Good afternoon, everyone. Welcome to AirTAC's First Quarter 2025 Earnings Call. My name is Derrick Yang , the Tech Coverage Analyst at Morgan Stanley. It's an honor today to have AirTAC's CFO, Ivan Tsao, joining us to brief on the first quarter results as well as the latest updates on the company and industry dynamics. Without further ado, let me pass the call to Ivan for the opening remark.
Okay, thanks, Derrick, and good day, everybody. This is Ivan Tsao speaking from AirTAC, and welcome to join this Conference Call. Now, let me brief our first quarter results and current market situation. First, let's talk about the issue of the reciprocal tariff issued by the United States. Basically, there is no winner in the tariff game, and it's just at the beginning stage now. It is too early to talk about the final outcome and impact. The China government has been preparing for six years since the last China-U.S. trade war in 2019. The most important task of the China government at present is how to quickly restore people's consumption confidence, reduce the excess saving rate, and enhance domestic demand to support economic development in China.
Based on the current developed situation, if China reacts appropriately and timely issues corresponding policies, we believe that China can have the opportunity to accelerate its catch-up with the world's largest economic entity. For AirTAC, we are still closely observing the development of the tariff flexion and propose corresponding strategies timely to continue increased market share and support our revenue growth. Our direct export to the United States only accounts for 0.6% of our revenue. Although we cannot have an exact ratio of the indirect export from our customers' customers to the United States, a rough assessment suggests that it could be just single digits of our customers' business. The impact from such reciprocal tariff issues will not be too much to AirTAC. Our daily shipment, our average daily shipment amount in April so far is still even higher than that in March.
It still could be a good situation for AirTAC currently. Next, we need to observe the psychological impact of the tariff war on customers' side. Currently, we judge that the substance impact on us is still pretty limited. Numerous industries still can sustain single-digit growth annually once there are no too severe non-economic factors. By continuously developing new products, especially for high gross margin new products, and improving our brand image, we expect our annual revenue growth rate still could be 10% higher than industry growth rate. Our approved concern revenue for the first quarter of 2025 was RMB 1.794 billion , a 9% growth year-on-year. Gross profit was RMB 792 million, a 2% growth year-on-year. Gross margin was 44.2%. Lower gross margin in the first quarter mainly caused by Chinese New Year holiday. Less production days, less output, worse fiscal leverage, and higher unit production cost.
In addition, the China government has partially canceled tariff preferences between Taiwan and China. We mean that ECFA issue from last June, and we need to bear higher tariff costs in cross-trade transactions. Most of such disadvantages will be diluted at the end of the second quarter, at the end of this second quarter. Operating income was RMB 504 million, a 2% growth year-on-year. Operating margin was 28.1%. It's in line as always, but expected. Net non-operating income was RMB 43 million, including 23 million of FS gain, 18 million is subsidy from government, 8 million of interest income, and 4 million of interest expenses. Income before income tax was RMB 547 million, RMB 547 million, a 3% growth year-on-year. Pre-tax margin was 30.5%. Net profit was RMB 429 million, a 2% growth year-on-year. Net margin was 23.9%. EPS for the first quarter of 2025 was NT$ 9.68.
Revenue from top eight industries of the first quarter of 2025, the biggest one was electronics, around 28% of our concern revenue. It's around 8% growth year-on-year. Second one, battery, was around 13% to our revenue, 65% growth. Auto was around 10% to revenue, 43% growth. Packaging was around 8% to revenue, 10% growth. Machine tool was around 7% to revenue, 16% growth. German machinery was around 5% to revenue, 10% growth. Textile was around 5% to revenue, 6% decline. Energy-related incurred solar was around 4% to revenue, 55% declined. For current market situation, the China government has released many stimulus policies from late of 2023 and attempting to restore people's and corporate confidence in government policies. Some of them have improved their confidence and increased their end product consumption or accelerated their capacity expansion. The overall market demand has slowly recovered since the late of last year.
Shipment was better than our expectation in Q1 of 2025 as of the demand of various industries for pneumatic components in 2025. First, we still expect electronics industry demand could have 10% or 10% growth in 2025 because many customers said there could be more new models launched or spec upgrades in 2025. Pneumatics support customers' production process, not in their end product. Once customers have more new models launched and more spec upgrades, they need more new equipment and need more pneumatic components. It is around 30% of our revenue from electronics. It could be 10% revenue growth in 2025. Secondly, government stimulus policies to replace old equipment to be new equipment still can get subsidy from the government, and it is still in the market. Those traditional demands that machine tools, German machinery, textile, packaging can enjoy positive growth in 2025. It is another 30% of our revenue.
Better revenue growth rate from auto industry also could be expected from 2025. We have improved our brand image on auto customers and enjoy better share gain. Even the overall auto industry has not recovered obviously, we still can have double-digit revenue growth from this industry for years. We still expect double-digit revenue growth from auto industry in 2025 can sustain it. It is around 10% of our revenue. We have some demand issues on battery and solar in 2024 and also suffered 40% and 60% decline on those two sectors. A good news could be government announced its guidance for the battery industry for 2025 in late of last October, and demand has accelerated from last November. We expect the revenue growth rate from battery industry still could be double-digit, even more than 20%-30% in 2025.
Solar included in energy-related equipment is still not good so far. Even it still could be weak for the whole year of 2025, but it's just around 4% of our revenue and won't affect our business too much. For the pricing, selective items for selective customers have some price competition in the pneumatic market, but it still could be rational or reasonable, basically. Weak of the Japanese merchant won't affect our competition with Japanese peers too much, mainly because the cost of materials accounted for 40%-50% of the cost of goods. Most of the metal material costs are metal materials. Japan's own production of the metal orioles should be limited, so it needs to purchase metal materials from foreign suppliers.
A weaker yen will increase the cost of materials, but it still can enjoy the benefit of the Japanese yen, Japanese production capacity in labor and overhead cost. In addition, the production capacity of our main competitors in Japan is around 40% plus and another 30% plus in China. The currency impact should be similar to AirTAC. Material costs have been relatively stable and fluctuate within a reasonable range in the past couple months, which will be friendly to our profit margin in 2025. OP margin still has to depend on revenue scale and capacity utilization rate. Even so, we still can improve our margin by launching more high-margin new items and continue to improve our internal efficiency to reduce our production cost. Inventory total days was around 134 days at the end of the first quarter of 2025.
This is lower than normal level, and it is caused by better shipment in March. We have increased our pneumatic capacity utilization rate to be around 110% to restore more inventory level to support our customers' demand. Such high utilization rate could at least continue to end the second quarter. For the development of our NIGAI business, industry demand still is weak, and peers still keep very aggressive pricing. We have changed our pricing policy since the third quarter of 2024 and also extend new sales range from this February. Shipment growth has double-digit % growth in Q1 of this year. We expect we could have RMB 600 million revenue in 2025 and additional RMB 300 million internal demand to support pneumatic cylinder demand. Totally, it can achieve 50% capacity utilization rate in 2025, and gross margin of NIGAI could be around 30%.
It's just around 20% gross margin in 2024. If our utilization rate could improve to be around 80%, GPN could be around 40%. Even 40% gross margin from NIGAI still is lower than our existing pneumatic business, but we use the same sales team to do carouseling pneumatic and NIGAI without too much additional OpEx. It still can improve our concerned OP margin. Pneumatic is a short lead time business. No matter the economy is good or bad, pneumatic doesn't have to digest inventory in sales channel or customer side. Its visibility is only around one month because the probability of the order delivered within one month is a little higher. We cannot ensure where the demand for the next quarter or the second half of this year. We only can predict the annual shipment based on our experienced market situation and feedback from our customers.
We expect the whole year of 2025 can return to single digit for the whole industry, single digit growth for the whole industry. We still can enjoy share gain and have at least a 10% revenue growth from our pneumatic product, plus the revenue contribution of NIGAI. Based on the better shipment than our expectation in past two to three months, we upgrade our revenue growth rate guidance from mid-high single digit to low 10% for the whole year of 2025. If we could have low 10% revenue growth in 2025, our OP margin could be around 30%. CapEx will be around TWD 2 billion-TWD 3 billion in 2025. We have generated free cash flow by TWD 6.5 billion in 2023 and TWD 8 billion in 2024.
Also have increased our cash dividend payout ratio from 35% in 2021 to 55% in 2025. It still could be higher in coming years. For the potential addressable market for AirTAC, we have asked our China sales team to increase our China pneumatic market share to be 33%-35% by the year ended 2028 or 2028 or 2030. Our current pneumatic market share in China just around 29%-30%. Once we have 35% China pneumatic market share, that means around NT$8 billion revenue. We just sold NT$6.5 billion in 2024. That means additional NT$2.5 billion revenue will be increased from China pneumatic. Even the sales progress of our NIGAI business is lower than our expected in past five years. We believe we can improve our brand image of NIGAI quickly in 2025, 2026.
We still ask our China sales team to achieve 30% China pneumatic market share in around 10 years. That means at least CNY 5 billion revenue in around 10 years from China pneumatic product. Around three to four years ago, we have been asked by our customers to develop sensor switch or electrical controller for them. We just spent around one year and sold around three years. We have been 20% market share on those two components and also have CNY 400 million revenue contribution in 2024. We still continue to develop more sensor switch and electrical controller. It could be more than CNY 2 billion revenue in the next five to eight years from electrical controller product. We still sustain to develop our electrical controller, electrical cylinder business.
The major parts of electrical controller could be motor driver, NIGAI ball screw switch, and some front. We have developed stepping motor already. Servo motor and driver are still in developing. We also have developed NIGAI ball screw sensor switch. So far, we just sell NIGAI individually. In coming years, we still will sell ball screw to our customers. Basically, such potential addressable business for AirTAC can sustain double-digit revenue growth in the next five to ten years. It is my briefing. Should we have any further questions, we can discuss it. Thank you.
Thank you, Ivan, for the briefing. Now we will start the Q&A session. If you wish to ask a question, please raise your hand virtually and wait to be called upon. Maybe I can start off with a couple of questions. The first one is that, Ivan, you just raised your four-year revenue guidance. Could you share with us a bit more regarding where you see the upside from, maybe from some of those subsectors that you usually mentioned? Where are the incremental strengths that you are seeing for you to raise the guidance from mid-high single digit to low teens?
Yeah. Basically, every year we have three versions of the revenue budget. The first version is our sales team proposed to our management. The second version is management proposed to our board. The third one is our guidance to the investors. Pneumatics is a short lead time business. At the beginning of the year, we used to have very conservative numbers to the market. Based on past two to three months' shipment, it's in line, even better than our budget or forecast, which we proposed in the beginning of the year.
We just have a little reaction to the reassurance in past three months and increase or upgrade our guidance to the market. Basically, electronics is still in line, around 10% of the revenue in past three years or in first quarter. Basically, it's much better than our expected. At the beginning of the year, we just expect it could be positive growth, but it had been around 65% growth in first quarter. Still pretty strong in April. Auto is still pretty good. It has enjoyed around 43% growth in Q1 and still pretty good in April. Basically, it's pretty safe to upgrade our new revenue guidance to be low 10% for the whole year.
Okay. Thank you, Ivan. The second one is that among those 8-10 subsectors that you usually refer to as key end markets, could you give us some more details regarding which ones are maybe more exposed to the U.S. demand and which ones are more geared towards China's domestic demand? I know you do not directly ship to the end market, but based on your conversation with your clients, could you share a little bit more information regarding that?
Most of our China business just supports domestic demand. What we mentioned earlier, the indirect export to U.S. market could be single digit of our customs business. We think China has been preparing to address U.S. tariff issues for years. In the past, maybe the indirect export to U.S. could be a little higher percentage, especially from solar battery related. Electronics may be still a specific percentage to support U.S. market, but maybe it has been much lower in the past two to three years.
Even currently, it also has been much lower. Basically, we have not been affected by the tariff issue currently. Even in coming months or coming quarters, we still can get more shares once they have any impact from the current situation of the tariff issue. We have special sales rate to against different kinds of peers or get more shares from specific industries, specific customers.
Thank you, Ivan. Our next question will be from Bill Lin. Bill, please unmute yourself and speak. Thank you. Hello. Hello, Bill. Hi. Can you hear me?
Yeah. Yeah. Thank you, Derrick.
Please go ahead.
Thank you. Thank you. Thanks, Ivan. And thanks, Derrick, for hosting the call. Ivan, I got a question for you. It's about the market share gain strategy. You are mentioning the company plan to gain your market share to 33%-35% by 2028. Can you share with us what is your key strategy for the market share gain? Will it be about penetrating more new clients or more new product launch? Thank you.
Yes. Basically, different stages have different sales rates to get more shares from the market. In the past, we preferred to launch more new items and support more existing customers and also have the opportunity to approach more new customers. From second quarter of last year, we have additional surge to approach some customers who do or did limited business with AirTAC or they don't want to buy pneumatic from AirTAC. In the past, our salespeople, just based on such kind of customers, place limited volume to AirTAC and apply to our pricing table. Lower volume, the pricing should be higher. From the second quarter of last year, we asked our salespeople to assess or to investigate these customers' total demand volume.
Whenever they buy from which suppliers or which peers, just based on these customers' total demand volume and apply to our pricing table, the price could be much lower. Our Japanese peers always sell very high price to such kind of customers because they know these customers do not do business with AirTAC. The pricing could be 40%-50% higher than AirTAC normal pricing. When we, based on these customers' total procurement volume applied to our pricing table, the price could be much lower than we proposed to these customers previously. These customers have begun to do business with AirTAC. Maybe 23% customers have begun to verify our process. In the past one year or past two to three quarters, such kind of customers have increased maybe around NT$50 million-NT$60 million revenue to AirTAC already.
It is increasing currently. Basically, it just went up our new sales rate to get more shares from our market. In addition, in the past, we have limited exposure to semi customers. From 2024, some customers came to AirTAC actively, and we just priced around 40% pricing to SMC's pricing. Our gross margin could be around 70%. It could be a good business with AirTAC. Our board also have authorized management can spend more money or effort to develop more semi items demand. Maybe in two to three years later, we have much higher revenue contribution from semi customers. Thank you.
Thanks, Ivan. Can I follow up with one more question?
Sure. Sure.
Thank you, Derrick. Ivan, I want to discuss with you about the gross margin movement because I think although there is this analogy of the margin, the revenue scale in first quarter is still higher than fourth quarter last year. I think the utilization will be higher. Overall, if you're looking into second quarter, as you have raised the utilization rate to 110%, shall we expect the gross margin in second quarter will at least improve to the second half of last year range?
Basically, second quarter, the gross margin of second quarter still will be affected by the FI issue, but it will be diluted gradually. We have higher flexible pricing authorities to our sales team. Maybe we will take the advantage of this period or this moment to get more shares from the market. Gross margin or operating margin in second quarter should be better than second half of last year or first quarter of this year. How higher it will be still depends on our pricing strategy.
I understand. Can we think from the way that because AirTAC, I think, is a good chance to gain share in the market. For a longer term around, maybe it is good to be more competitive in pricing in the near term.
Pricing still could be flexible depends on the market situation and demand environment. But basically, we just can say to improve our operating margin more than 30% and also could be higher and higher, it won't be difficult for AirTAC in coming years.
Okay. Got it. Thanks, Ivan. Thanks, Derrick.
Thank you.
Okay. Thanks, Bill. Our next question will be from Michael Shea. Michael, please unmute yourself and go ahead. You can speak. Hello, Michael. Hello. Hello, Michael. I think you're on mute. Hello. We cannot hear you, Michael. Okay. It seems that there's some technical issues on Michael's end. Maybe we will take his question later. I think maybe I got a follow-up question to Bill's question on the gross margin. Yeah. If you look at the first quarter gross margin, it was 44.1%, slightly lower than Q4, while the scale was bigger, as Bill mentioned. Is there any one of items within this gross margin line in the first quarter?
Basically, deviation space is almost around 19% of our cost per customer. Utilization rate is a very important factor to our gross margin. There are Chinese New Year holidays more than 11 days in February or January. The unit production cost should be much lower than regular situation. It used to take around two to three months to dilute those disadvantage. The gross margin still will be affected by such issue until April of the year. FI issue still is there. Basically, the gross margin could be a little lower.
In addition, the FI issue, we still have to lay off some operators in Taiwan factory because we have removed some product production from Taiwan factory to Ningbo factory to decrease the tariff impact. Additional cost still in Q1 of this year, but it won't happen in second quarter or from now on to lay off more operators in Taiwan factory.
Okay. Thank you, Ivan. Just a reminder that we're now in the Q&A session. If you wish to ask a question, please raise your hand virtually and wait to be called upon. Okay. We got a next question from Jodie Huang , T. Rowe Price . Jodie, please go ahead.
Hello, Ivan. Can you hear me?
Yes, please.
Thank you very much for the sharing. Sorry, I still have some follow-up questions around GP margin. You mentioned a couple of factors, right, impacting GP margin this quarter. Is it possible for you to break down the rough impact by each factor so that we can get a better sense? Yeah, how much each factor drives it? Thank you.
FI issue include layoff operators in Taiwan still could be 0.6% of the gross margin. It is a little difficult to distinguish the exactly percentage of the lower tax rate impact. We have a little higher shipment of Ningbo, but the pricing could be lower than past after we change our pricing policy. Once the shipment of Ningbo is higher, but the utilization is still not high enough, the gross margin still will not be good or will be low and affect our gross margin. For specific customers, we still try to give them some volume discount, and still will be occurred in every single month for such volume discount.
Thank you. I guess for the lower utilization rate impact, you mentioned it is because of Chinese New Year, but I would assume last year, the same quarter would have similar issues as well. Last year, first quarter GP margin was still high. Maybe the ECFA issue was not there, but is the utilization rate year over year lower?
The holidays, the Chinese holidays in 2024 could be two days less than 2025. Still have specific impact.
Sorry, you were saying Chinese New Year in 2024 is two days less? Less than 2025, meaning the holiday was shorter or longer? Sorry.
Shorter in 2024. Shorter in 2024.
Okay. Okay. Two days shorter.
Yes.
Okay. You think these two days actually would lead to the utilization rate difference and drag the GP margin?
Yeah, basically.
Got it. Sorry, for the ECFA issue, did you say it will not happen in second quarter 2025?
No. Just layoff operators in Taiwan factory will not happen in second quarter. The overall tariff issue will be diluted at end of second quarter. Got it.
From third quarter onwards, it would be fine.
Yes.
Got it. Thank you. Thank you.
Okay. Thank you, Jodie. Our next question will be from Gary Chong.
Hey. Hi, Ivan. Can you hear me?
Yes, please.
Thanks. I wanted to understand a bit more about the new TAM. We talk about getting into motor drives and servo motors. This market already has very established players, and the know-how seems to be more about electrical than mechanical. Maybe could you elaborate on our edge in those markets and how much market share do we target to achieve?
You mean that's graduated?
Yeah. Motor drives, servo motors, the electrical products that we plan to launch sometime in the future.
Yes. Basically, we just want to engage in electrical iterator. We prefer to produce most of the key parts internally. We have begun to develop motor for a couple of years or maybe from four to five years ago. We have developed stepping motor. Servo motor is still in developing. After or before we develop or can produce most of the key parts, we won't launch the set of electrical iterator.
Understand. Do you have a maybe a long-term target of market share?
It's due to detail. Yeah. Maybe we still will focus on Ningbo progress, electrical controller, then we will launch electrical iterator. Maybe it could be 2029, even 2030.
Understood. That's very clear. My another question is on our customers outside China. I understand some of our Chinese customers who might move to Vietnam or Mexico, actually, some of them are actually booked under China revenue, right? Can you maybe talk about our exposure there? What's the trend in the last two to three months? Is there any change after the reciprocal tariff is announced?
It has not changed too much. Even some customers have removed their capacity out of China from 2018 or 2019, the first-time tariff issue between the U.S. and China. The China equipment supply chain still could be highest efficiency, lowest cost in global. Basically, once customers have production capacity in China and set up new capacity out of China, even Mexico, India, South Asia, their equipment supply chain still came from China. Pneumatics is a very front-end component to support equipment. AirTAC just delivered our pneumatic component to the equipment maker customers whose location in China. This equipment maker made the whole set of equipment or production process and export to non-China production. We say from 2018 or 2019, even they have some tariff issue in global or in U.S. and China, but it has not affected our business too much.
All right. Got it. Thank you, Ivan.
Thank you.
Thank you, Gary. Our next question will be from Chao Weng. Please go ahead.
Yeah. Thank you, Derrick. Hi, Ivan. Thanks for all the introduction of the companies and also very impressed on your revision on the guidance. My first question is on the firstly, what is the okay, let me put it this way. We started to see that some of your competitors, international competitors, sourcing the Chinese local suppliers to do some kind of low-cost products late of last year. Since that, we started to see your market share or their market share gaining or losing speed is a little bit reversed from what we have seen in the past few years. Right now, after our review on most of the distributors, most of the competitors in this industry, we found out that you probably have the strongest growth in first quarter.
Even though there is probably going to be some demand impacted from the tariff, you still revise up your guidance. I am just curious, is that because of more local customers trying to use your products? To see if that is true, I just want to ask, do you see that the Chinese customers are trying to localize more of their components, such as pneumatic and linear guides, so that you can outgrow your international peers? That is my first question. Thanks.
Thank you. Basically, why we mentioned earlier, the shipment in first quarter of this year was better than our expectation. Why we revise up our revenue guidance? Just because it had been April, and the real shipment is still in line, even better than our expected. Our original sales budget is double-digit revenue growth at the beginning of the year. We just revise up the number what we give to the market. Internal budgets still have not changed. The real why we can enjoy better revenue growth or shipment growth than peers, basically, share again still is the main reason. Why you mentioned our Japanese peers try to execute local procurement, local production, and they place some OEM orders to local China players. The quality is not stable. Most of the customers cannot submit. Many customers can back to AirTAC and do more business with AirTAC.
These peers' strategy just improved our brand measure again. It's good for AirTAC. More new sales rates still can improve our shipment growth. We will assess or consider what kind of customers we can give them higher volume discount than we can not just enjoy better share again, or we still can improve our revenue growth and stop peers growing bigger. Different customers, different situations have different sales rates. Maybe volume discount, a little higher volume discount is the one reason why we can have a higher revenue growth, also have affected our gross margin a little. It's not impact our open margin too much because of the revenue scale. It's pretty complicated for different kind of sales rate.
Yeah, that's pretty clear. Thank you, Ivan. My next question is actually related to what you mentioned earlier. For the share again, to summarize what your answer is, first of all, the share again is because of your customer, sorry, your peers' wrong strategy, if I can say that. Secondly, your proactive strategy on the pricing side. Just wondering, do you see any government's policy promoting the localization of this overall supply chain? That is actually to follow up on my first question. Secondly, you also mentioned that in the coming few quarters, probably there could be your opportunity to get more market share due to probably the tariff issue.
Just wondering, is that a hint that probably you are going to have a more proactive pricing strategy? I know that the business dynamic is pretty changed a lot by months and months, but just wondering, is that what your company will do, or is that part of your strategy going into second half to get more market share? Yeah, that's the following two questions. Thanks.
In the past one to two years, government encouraged customers to do more localized production or procurement localized. And AirTAC, we could be seen as a local China company, even we set up our company in Taiwan in 1988. When we entered the China market in 1998, we have localized pretty deep. We have more than 8,000 employees in our China business currently. Taiwanese just around eight people. All of our management or senior management are local China people. We have 133 branches and sales offices and sales branches in China country world. We localize by city. We even have not sent a people born in the south to manage our northern business.
We localize by city. We trust customers and our sales team with the similar language, even same language, same hobby, same consideration of thinking to our local customers. Basically, customers think AirTAC is a local China company. We can enjoy such procurement localized policies from government. It could be one of the reasons why we can have a better share again and get more shares from international peers. Not just caused by this issue. The most important thing of AirTAC's business could be we always release different sales rates in different stages, different customers, and different industries to support our revenue growth or gain more shares from the market.
Yeah. Thank you, Ivan. Thank you, Derrick. Back to the queue. Thanks. That's all my question.
Okay. Thank you, Chao. Our next question will be from Kenny Chan, Nomura. Kenny, please go ahead. Hello. Can you hear me?
Yes. Thanks, Derrick. Hi, Ivan. I have a follow-up question on the volume discount. I'm just wondering about how do you balance the volume discount and the launching of more high-margin products? I'm just wondering if you can sustain at least the current gross margin by launching more high-profitability products and how much more room for your sales team to be authorized by the volume discount. For example, if previously it was 5%, now how much more is authorized? Thank you.
To do business now based on such scenario. Different items for different customers, even different items for same customers have different pricing situation, pricing strategy. Also, based on different customers, once we try to get more shares from these customers or from peers to get more orders from these customers, we still have selective or special pricing policy for different customers. Basically, I cannot give you exact percentage how deep we can base on the volume discount and get more shares from the market. We still can have such volume discount, but maybe a couple of months or a couple of quarters later, we will not support customers with such volume discount. Still the same rule. Different stage has different sales rates for different customers.
Got it. Thanks for the cover, Ivan.
Great. Thanks, Kenny. We are approaching the one-hour time. We probably will take one last question from the queue. If you wish to ask a question, please raise your hand virtually. Okay. If there is no one, maybe I can ask one last question, Ivan, based on your I know you mentioned that your visibility is not that long for the pneumatic component business, but based on your feedback from your customers, do you think that 2Q this year in terms of revenue would be the peak of the year, or we could continue to see sequential growth into 3Q or even 4Q of the year?
Basically, pneumatic has its seniority for the industry. Second quarter used to be the peak season of the pneumatic demand. Third quarter, fourth quarter could be around single-digit decline quarter by quarter. Once the environment or government have spatial policies, it still could be changed. For AirTAC, it's still too early to tell if the second quarter revenue will be the peak or not because we still expect our linear shipment could be better quarter on quarter. We still have special sales range to get more shares from peers, but it's not across the list of the customers. Based on selective customers, we have special sales range against our peers and get more shares from the market.
It's still too early to tell if the second quarter revenue will be the peak of the year or not. We can say once AirTAC business scale is bigger and bigger, we will launch more different kinds of sales range. One reason could be to get more shares from the market. The other reason could be we stop some peers growing bigger or stop their exposure or market share in specific industries, specific applications. Gross margin of AirTAC will be pretty volatile in coming quarters, but we still will keep our operating margin to be better and better.
Okay. Thanks, Ivan. I think we just got one last question from Willie Chan. Maybe we'll slide that one in. Willie, please go ahead.
Hi. Can you hear me?
Yes.
Hi. Thanks, Derrick. Thanks, Ivan. Just last question regarding the competition or the pricing discount you mentioned. Just wondering, you mentioned some of the products, you have some competition, and you gave discount to a client. Can you elaborate more about who are the key competitors? Are those the multinational competitors or local Chinese competitors?
Basically, we gave customers volume discount or pricing discount not caused by our peers at AirTAC. We just try to improve our market share in specific sector or specific industry. We are not being attacked by peers that give customers volume discount. It's just our strategy.
Gotcha. Let me put it this way. For those sectors that you are trying to get market share, are those from the multinational companies or from the local Chinese?
You mean customers' nationalities?
Yeah. No, I mean, when you try to get market share, right?
Yes.
Are you mainly getting from multinational companies or mainly getting from domestic Chinese peers?
Most of the new items or new specs we launched in the past 10 years could be compatible with Japanese spec product. Most of the share we got in the past 10 years could be from Japanese spec players. Not Japanese company can support Japanese spec product. Everyone, once it has good capability, it can support same function for different spec: Japanese spec, Euro spec, China spec, or American spec. Basically, we prefer to get more shares from international peers because those items' gross margin could be higher. We still put an eye on local China players because the pneumatic industry scale still is growing.
We are not expecting those local China players or smaller players can enjoy the scale or leverage and bother our lower-end customers. We put our eye on those smaller players, smaller peers, and have special discounts to their bigger customers and stop those smaller players from growing bigger. Most of the share we got could be international peers or high-margin players and partial from local China players.
Gotcha. Can you also talk a bit about our semiconductor end market development right now? Is there any new client acquisitions in the past, I would say, three to four months?
The development schedule is on track. The revenue contribution I mentioned in the past two to three quarters, it won't be too obviously improved in the next one to two years. We believe we can succeed to develop more semi items in two years later and have a better or bigger revenue contribution from semi customers.
Thank you so much. Very clear. Thank you, Ivan.
Thank you, Willie.
Okay. Thank you, Willie. I think it's about time for us to wrap up the call. Thank you, everyone, for joining us. Thank you, Ivan, for sharing all the information. Thank you, everyone. We will see you next quarter.
Thank you, Eric. Thank you, everybody. Have a good day.