Morning, everyone, and welcome to the live audio webcast of FIT Hon Teng's full year 2025 results announcement presentation. Today, we are honored to have Mr. Chris Lu, Chief Operating Officer and Chief Financial Officer for FIT Hon Teng, joining us today. During the presentation, Chris will provide financial highlights for the year ended December 31, 2025 and an outlook for 2026. You can download the PowerPoint from the resources box below the webcast window. Kindly note that the language for this audio webcast is English. If you have any questions for the 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 during the following Q&A session are all provided on an as is basis and does not constitute investment advice. Management on today's call may also make forward-looking statements based on 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 reliance placed on the information and forward-looking statements contained in the presentation and discussed during the 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 for today's call.
Now I will pass it over to Chris. Thank you.
Thank you, Ray. Good morning, everyone. Thank you for joining us today. Let's start on slide five. In 2025, we maintained focus on enhancing our product mix and seizing new opportunities arising from AI infrastructure build-out and the mobility transition. Despite persistent systemic risk from geopolitical tensions, supply chain realignments, and macroeconomic headwinds, we maintained our growth momentum. Our performance was bolstered by robust AI demand and the consolidation of our mobility business. As a result, we achieved a 12.4% year-on-year increase in 2025's annual revenue, reaching $5 billion, setting a new record that exceeded our previous guidance. With increased contributions from AI-related products, our gross margin continued to expand but was offset by fluctuations in commodity prices. As a result, gross margin increased by 70 basis points for the year, lower than prior guidance.
Our gross profit grew 7.6% year-on-year, reaching a record of $946 million for the year. To meet growing AI demand from customers, we brought forward investments, ramped up development, and allocated more expenses to roll out overseas manufacturing facilities to meet a strong pickup in orders for AI-related components. Our expense ratios came in at 14.5%, better than prior guidance of 17%-18%. Our operating margin also improved from 3.9% to 4.3%, thanks to increased production efficiency in our overseas facilities. Our net income increased 1.7% to $157 million for 2025, which was affected by higher tax expenses compared to the previous year. Our strategic investments are strengthening our growth trajectory.
I will soon share further developments in our expanding next-generation AI portfolio in later slides, which underpin FIT's competitive position. Turning to slide six, which provides breakdowns of our various segments for the full year. The [spot film segment] declined by 13%, driven by module replacements. However, the decrease was smaller than we had expected. Strong momentum in AI connectivity solutions and the ongoing delivery of new AI servers continued to be the main catalyst for the cloud data center segments as we expand from data solutions to power solutions. It recorded a strong double-digit growth, up 38% year-on-year for the full year. This was attributable to increased business from AI server upgrades and the introduction of new cable connectors for current mass production platforms, which also supported the higher demand for our established general purpose server connectivity solutions.
Due to higher-than-expected demand in the PC sector for the next generation upgrades, revenue from the consumer interconnect segment increased by 7% year-on-year, despite growing uncertainties in the supply chain. The auto mobility segment also saw continuing growth, rising by 94% year-on-year for the full year, driven by the steady integration and consolidations of Auto-Kabel business. Following these acquisitions, FIT One Mobility exposure in the automotive industry has strengthened considerably. Our system product segment was impacted by slower demand for electronic accessories, resulting in a smaller revenue decline of 4%, which was better than prior guidance. This success is due to better than expected demand for wire earphones from our major customers. Turning to slide eight.
Looking ahead to fiscal year 2026, the rapid adoptions of AI technologies and applications, combined with sudden shifts in geopolitical and macro landscape, are presenting us with both opportunities and challenges. We expect a low teens increase in top line revenue for 2026. While increasing contribution of AI-related shipments within our overall product mix will boost our overall margin, cost pressures from elevated precious metal prices will be a factor. Thus, we expect gross profit margin will remain around low twenties level, which is expected to drive low thirties increase in gross profit for the year. Ongoing investments in R&D, certifications, and global scaling currently weigh on our sales expense ratio. However, these strategic commitments are vital for capturing emerging market opportunities and securing long-term market leadership.
Nonetheless, we still expect corresponding 70%-90% growth in operating profit for FY 2026, driven by operational efficiency initiatives, particularly measures for further improved expense and cost associated with production facilities overseas. Turning to slide nine, we update the guidance by key segments. We anticipate AI development trends will drive recovery in consumer electronic, despite ongoing uncertainty in the overall business environment. Our early strategic transformation by investing in AI and auto mobility will continue to drive results for our customers and investors. In smartphones, while we recognize rising prospects from newer high-end models, we expect the end market will still face similar industry-wide dynamics and market fluctuation. Our outlook remains conservative, with a flat outlook for the full year. However, to address the impact of memory chip, some of the demand will slow down to the first half.
We should see a small pickup during Q1 of 2026. As FIT aligns with next-gen integrated AI module, we are excited about the pace of demand from AI platform transition to high-speed connectivity, energy efficiency, and liquid cooling. New products that fulfill these stringent requirements are projected to support a strong double-digit growth, reaching approximately low 70% in cloud and network segment revenue for 2026. While we expected another mid-double digit increase during the first quarter, the highlight will be mass production will ramp up during the second half, following validations of further industry certification. For consumer interconnect, we foresee continuous upgrades in AI-related components for notebooks and computers, which is favorable for growth, but will be offset by supply shortages and price hikes in memory. As such, we will focus on profitability rather than volume growth.
Thus, the outlook is a flat to low single-digit decline for the whole year. While supply chain constraints on memory will impact the projection for the first quarter with mid-teens decline for the consumer interconnect. In auto mobility. Upon launching the FIT One Mobility strategy last year, we will focus on consolidated resources from the German team, together with the strategic alliance within Foxconn group for cross-selling, to meet growing demand from new energy vehicles and autonomous driving. We will further enhance our product mix and progress on strategic cooperation in the Middle East. These initiatives are expected to boost total product revenue, where we expect high single digits growth for the first quarter and full year of 2026. Following our global expansion in the audio segment over the last year, we are currently strengthening our audio mass production agility and flexibility to support a pipeline of new production line.
We expect a slight to low digit increase outlook for system product during the first quarter of 2026, but a positive high single digit to low double-digit recovery for the full year due to additional contributions from expanded overseas production. This will further maintain our revenue and resiliency for system products and consumer interconnect. Turning to slide 10. Despite ongoing macro uncertainty, our multi-year outlook remains positive. As mentioned in previous slides, we continue to see strong momentum in AI server upgrades by hyperscalers over the next three years. With new certification in place, our cloud data center revenue is gaining momentum, and our forecast serves to approximately low 70% year-on-year growth this year. We are raising our cloud data center revenue mix of FY 2026 contribution guidance from the low 20s to the mid-20s. It is becoming an increasingly important contributor to overall performance.
Therefore, we have revised our revenue mix expectations upward from low teens to high teens growth over the next two years. New updates. Turning to slide 12. Following a full schedule of demos and business development initiatives last year, we catch up with the latest AI development and evolving hardware technologies at a rapid pace. Let me share several major innovations and products unveiled by our team recently. Last month, during DesignCon 2026, we unveiled the next generation 1.6T high-speed solutions and new architecture for 448G. We are well-positioned to capture opportunities as the industry transitions to 448G PAM4 per lane. These innovative designs, specifically developed for AI and high-performance compute demand for hyperscalers, AI cloud infrastructure, have attracted favorable feedback from key end users. Next, on slide 13. FIT continues to extend its comprehensive next generation 5G AIoT interconnect solutions.
Next week, at OFC 2026 in Los Angeles, our team will showcase the innovative 102.4T CPO external laser pluggable platform. This has been validated by NTT and aligns with the all-photonic network roadmap. We invite you to visit us at Booth 1558 for a live demo. We are also actively exploring further laser collaborations within the CPO ecosystem to ensure FIT remains at the forefront of this technology shift. These commercialization efforts are driving recurring orders and will enhance FIT's innovation and competitiveness, ensuring we remain at the forefront of the technological trends. Following our success at DesignCon 2026, we will showcase our latest solution at GTC. As a member of the Foxconn group, we will leverage the group's vertical integration and bring our expertise in CMMS to bear.
By collaborating with industry-leading suppliers, FIT delivers high performance, high power precision components that meet customer demands for higher speed transmission and low loss power delivery. To learn more, please visit us at Foxconn Booth number 1921. In summary, the robust AI upgrade provides strong momentum to sustain growth. We will continue to monitor market and systemic conditions while maintaining the flexibility to meet customer demand. 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 keypad to join the Q&A queue. There are some webcast questions on the line. Our first few questions came from Hao Yen Hui from Caitong. The first question is: We noted that the fourth quarter 2025 gross margin was impacted by rising precious metal costs. Looking ahead to 2026, could you share the company's strategy for managing material price volatility? Specifically, are there structural adjustments to mitigate the systematic risks?
Well, thank you very much, Ms. Hui. As a manufacturing-focused company, we prioritize operational excellence over financial hedging. We address cost fluctuation by optimizing our product mix and also enhancing supply chain agility to maintain a healthy profit profile. However, given the uncertainty in the international landscape, we will continue to monitor the situation carefully.
Thank you, Chris. The next question is: Given the optimistic growth guidance for 2026, the current dividend policy appears to maintain conservative approach. Could management elaborate on the strategic considerations behind retaining cash at this stage?
Yes. To capitalize on the transformative business opportunities in AI, as I stated earlier, we are prioritizing the reinvestment of our cash flow. We are reserving cash to support continual investments in AI-related products.
Thank you, Chris. The next question is: the 2026 guidance suggests a strong expansion in operating profits. From the strategic perspective, how does the company plan to bridge the gap between revenue growth and margin enhancement?
Our growth path is anchored by the cloud data center segment. By leveraging our leadership in AI-related high-value components, we expect the ramp-up of mass production in the second half of the year to be the primary engine for margin expansion.
Thank you, Chris. We have a couple questions from Karen Huang from Citi. The first question is regarding FIT Hon Teng's One Mobility strategy, what are the key operational milestones for 2026? Are the current investments focused on capacity expansion or efficiency optimization?
Thank you very much, Ms. Huang. Our priority for One Mobility in 2026 is operational refinement. We are focused on enhancing yield rates and process efficiency to ensure that our automotive business contributes high-quality earnings to the group.
Thank you, Chris. The next question is beyond AI, what levers can the company pull to expand profit margins, especially given the cost pressures on legacy products?
We're shifting our portfolio toward high-margin products and reallocating capacity to high-voltage cables and high-speed components in new sectors such as robotics and mobility.
Thank you, Chris. Our next few questions come from Irene from Morgan Stanley. The first question is: the high double-digit growth target for the cloud segment implies a significant inflection point in the second half of the year. Could you provide more color on the qualification status across various customer platforms? What gives the team confidence in the H2 acceleration?
Thank you, Irene. We do not comment on individual customers or specific products. Now, we are working closely with major global clients, and current qualifications are proceeding as planned. Our confidence in the H2 ramp-up stems from a clear production visibility we have seen these high-value AI component transitions from certification to mass production.
Thank you, Chris. The next question is: with AI architectures shifting towards cableless designs, how is the company positioning its portfolio to capture new value? Do you foresee these next-generation solutions replacing existing products like MCIO?
Though we are not able to comment on individual customer or specific products, we can comment on industry trend. As AI clusters continue to scale and compute density increases, the industry will see significantly higher demand, not only for thermal management and high-speed interconnect solutions, but also for data transition capabilities to support increasing power density and data density. We view technological iterations as an opportunity. While architecture changes, the demand for signal integrity only increases. Solutions like our backplane connectors offer higher content value, ensuring FIT remains a key contributor across all mainstream AI platforms.
Thank you, Chris. The next question is: there has been market discussion regarding the progress of your backplane solutions, including PH2 and other high-speed connectors. Could you discuss the competitive mode for these products?
Sorry. We do not comment on individual customers or specific products. As a leading company in the connector sectors, our true competitive mode lies in our speed to market and also our scale to readiness.
Thank you, Chris. Our next two questions are from Wang Jie from CITIC Securities. The first question is: market rumors suggest that the Kyber connector uses FIT's exclusive solutions. What is the current status of your backplane solutions?
Well, thank you, Ms. Wang. As a matter of policy, we do not comment on individual customer or specific products. As a leader in the connector sector, our core strengths lie in our comprehensive high-speed signaling know-how and our ability to rapidly transition from R&D to mass production. We continue to develop advanced backplane solutions, and progress is moving forward in alignment with various customer timelines. The true barrier to entry in this space really is the combinations of ultra-high precision and speed to market. We leverage our top-tier tooling capabilities to meet the rigorous requirements of next generation AI architecture while ensuring immediate scale-up readiness for our clients.
Thank you, Chris. The next question is, following the successful qualification of the Power Whip series, what is the expected timeline for its revenue ramp-up? How does it align with the broader AI power delivery infrastructure cycle?
Now, having cleared the qualification phase, the Power Whip series is moving into mass production. We expect to see a meaningful revenue contribution in the second half of the year, directly addressing the surging power demands of AI compute disk clusters.
Thank you, Chris. Our next, couple questions are from Leo Delong from Changjiang. The first question is, can you share the status of your liquid cooling solutions? Does the company intend to keep this technology focused on AI infrastructure, or is there a plan to diversify into broader industrial cooling?
Thank you for the question. We expected our liquid cooling solution to see significant growth in 2026. Our liquid cooling R&D is currently mainly committed to AI infrastructure. By combining our established expertise in power busbar, we have become one of the first suppliers to develop liquid-cooled power busbar solutions that are mass production ready. We believe concentrating our resources on these high-growth sector allow us to maximize our market share and maintain our technological edge in the data center space.
Thank you, Chris. The next question is, what is your current engagement level across major AI platforms? Will you be part of the 224G or 1.6T cycle?
As a matter of company policy, we do not comment on individual customers or strategic partners. However, we can confirm that we are working closely with major global CSPs and leading IT design houses on 224G and 448G platform, and also 1.6T specifications. Development progress is currently in line with expectations. FIT will not be absent from any major mainstream AI platform cycle. We remain a key contributor to the next generation of high-speed AI infrastructure.
Thank you, Chris. Our next few questions are from Kate from UOB. The first question is, will the gross margins for AI-related products significantly outperform the company's historical average? How will this shift affect the overall margin profile?
Well, thank you, Kate. Products with high technical barriers generally offer better profit margins. As the contribution from AI expands, we expect it to enhance our overall gross margin structure.
Thank you. The next question is, with the rapid pace of product iterations in the AI sector, how is the company managing the resulting increase in R&D investment?
We believe these expenses are necessary investment to secure new business opportunities. By focusing on high-value products, we aim to ensure sustainable long-term returns on these investments.
Thank you. Our next question is, with increasing pricing competition in the smartphone market, do new models, AI smartphones or foldable phones provide a significant increase in value creation?
The increase in value not significant. However, our market share in the smartphone segment remains in the leading position and stable. These innovations have the potential to increase shipment volume and benefit business.
Thank you very much, Chris. Our next questions are from Tony Chen from Huatai. Thank you for taking my questions. Cloud and networking growth drivers. Cloud and networking segment delivered an impressive 37.6% year-on-year growth, and your long-term guidance suggests it will become a much larger piece of the revenue mix, reaching the mid-20s or low 30s by 2027, 2028. Beyond general AI server demand, what specific product lines, such as high-speed connectors, cables, or the new 1.6T high-speed solutions will be the primary growth drivers for this year?
Thank you, Tony. AI-related product will be our primary growth driver for this year. We do not comment on individual customers and specific products. That's our policy.
Thank you, Chris. The next question is acoustics business impairments and supply chain system products. Regarding the acoustics, the report notes a goodwill impairment of $29 million are driven by rare earth raw material constraints, a weak consumer market, and shifting trade policies. Could you elaborate on the underlying background here? Does this relate to the recent supply chain migrations and impact of the U.S. tariff policies last year, such as moving production from Vietnam to India? Is this specifically tied to the airport product line?
Well, thank you for the question. Again, as a policy, we do not comment on particular customers or product. Having said that, these, what we call disruptions, unfortunately will persist for a period of time. Management feels like because of these disruptions, the business that we are currently under will need to be reevaluated. In that reevaluation process, we decided to write off the goodwill.
Thank you, Chris. The next question is smartphone revenue and next-gen upgrade smartphone segment revenue declined by 12.6% year-on-year. Despite seemingly resilient overall volumes from key clients like Apple, was this primarily driven by ASP pressure or the mentioned changes in component architecture? Furthermore, the report mentions next generation models technology upgrades are driving higher performance requirements. What specific component upgrades are you anticipating that will help reverse this revenue trend?
Thank you. Our market share in the smartphone segment remains in a leading position and stable. Though there is technology migration to USB-C, these innovations have the potential to increase shipment volumes and benefit business.
Thank you very much, Chris. Our next few questions are from Alex Ng from CMBI. The first question is, FIT delivered a strong revenue growth in 2025, but net profit was slightly dragged by product mix shift and lower other income. Could you elaborate on the key drivers behind and whether you expect this to persist into 2026?
Well, thank you very much for the question. Unfortunately, we experienced headwinds such as material constraints and shifting trade policy during the year, which caused the recognition of non-recurring impairments. Management will remain focused on global development, but we are generally optimistic of the near future.
Thank you, Chris. The next question is, to achieve the latest 2026 guidance to improve both gross margin and the operating margin, what are the key initiatives in FIT's strategy, and what milestones should we look for over the course of 2026?
Well, as I shared earlier on, AI focused on high margins and high-growth market. This will really drive the improvement in performance in gross margins, operating margins. Really, the milestone should be the market expansion progress and also new product feedback.
Thank you. Our next question is, in last earnings call, management raised the revenue growth guidance in 2027 and 2028 to be mid-20s. As we just upgrade cloud data center revenue mix forecasting 2026 to 2028, is there any update on our 2027, 2028 revenue growth guidance?
No, not at this moment. We will maintain our previous guidance on this, and we will update if any significant changes, anything that we see. Thank you.
Thank you very much, Chris. Ladies and gentlemen, as a reminder, you may submit a question by text by clicking the Q&A box in the webcast panel. Currently, submit all questions in English. For those joining via audio line, please press star one on your keypad to join the Q&A queue. There are no questions on the line, so this marks the end of today's presentation. Thank you all for participating. If you have any other questions, please contact our investor relations department. Thank you.