. With this in mind, we stay focused on our growth trajectory for the second half of 2025 and are readily to work closely with our client to navigate and adapt to evolving market dynamics. Turning to slide 6. During the quarter, the growth of AI and the smooth integrations of Auto-Kabel into our One Mobility strategy have supported the overall revenue growth.
To better align with evolving end market trends, we are renaming two categories, networking and computing, to cloud and consumer interconnects. Moving forward, we believe these updated names more accurately reflect the market terminology commonly used to describe the industrial applications of the product solutions we offer. Let's look at the breakdown. The smartphone segment continues to face challenging dynamics due to unfavorable ASPs from model replacements.
As a result, it continues with a double-digit decline as per prior guidance. Driven by continual AI momentum, contributions from cloud segments increased by double digits during the second quarter. Upgrade for AI has fueled demand across various interconnect solutions, ranging from high-speed connectivity solutions, UQD solutions for CDU, edge card connectors, and other external cables and power modules. Supported by a better-than-expected recovery of the PC market amid an upgrade cycle for next-gen component for CPUs and power connectors.
The consumer interconnect segment outperformed during the quarter, with sales contributing up by high teens year-on-year in Q2. The consolidation of Auto-Kabel into our One Mobility strategy have generated 116% year-on-year increase in Q2, in line with earlier guidance. During the quarter, the system product segment was affected by supply chain disruptions and an anticipated slowdown in consumer demand due to the indirect impact of higher tariff levies, which led to a high teens decline in revenue.
Finally, other segments also benefit from inventory adjustment. Turning to slide eight. Given the transition to the new production facilities and ongoing macro uncertainties, we have lowered our full year guidance slightly by a high single digit increase in revenue from low double digits. While the CapEx trends into AI-led infrastructure and platform upgrades in the server market will continue, this will again be offset by headwinds we foresee in other segments.
While the majority of OpEx is provisioned for global expansion and potential negative impact from system risk, we will also prioritize streamlining production costs to maintain the sales expense ratio at approximately 17%-18%. To navigate this environment, we are working closely with clients and the product supply chain to remain responsive to their needs while utilizing Foxconn's expansive global footprint to maintain operational resilience.
At the same time, we are reallocating resources to support new product launches and certification for next generation connectivity components. As a result, our growth margin guidance remain unchanged at 20%, consistent with previous guidance. Next, we turn to slide nine. We expect some of the enduring shift in market dynamics will play a bigger role in the years ahead.
In the smartphone segment, while our overall volume was in line with industry, the prevailing unfavorable conditions, such as fallout from tariff issues and a decrease in overall ASP for module replacements are expected to persist. Given the high base during Q3 last year, we expect a high teen year-on-year decline in orders for the coming quarter, which translates to high teen decline for the full year.
In the cloud segment, we continue to capture new pipeline opportunities from the AI server, thanks to our high-speed connectivity solution for next-gen cloud computing. Some of them were showcased in the GTC and Computex conference, which I will share more details later. As a result, we feel confident in maintaining both our full year growth and Q3 at mid-double digit level. For the consumer interconnects, we continue to see growth catalysts coming from new AI-related component upgrades across notebooks and computing devices.
However, the tariff situation has resulted in shipment rescheduling and limited order visibility across the supply chain. We revised and considerably lower our guidance from high single digit growth to single digit decline in Q3, which translates into a flat growth for the full year. For auto mobility, despite facing industry-wide headwinds, we are seizing the opportunity presented by ongoing transformation and integration efforts.
With the continued Auto-Kabel consolidation, we anticipated triple digit growth in Q3 and will remain focused on identifying additional synergies through integration. For the full year, we are still targeting high double-digit revenue growth in the auto mobility segment. Overall, the indirect effects of system risk have dampened consumer sentiment, resulting in sustained softness in demand for system products. Additionally, in response to potential upstream constraints, we have reallocated the manufacturing of new products and adjusted capacity to better align with prevailing uncertainties.
We revised our guidance for other segments from a double digit to a high single digit decline driven by inventory adjustments. We also lowered the forecast Q3 revenue to a mid-single digit decline. The outlook for the full year will remain at similar levels. Turning to slide 11. Despite lower guidance for some segments due to macro headwinds and disruption in the electronic supply chain from tariff, we maintain our flexibility to sustain growth momentum so far, thereby, on path to achieve our overall three plus three revenue mix by the end of 2025. We continue with reorganization and integration following the recent acquisitions. While some automakers continue to face challenges amid shifts in trade policy, we remain positive on their long-term prospects as we further consolidate integrated resources within the One Mobility strategy.
In next-gen 5G AIoT, we have made progress in customer evaluation certifications and pilot deliveries for new rack architectures, collaborating on advanced components like liquid cooling and optics. For audio, our new production facilities are ramping up as planned, supporting swift responses to market dynamics. With global expansion and diversification manufacturing, we aim to achieve over 40% of revenue from our product mix by year-end. Turning to slide 13.
Our team continue to integrate and strengthen our R&D to push the boundaries of technological advancements. During recent Computex, FIT further extended its connectivity portfolios for cloud infrastructure and showcased dedicated solutions catered to the full stack of AI servers. Many of these solutions generated interest and solid feedback from participants, which enhances FIT's role as the main developers of leading cloud connectivity solutions. Turning to slide 14.
Our recent acquisitions have strengthened its position across EV, hybrid, and ICE platforms, while supporting its strategic expansion into the Middle East. We are happy to announce that the Royal Series of AC chargers have obtained SASO certification, marking a key milestone in developing localized products for the MEA region. This achievement highlights FIT's R&D expertise in delivering secure, standards-compliant solutions tailored to regional needs and preferences.
Turning to slide 15. We are excited to announce our very first FIT Tech Day 2025, taking place next month on September 17th. This milestone event will bring together industry leaders, technical experts, and academic professionals to exchange ideas on future trends in technology and mobility. During the event, we will officially launch One Mobility and showcase our latest achievements in automotive product achievements. Stay tuned as we celebrate innovation and progress in this remarkable event. This concludes our presentation today. Thank you.
Thank you, Chris. We are now ready to take some questions from the audience. As a reminder, you may submit a question by text by clicking the Q&A box in the webcast panel. Kindly submit all questions in English. For those joining via audio line, please press star one on your telephone keypad to join the Q&A queue. There are some webcast questions on the line. Our first few questions came from Ms. Cha from CICC. The first question is, do we have a plan to invest in the U.S.A.?
Thank you, Ms. Cha. We are working closely with clients and the broader supply chain to stay responsive to their needs while leveraging Foxconn's very extensive global footprint to ensure operational resilience.
Thank you, Chris. The next question is, what factors impacted the gross margin and overall profitability this quarter?
This quarter, our gross margin was mainly affected by foreign exchange fluctuations and also change in product mix. While the industry still face persistent systemic risk, we will continue to benefit from strong AI-driven demand. We are also actively optimizing internal efficiency to preserve both profitability and growth amid a challenging environment.
Thank you. The last question from Ms. Cha is, FIT's revenue came in below expectations. How does management view this, and what are your plans to manage this going forward?
The lower than expected overall revenue was largely driven by tariff-related pressures, which have softened the demand in the consumer electronics sector. In addition, our growth margin was adversely affected by unfavorable foreign exchange, impacting our ability to meet previous guidance of a 20% growth margin. Looking forward, we remain committed to strengthening our fundamentals and identifying high margin, growth-oriented segments to drive recovery in new markets such as AI.
Thank you, Chris. Our next few questions came from Mr. Hong from Xinyezhengqi. The first question from him is, what is the major CapEx and which area are this CapEx being allocated to?
Thank you, Mr. Hong. We will continue to have ongoing discussion with customer before recommending any major CapEx.
Thank you. The next question from Mr. Hong is, how is demand trending for water cooling components like CDUs?
The demand for our large-scaled CDU liquid cooling solutions remain robust. The content dollar for each AI rack equipped with our CDU is in the four-digit range. We are facing only one U.S.-based competitor in this particular space, and we began shipment in Q4 last year. We anticipate continued market share gains, with our current revenue mix still in the low single digits.
Thank you, Chris. Our next couple of questions came from Guangda. The first question is, what is the current outlook and strategy for the automotive segment?
Well, we're also using the auto down cycle to really streamline our European operation by strategically consolidating and repositioning our German subsidiaries. This transformation is designed to prepare us for the next upturn and enhance our long-term competitiveness in auto-related solutions.
Thank you. The next question, from Guangda , what's the current demand trend in consumer electronics?
The consumer electronics segments have benefited from pull-in orders ahead of schedule, which provides a temporary lift during the first half. However, the overall outlook remains cautious due to broader macro headwinds.
Thank you. Our next couple questions came from Karen Huang at Citi. The first question from her is, what's the progress on new audio production line?
Thank you, Karen. We are working closely with our clients to ensure progress aligns with their needs and expectations.
Thank you, Chris. The next question from Karen is, what is the current demand trend in the smartphone category?
Our smartphone business continues to face high teens percentage year-on-year declines, primarily due to the ASP pressures from replacements of product specifications. However, we have always maintained a stable share, and we are well to capture shipment volumes along with the market conditions normalizing.
Thank you, Chris. Our next, a couple of questions came from Jeff Pu at GF Securities. The first question from him is, when can we expect updates on your GPU socket product?
Thank you, Jeff. The use of SKT chip sockets remain unchanged, providing enhanced flexibility for system maintenance and replacements. FIT has firmly established itself as a key supplier for critical products such as memory. Any decisions on the further adoptions of new chip sockets in other modules will ultimately be determined by our customers.
Thank you, Chris. The next question from Jeff is, what is your status on ASIC? Any updates?
Currently, we are still actively strengthening our presence in the industry and collaborating with licensed IC design companies. With growing pin count requirements for chip connectivity, we remain confident in our business opportunities in ASICs. At the same time, we maintain a strong position in motherboard IO interfaces, which continue to serve as a strategic entry point for future advancements.
Thank you. Our next few questions came from Ms. Wang from Dongxing Securities. The first question from her is, could you elaborate on how the recent easing of tariffs in second quarter has influenced your revenue performance and full year outlook, particularly in the cloud and consumer interconnect segments?
Thank you, Ms. Wang. The easing of tariffs in Q2 provided a short-term relief, supporting cloud growth and moderating consumer interconnect softness. Uncertainty remains. We are working closely with customers to adjust sourcing and capacity.
Thank you. The next question from Ms. Wang is, could you provide an update on your next generation connectivity product launches and certification efforts, and how these initiatives will support your target of maintaining a 20% gross margin for fiscal year 2025?
We are advancing next gen AI connectivity, liquid cooling, and other optical products. Certification programs with key customers supported our 20% gross margin target.
Thank you. The last question from Ms. Wang is, with foreign exchange headwinds in second quarter, what measures are in place to mitigate FX volatility and maintain the sales to expense ratio within the 17%-18% range?
Natural hedgings and also cost controls keep the sale to expense ratios at 17%, 18%, mitigating forex volatilities while supporting global expansion.
Thank you. Our next few questions come from Fung, from Dongxing Securities. The first question is CPO developments. Can you share the latest developments in your CPO product roadmap and partnerships with the leading IC vendors, and when we might expect commercialization?
Yeah. Thank you for your question. The CPO project with leading IC vendors are making steady progress. CPO technology is really not yet ready for mass production. We will provide updates as key milestones have been reached.
Thank you, Chris. Next question is FIT Tech Day 2025. For the upcoming FIT Tech Day in September, which product innovations or strategic themes should investors pay particular attention to in relation to the growth priorities in AI and mobility?
Well, on September 17th, we are going to showcase our strengths in mobility, launch One Mobility. During the event, we will showcase AI and automotive innovations, including EV charging and also high-speed interconnect solutions.
Thank you. The last question from Fung's team is, does FIT have product offerings in the robotics industry?
Yes. We have provided flex resistant cable assembly specifically designed for robotic applications, representing a new growth avenue for FIT. Additionally, we are observing a trend where our cable connectors are increasingly being adopted in robotic-related solutions.
Thank you, Chris. Our next question came from Dongren Xu, and the question is: How is demand trending for water cooling components like CDUs, besides, is the trend in GPU and ASIC server different?
Well, same as we mentioned in the previous question, we do observe the increasing demand for cooling components, the higher computing requirements on the chips, that will really drive this.
Thank you, Chris. Our next question is from Alex Ng. The question is: The first half effective tax rate is higher than prior first half 2024. Is it due to seasonability or other reasons?
The increase is really attributable to withholding tax with dividend distributed to our overseas subsidiaries. These transactions will be more one-off in nature. However, in the future, if there are any treasury needs or other areas which we need to deploy earnings from subsidiaries to other areas, then we will also incur this withholding tax.
Thank you, Chris. Our next question is from Thomas Simpson Lee from UBS. The question is: Could you share a little bit on the SOCAMM adoption for Bianca?
Well, we really do not comment on individual customers or specific products. But then as we mentioned previously, the use of SKT chip sockets remain unchanged, providing enhanced flexibility for system maintenance and replacements. But the ultimate adoption really depending on our customers.
Thank you, Chris. So, ladies and gentlemen, once again, you can submit questions by text by clicking the Q&A box in the webcast panel. For those joining via audio line, please press star one on your telephone keypad to join the Q&A queue. Our next question is from Alex Ng again. The question is: In terms of financials, second quarter GPM is down quarter-on-quarter and year-on-year. Is it due to product mix, tariffs, or pricing pressure?
It is from product mix and tariffs. Hello, can you hear my answer?
Yes, of course, Chris.
Okay.
Thank you. While waiting for more questions, ladies and gentlemen, once again, as a reminder, you may submit your questions by text by clicking the Q&A box in the webcast panel. As for those joining via order line, please press star one on your telephone keypad to join the verbal Q&A. Thank you. Sorry, Chris. Please go ahead. We have one more question, just came in. The question is from Rebecca. The question is, could you please help me analyze in detail the reasons for the significant tax increase and whether the high tax rates will continue?
Well, I thought I have answered that question. I mean, the current quarter is because of withholding tax for overall cash management and deliveries. To the extent that in the future, there's a need for us to looking our overall cash needs and dividend out earnings from one jurisdiction to the next, we would incur this dividend tax. But right now, as we look at things for the short-term outlook, there's no such need at this moment. It's really depending on whether we see additional needs are required for us to dividend out earnings in one jurisdiction coming out of the head office. So overall, flexibility in terms of cash management.
Thank you, Chris. Once again, ladies and gentlemen, you may submit your questions via text by clicking the Q&A box in the webcast panel. For those joining via order line, please press star one on your telephone keypad to join the Q&A queue. Our next question is also from Thomas Lee from UBS. The question is, are we confident on the platform upgrades for CPU servers to drive growth into 2026 and beyond?
Definitely, yes. We're one of the front runners in terms of really pioneering this technology advancements and trends, and there really aren't many companies in the world that in this leading position. We'll continue to work with our clients and collaborate with them very, very closely.
Thank you, Chris. Well, there appears to be no more questions. This marks the end of today's presentation. I will now turn the conference over to Chris for closing remarks.
Well, thank you, Ray. In summary, leveraging AI momentum and auto mobility, we made good progress in maintaining our financial performance this quarter despite tariff and industry headwinds. Looking into the second half of 2025, while uncertainty and pressures on supply chain persist, we remain cautiously optimistic about achieving 40% revenue from three plus three industries. Thank you for supporting our company and attending today's call.
Thank you. This concludes today's conference call. Thank you all for your participation. You may now disconnect.