Good morning, everyone. Welcome to the live audio webcast of FIT Hon Teng's 1st quarter FY 2026 results announcement presentation. Today, we're honored to have Mr. Pochin Lu, Chief Operating Officer and Chief Financial Officer for FIT Hon Teng, joining us today. During the presentation, Pochin will provide a financial highlights for the 1st quarter ended 31st of March 2026, and 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'd 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 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 a disclaimer for this call, please refer to slide 2 of our PowerPoint. Slide 3 contains a brief agenda of today's call.
Now, I will pass it over to Pochin Lu. Thank you.
Thank you, Ray, and good morning to all joining us today. We will begin with slide 5. The positive momentum in AI continues to drive our business expansion. By capturing a larger share of the AI server market through the launch of new generation connectivity solutions, our revenue for the first quarter grew by 8.6% year-over-year, reaching $1.2 billion. Growing contribution from higher margin AI-related portfolios also boost our financial performance. Gross profit increased 13.2% year-over-year during the period to $243 million. The improved performance is reflected in an 83 basis point increase in our overall margin to 20% during this quarter, despite the impact of increasing raw material costs during the period. Operating expenses rose 4.7% due to strategic R&D investments in AI solutions.
Ongoing efficiency improvement helped us reduce the OPEX ratio by 70 basis points compared to the previous year. As a result, operating income reached $38 million in the first quarter, representing a nearing 90% year-on-year increase. Our operational efficiency led to a robust increase in operating income, the net income growth of 67% was dampened by foreign exchange headwinds. Turning to slide 6. Here is an overview of the performance for each segment. During the first quarter, robust AI demand driven by cloud service providers, together with healthy growth in system products, helped offset the challenging condition in the consumer interconnect segment. In line with prior guidance, we remained flat revenue from the smartphone segment in Q1, with stable shipment levels in mature market environment.
Driven by growing demand for AI server and infrastructure upgrades, cloud data centers continue to outperform, delivering a 58% increase during Q1. CSPs demand for next generation AI platforms continues to increase. The new product ramp-ups will help to strengthen our role as a key supplier in the AI industry supply chain. As a result of industry disruption due to memory constraints, consumer interconnect declined 12% in Q1 compared to last year, in line with our previous guidance. Industrial headwinds and the broader systemic risk have affected the global automotive market. The auto mobility segment recorded a 5% decline in Q1 compared with our prior expectation of a high single-digit increase, primarily due to weaker than expected market demand.
The system product segment performed in line with our guidance during the quarter with a 7% year-on-year growth, showing stable growth in the shipment of audio products. For other segments, we saw a better than expected revenue due to higher precious metals and material pricing. Turning to slide 8. Similar to last year, we continue to operate under very dynamic market conditions. Although there were many macroeconomic uncertainty and a systematic risk in Q1, we can still maintain our full year guidance based on robust AI demand. Turning to slide 9. We update our full year and Q2 outlook based on recent industry developments. In the smartphone segment, we maintain the stable shipments and market share across established cable and component products.
Accordingly, we keep our flat outlook for both Q2 and the full year. FIT is well positioned to capture additional AI server business opportunity throughout the year as we ramp up new platform launches. We expect that favorable AI momentum will carry into Q two, leading to a mid-40% and a mid-70% year-over-year increase in cloud data center revenue for the second quarter and the full year, respectively. As mentioned, we expect the elevated memory prices to continue impacting demand. As such, we lower revenue from consumer interconnect from a flat to a high-teens decline for the second quarter, while maintaining a low single-digit decline for the full year, with growing contribution from AI PC upward cycles. Similarly, the outlook for the automobility segment remain challenging.
We anticipate a soft market demand amid ongoing macro uncertainty and have therefore lowered our forecast from a mid-teens increase to a flat outlook for both Q2 and the year, reflecting industrial headwinds across the automotive industry. Despite these external challenges, we continue to focus on improving efficiency and tightening internal execution. Specifically, we are driven organization and footprint optimization to deliver cost reductions and organic growth margin improvements. Our core technology in high voltage power distribution provides a solid foundation as we pivot toward the software-defined vehicle era, ensuring resilience and profitability in a shifting landscape. We maintain our outlook for the system product segment to deliver a low teens increase in Q2 and on a full year basis, supported by continuous audio ramp-up and production agility improvements. Turning to slide 10.
Based on what we have mentioned so far, we remain positive on the growth momentum of cloud data center sectors over the next three years. Following our previous revisions to our long-term revenue mix guidance, cloud data center has already reached approximately 22% of revenue in Q1. This performance directly supports our expectations of achieving a mid 20% mix target for 2026. Turning to slide 12. We are delighted to share recaps of live demos of FIT's innovative interconnect solutions at NVIDIA GTC and OFC this March. We received strong feedback and engagement from analysts and investors during both events. Our unique expertise in copper and optical connectivity solutions enables us to offer holistic systems for multiple ecosystems. We work closely with the world's AI ecosystem to ensure our R&D and technical standards for connectivity align with market demand.
Some key highlights include XPO module that integrates high bandwidth, high density connectivity, enhanced liquid cooling, and a new ELSFP laser module to support Broadcom's high-speed Tomahawk CPO architecture, and an ultra-thin CPX 500-pin socket solution co-designed with NTT for large scale AI deployment. On slide 13. We continue to broaden our next-gen portfolio that encompasses high power solutions, high speed connectors, and liquid cooling solutions that cater to evolving AI server architectures. Through this industrial event, we conducted high-level discussions directly with CSP providers and deepened collaboration with AI ecosystem partners to capture business opportunities. It also reinforces our pivotal position in the AI supply chain and expands the higher margin product mix to achieve our long-term financial metrics. In conclusion, we are making tangible progress to enhance our core capabilities and diversify our product mix, aligned with our goal of achieving future profitability.
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 order line, please press star 1 on your telephone keypad to join the Q&A queue. There is some webcast questions on the line. Our first few questions come from Irene from Morgan Stanley. The first question from her is, we observed a strong 58% year-over-year growth in cloud and data center this quarter. Given the high demand for high performance computing, could you clarify the growth contribution from AI servers versus traditional general purpose servers and how this trajectory looks for the rest of the year?
Thank you, Irene. Now, our cloud data center performance this quarter reflects a dual growth engine. Specifically, AI server-related revenue surged by 109% year-on-year, more than doubling as we ramp up high-speed interconnect and power solution for major CSP projects. Equally important, our general purpose server business remain robust with a 30% year-on-year growth, significantly outperforming the broader market demand. For the second half of the year, we expect AI-related products to account for an even larger share of our revenue mix, supported by the ramp up of next-generation platform. Moreover, we believe AI-related products within our 5G AIoT business will gradually surpass traditional server products and become the largest product category during the second half this year.
Thank you, Pochin Lu. The next question is, following your OFC announcement regarding the 102.4T ELSFP external laser source module, when do you expect this to contribute to the revenue, and how can we expect the TAM?
Regarding the 102.4T ELSFP solution, we're currently in deep co-design and validation phases with key ecosystem partners. We're on track to reach significant technical milestone by mid-2026. In terms of financial impact, we expect initial revenue contribution to begin in 2027, with a significant ramp up in 2028 as CPO architectures become the industry standard for 1.6T and 3.2T applications. Market projections suggest TAM for this segment will exceed $1 billion during 2027-2028.
Thank you, Chris. The next question is, there has been market discussion regarding the progress of your backplane solutions, including PCIe Gen 2 and other high-speed connectors. What is the expected timeline for the revenue ramp up?
We do not comment on specific products of individual customers. We remain closely aligned with the industry technology roadmap and key validation milestones. Our focus is to capture broader business opportunities in high-speed interconnects. Based on the current pace of development within the AI ecosystem, we expect the volume ramp up for these next-generation solutions to materialize during the second half of 2026.
Thank you, Chris. We have a couple of questions from Karen Huang from Citi. The first question is, with power consumption per rack surging in next gen AI platforms, power delivery has become a bottleneck. What is FIT's unique value proposition in high current bus bars or power connectors?
Well, thank you, Karen. Well, FIT's key strength lies in our ability to work closely with customers through fast and flexible support, alongside strong development capabilities that enable us to quickly deliver customized solutions that meet evolving customer requirements.
Thank you, Chris. The next question is, market discussions suggest a significant increase in total interconnect content for upcoming AI architectures that 100. How does FIT view the dollar content opportunity per rack compared to previous generations?
While we do not disclose specific product detail for individual customers, we can provide perspective on the evolving AI architectural trends. This expansion is significantly driven by new business opportunities captured through our latest product developments, such as liquid bus bars and power whips. In the upcoming AI architecture, we expect these new wins to elevate content per rack, highlighting our successful transitions from a component supplier to a leading provider of system-level power and thermal solutions. With our early engagement and expanding portfolio, we are seeing increased participation across multiple AI platforms as they ramp up for mass production.
Thank you, Chris. The next question is, given your early engagement in AI connector programs, is it reasonable to expect FIT to secure a meaningful share, for example, 30% as these platforms ramp up?
While we do not provide specific information for individual components, by leveraging our co-development with the ecosystem and our proven mass production scale. Our target to secure a meaningful market share remains consistent with our historical leadership in high-speed and high-power interconnects.
Thank you, Chris. We have questions from Wang Je from Chung Hsiung Tiento. The first question is, we've seen significant buzz in recent industry reports regarding the Voronoi connector spec for future AI platforms. Do you clarify FIT's strategic positioning here, specifically as architectures shift toward this proprietary designs, how does this impact your roadmap and growth trajectory heading into 2027?
Thank you very much, Wang Je. We do not comment on specific design details. The industry shift toward high-density proprietary architectures align perfectly with FIT's technological roadmaps. We're deeply engaged in the early stage development of these next generation solutions well ahead of broader market adoption. This high-level involvement not only reflects our R&D strengths, but also effectively raises the entry barriers for new generation AI rack.
Thank you, Chris. The next question is, how does FIT view the evolving trend between copper and optical solutions in the AI cluster interconnect space? How is the company's roadmap positioned to support this transition?
As AI cluster bandwidth and data transmission requirements continue to increase, copper solutions will gradually approach their physical limitation in certain high-speed and long-distance applications. As a result, optical solutions are expected to become an increasingly important interconnect technology going forward. FIT's roadmap remains closely aligned with customer needs, and we will continue to support customers with both copper and optical solutions based on different application requirements and technology transitions.
Thank you, Chris. The next question is, looking at your CPO and silicon photonics progress, when should we expect these technologies to start contributing meaningfully to the FIT's revenue? Is it a 2026 and 2027 story?
We're currently in a critical validation phase for ELSFP. Upon the successful completion of a system level validation with our key customers, we will transition into the pilot production stage. From an industry cycle perspective, we expect 2026 to focus on technology adoption and the initial deployments. Significant revenue growth is projected to materialize in 2027, aligning with the global ramp up of the 102.4T switch architectures. Our focus remains on ensuring technical maturity to perfectly match the deployment cadence of next generation AI cluster.
Thank you, Chris. The next question is from Kate from UOB. The question is, FIT is recognized as one of the few players capable of delivering FFQD quick disconnect solutions. Can you share the status of your liquid cooling solutions? Does the company plan to leverage this advantage to expand into broader components like cold plates?
We expect our liquid cooling solution to see significant growth in 2026. Our strategy is centered on connectivity components and module, where we deliver high precision critical components with the highest technical barriers. Regarding portfolio expansion, our priority is to dominate mission-critical segments such as FFQD and liquid-cooled power bus bars. By providing a specialized integration of power and thermal management, we solve the industry's most complex density challenges, ensuring a superior margin profile and long-term competitive advantage.
Thank you, Chris. The next question is, could you provide some color on the current progress of the cable carriage qualification and how we should think about the timing and the visibility of future production ramps?
I'm sorry. You know, we do not comment on specific products, but it is clear that we see a strong growth trajectory in our AI-related business over the coming years.
Thank you, Chris. Our next question is, could FIT provide more color on the outlook for the rack interconnect business in 2026 and 2027, particularly in terms of the key customer trends and technology transitions that may drive future growth?
Well, as AI computing demand continues to increase, we believe the need for rack level and rack-to-rack interconnect solutions will also continue to grow alongside larger and more complex AI clusters. We remain positive on the long-term outlook for the rack interconnect market, driven by higher bandwidth requirements, increasing power density, and ongoing AI infrastructure expansion. Given FIT's strong positioning in high-speed connectivity, we believe we are well-positioned to capture these opportunities and will not be absent from any major industry transitions going forward.
Thank you, Chris. Our next few questions are from Wang Yifeng from Everbright Securities. The first question is, with increasing pricing competition in the smartphone market, do new models, AI smartphones and foldable phones provide a significant increase in value creation?
Well, thank you, Wang Yifeng. The increase in value is not significant. However, our market share in the smartphone segment remains in a stable leading position. These innovations have the potential to increase shipment volumes and benefit businesses.
Thank you, Chris. The next question is, the auto mobility segment faced headwinds in early 2026. What is the strategy to improve profitability and when do you expect this segment to reach breakeven?
Our focus remains on cost discipline and operational improvement in the near term. Our long-term path to profitability involves increasing value capture per vehicle, shifting from basic components to integrated high-value system within the One Mobility framework. We expect to reach breakeven by the end of 2028.
Thank you, Chris. Our next question is, beyond the servers, what is FIT's progress in the robotics sector, and how does this align with your current client ecosystem?
Robotics is a natural extensions of our high speed and power connectivity expertise. We are collaborating with key ecosystem partners to develop interconnect solutions for next generation autonomous systems, which we expect to be a long-term growth in the future.
Thank you, Pochin Lu. Our next questions are from a Ms. Wen from CICC. The first question is, given the recent geopolitical tensions, how is FIT mitigating potential risks to its supply chain or customer base?
Well, Foxconn group has operations and manufacturing sites worldwide, which allow us to leverage this footprint and operational flexibility to better support customer needs based on geopolitical tensions.
Thank you. The next question is, could you provide more color on your OPEX strategy for 2026? Specifically, as FIT pivots toward increasingly complex AI technologies, how should we think about the evolution of R&D spending?
Well, we remain comfortable with our OPEX ratio guidance of approximately 16%-70% in 2026, and we will continue striving to optimize our operation, operating expenses and improve overall cost efficiency. While developing next generation AI solutions require continued R&D activities, we are forecasting to our strategic growth areas that can directly drive future revenue growth for FIT.
Thank you, Chris. Our next few questions from Mr. Liu from Changjiang. First question is, given the current volatility in global commodity prices, specifically in industrial metals, how does FIT plan to sustain this upward margin trajectory through your product mix, and what is your comfort level for gross margins for the full year?
Thank you, Liyuan Liu. While we are seeing some pressure from rising raw material costs, we work closely with both customers and suppliers to mitigate the impact of commodity volatility.
Thank you, Chris. The next question is, looking at your strategic roadmap, where you need more capacity to support new growth engines such as audio and AI, could you share your priorities for capital allocation and how this investment cycle positions FIT for 2027 and beyond?
We are currently in a pivotal investment cycle to capture the next wave of AI opportunities. Our capital allocation is strategically prioritized, with significant resources dedicated to AI infrastructure and the remainder supporting our global manufacturing resilience. As for OPEX, our priority is enhancing operational efficiency. Looking toward 2027 and beyond, we will maintain full flexibility in our global footprint to meet evolving client needs. This strategic agility allows us to leverage our pre-positioned assets to drive significant operating leverage. Such positioning ensures that our growth engines mature. We can efficiently scale operations and deliver sustained long-term value to our shareholders.
Thank you, Chris. Our next few questions are from Howard Cao from Morgan Stanley. The first question is, congratulations on the quarter. With the growing TAM for agentic AI, can you talk about your exposure in general server? Which products were your key contributions from general servers?
Thank you, Howard. Our general server is as good as expected. IT remains as one of our key segment. Our general purpose server business remain robust, with a 30% year-on-year growth, significantly outperforming the broader market demand.
Thank you, Chris. The next question is, can you talk about your vision in data and power? Between these two segments, which segment will easier for FIT to take share and grow over the next two or three years?
You know, both power and data represent strong growth at this moment. If we have to pick one, I would say data may have higher growth potential.
Thanks, Chris. Following up on the agentic AI question from earlier, do you think there could be upside to your three-year long-term guidance?
Well, it's relatively early to comment on 3 years guidance. You know, since we are really in year 1 or not even quite year 1 yet, probably only, you know, really at the beginning of this. It's very difficult to predict 3 years down the line. What I can say is so far so good.
Thank you, Pochin Lu. The next question is from Lucas Liu from John Capital. The question is, thank you, would you update 1.6T optical receiver?
Well, thank you for asking. Well, you know, in terms of financial impact, we expect initial revenue contribution really to begin maybe toward the back end of 2027, with a significant ramp-up in 2028, as really the CPO architectures become the industry standard for the 1.6T and the 3.2T applications.
Thanks, Chris. The next question is from Alex from CMBI. The question is, recently, we see robust demand in CPU driven by inferring AI and AI agents. What's your view on the impact to FIT's consumer interconnect segment and other segments?
Thank you, Alex. We also see a strong demand of CPU. The constraints on memory limit the upside growth for the near to, you know, long-term, you know, factor. It should be healthy. It should be healthy.
Thank you, Chris. The next question is from Bingyi Zheng, from Titum Securities. The question is, could the company please elaborate further on its layout in optical connectivity as well as its collaboration with affiliated companies of Hon Hai Group?
Well, thank you. Thank you for asking. The optical connectivity will definitely become one of key driven AI industry going forward. However, it will take some time for the industry to evolve. We're talking about something for the next 1-2 decades. FIT will definitely work closely with all partners in the Hon Hai Group. You know, that's really one of our competitive edge. Thank you.
Thank you, Chris. The next question is from Alex Wang, from SDIC Securities. The question is, what is current progress of FIT's sample delivery for orthogonal backplane connectors to client, and when is it expected to enter the official supply white list? Also, what are the customer validation and mass production schedule for the 1.6T optical modules and the 102.4T CPO ELSFP products?
Well, thank you, Alex. You know, the backplane connectors really is on track. You know, regarding the 102.4T ELSFP solutions, we're currently in the deep co-design and validation phases with our key ecosystem partners. We're on track to reach significant technical milestone by mid-2026.
Thank you, Pochin. The next question from Alex Wang is, how can a company maintain its technological foresight in fields such as connectors, liquid cooling, and optical interconnect and avoid the risk of market share loss caused by rapid technological iteration in AI server hardware?
Well, you know, no one can guarantee success all the time. FIT understand all the risks coming with all opportunities. Now, we have to be always paranoid to stay competitive in the business. Now, one of the things that we can say is we have many long years of collaboration with ecosystem partners. By this close collaborations over the years, we tend to be able to pick up new technology trends probably slightly earlier than the rest of the field.
Thank you, Chris. Our next couple questions are from Xudong Chen from Huatai Securities. The first question is, hi, Chris, can you provide more details on auto business, as you just mentioned, weaker than expected market conditions?
Well, thank you. Thank you for the question. Well, you know, the automotive sector suffers with all the macro uncertainties. We will focus on our business plan and really adapt to the market conditions. With us and our specific strategies in focusing on delivering value, on power related solutions and connectivity solutions in the automotive businesses, you know, we believe we have a very strong product offerings that will be valuable to the players.
Thank you. The next question is also from Xudong Chen from Huatai Securities. The question is, did memory price hike affect some business performances? Thanks.
Well, you know, the same as we commented on our consumer interconnect segment. The constraint of memory will limit the upside growth for the near term, but it should be healthy. It should be healthy.
Thank you, Pochin. The next question is from Zilong Han from HSBC Jintrust. The question is, we've noticed competitors are already participating in CPO copper cable design. Could you update us on our current progress and share your view on the long-term industry trend for CPO?
We have this now. Thank you very much for this question. First of all, we do have this technology and, you know, I'm not at liberty to comment anything further on this at this particular moment. We will disclose the details later when it's more matures and ready to do so because we're bound by, you know, we're bound by certain military constraints that we could not disclose at this moment. Thank you very much.
Thank you, Pochin Lu. Ladies and gentlemen, as a reminder, if you're joining from the webcast, you can text your questions in the Q&A panel. If you're joining from the audio line, please press star one on your telephone keypad to join the Q&A queue. Our next question is also from Zilong Han from HSBC Jintrust. The question is, what is your view on the technology trend of a Pogo pin solutions in backplane connectors?
Thank you. I'm sorry, Zilong. We really cannot comment on specific product design that, you know, is applicable to our customers. Just rest assured that we're very closely aligned within the ecosystem, and we're working on the latest trend and standards. You know, if time matures and allows, then we will definitely share more details with you. Thank you.
Thank you, Chris. Due to time constraints, this marks the end of today's call. Thank you for participating. If you have any other questions, please contact our investor relations department. Now I'll pass it over to Chris for closing remarks.
Well, thank you everyone for all these questions. They're very, very good. Thank you very much. Now, despite ongoing macroeconomic uncertainties, we remain confident in our long-term growth strategy and also our ability to capture opportunities driven by AI infrastructure expansion. With our strong technology foundation, diversified product portfolio, and also close collaboration with ecosystem partners, FIT is well-positioned to strengthen its role in the evolving AI supply chain. Again, thank you once for joining us today and also for your continuous support. We look forward to speaking with you again during our next earning calls for the second quarter, and have a great day. Thank you.
Now this concludes today's conference call. You may now disconnect.