Good afternoon, investors and media friends. Welcome to LITE-ON Technology 2022 Q2 earnings conference. Due to the pandemic, this meeting is still held online. Today's agenda has three parts. First, CFO Patricia Chou will explain 2022 Q2's financial report and Q3's outlook. Second, President Anson Chiu will explain the operation planning and growth strategies. Next, we will have a Q&A session. We will prioritize those who have provided their organization and name for questions. To ask questions, please click Raise Hand on top of the screen, and our staff will follow the order, turn on your microphone and invite you to speak. Before speaking, please make sure that your mic is on and state your organization and name. Please limit each chance to two questions to ensure others' right to ask questions. Thank you.
Dear investors, good afternoon. I'm going to present to you 2022 Q2's business performance and financial report, as well as Q3's prospects. LITE-ON's Q2 net sales was TWD 42.96 billion. Gross profit, TWD 8.78 billion. The rate was 20.4%. Operating expenses, TWD 4.41 billion. The rate was 10.3%. Operating profit, TWD 4.37 billion. The rate was 10.2%. Compared with Q1, despite the impact of the pandemic on the global supply chain and logistics, thanks to LITE-ON's rapid response and flexibility in global basis, the net sales in Q2 grew by 4% QoQ and 6% YoY, hitting a record high for Q2 in three years. The three major business segments were all growing.
Gross profit grew by 24% QoQ and 10% YoY due to product mix optimization, cost structure improvement, and operational resilience and efficiency improvement. Gross profit rate grew by 3.3 percentage points QoQ and 0.7 percentage points YoY. Due to the unstable supply chain and key components shortage in Q1, we had to purchase at spot prices. These additional costs start to be reflected in the selling prices this quarter. Operating expenses grew slightly compared to Q1. Among them, R&D grew to 4.1% of total net sales, a nearly 10% increase QoQ. Operating profit grew by 47% QoQ and 15% YoY. Due to increase in revenue scale and operational efficiency, the operating profit rate grew by 3 percentage points QoQ and 0.9 percentage points YoY.
Other income expense was TWD 623 million, including the unrealized valuation loss on VIZIO of about TWD 200 million. In Q1, the number was about TWD 1 billion, and the unrealized valuation benefit was about TWD 300 million in Q2 last year. Therefore, its impact on the overall profit and loss has been greatly reduced compared with previously. Profit before tax was TWD 4.99 billion, and profit attributable to parent was TWD 3.96 billion, up 88% QoQ respectively. EPS was 1.74 TWD, which is the same YoY. The Q2 gross profit rate and operating profit rate were both record highs. For the first time, the long-term profit target of 20% and 10% respectively was achieved.
Looking back at the past 10 quarters during the pandemic, LITE-ON quickly grasped market changes and improved operation, and also actively implemented high quality growth in terms of plan goals and strategies. While profitability has improved, revenue scale has also continued to grow from 2021. In the first half of this year, despite challenges of the overall environment and supply chain, LITE-ON 's operation continued to improve with cumulative sales of TWD 484.2 billion. Gross profit, TWD 15.8 billion. The rate was 18.8%. Operating expenses, TWD 8.49 billion. The rate was 10.1%. Operating profit, TWD 7.35 billion, and the rate was 8.7%. Compared with Q2 last year, net sales grew by 7% YoY, gross profit by 8% YoY, operating profit by 24% YoY.
Operating profit reached a record high in the same period, reflecting the rapid, flexible, resilient, high quality growth of our operation. Operating expenses were well controlled, down by 4% YoY, among which R&D accounts for 4% of total net sales, up nearly 22% YoY. In other income and expense, the valuation loss on VIZIO in H1 this year was about TWD 1.2 billion, compared with H1 last year, where the valuation profit was about TWD 3 billion. Due to this, the EPS in H1 this year was quite different from H1 last year. In H1 this year, profit attributable to parent was TWD 6.06 billion and EPS was TWD 2.66. Optoelectronics and cloud AIoT account for more than half of revenue since 2022 and continue to increase to 53% in Q2.
This demonstrates that LITE-ON 's operating model is transforming and focused on high wattage, high efficiency, and high density power supply products required by optoelectronics, semiconductors, and cloud computing. It is also moving towards our goal of 4-3-3, 40% of sales from ITC, 30% from optoelectronics, and 30% from cloud AIoT. Cloud AIoT accounts for 33% of the overall revenue. Optoelectronics, 20%. ITC continues to increase the proportion of its high-end products and its revenue and profit keep growing this quarter. In Q2, the gross profit rate of optoelectronics grew to 22%-32%. The rate of cloud and AIoT grew to 15%-26%. Compared with Q2 last year, the gross profit rate range has increased and the growth of operating profit is higher than that of revenue. The three segments show high quality growth in revenue and profit.
The chart on the left shows that starting in Q1 2021, if seasonal fluctuations are excluded, the revenue of cloud AIoT and optoelectronics has shown a long-term growth trend. The CAGR of the combined revenue of the two segments is 27%. Core applications such as photocouplers grew by 11% YoY. Automotive electronics grew by 20% YoY. AIoT products grew by 10% YoY. Cloud computing power supply grew by 18% YoY. In terms of the balance sheet, we maintain high liquidity and a robust and lean operation, which is increasingly important in the current uncertain environment. Compared with Q1, accounts receivable grew by TWD 3.4 billion and inventories down by TWD 0.6 billion. This reflects better supply chain management.
As for accounts payable, due to the decrease in stock purchases by TWD 2.3 billion, the quick ratio continued to increase compared with Q1 this year and Q2 last year. Net cash was TWD 32.1 billion, down TWD 9.1 billion from Q1, including the payment of TWD 5.8 billion in cash dividends and working capital. The summary of H1, 2022 will be skipped here. Regarding the outlook for Q3, if the global supply chain and logistics are stabilizing, the growth of the core businesses is expected to increase revenue and profit. The growth comes from power supply required for Cloud Computing, Automotive Electronics, and Infrared Opto Semiconductors for green energy and industrial automation. ITC continues to grow due to product mix optimization, supply chain management, and enhanced customer collaboration.
2021 LITE-ON sustainability report has just been released. Feel free to access it on our website. LITE-ON discloses financial information in a fair and open manner to protect the rights of investors and stakeholders. For the 14th year in a row, LITE-ON has disclosed relevant information in its report and responded to international trends and investor expectations on ESG sustainability issues. To strengthen the assessment and disclosure of climate-related financial risks, we have introduced the TCFD framework to identify opportunities and risks, improve operational resilience, and pre-deploy the ability to respond to climate change. We also follow SASB, which combines the quality and quantity of corporate sustainable information disclosure, continuously improves information transparency, and strengthens two-way communication. This concludes my presentation. I will now hand over to President Anson Chiu. He will explain the company's operation planning and growth strategies. Thank you.
Thanks, Patricia. Dear investors and media friends, good afternoon. Thank you for participating in today's conference. This conference is still conducted online, but the pandemic has been stabilizing. I believe that in the near future, we will be able to resume physical meetings and meet with you. We all know that the biggest factor affecting Q2 comes from the lockdowns in Shanghai and Kunshan, which affected the supply chains and shipment of some semiconductor materials. Geopolitics and inflation have slowed down the demand for PCs, too. Although the overall business has been affected to some extent, you can see the performance of LITE-ON in Q2 from the CFO's presentation just now. In terms of both revenue and gross profit, LITE-ON has maintained growth. In particular, cloud computing power solutions, 5G and AIoT, automotive, electronics, electric vehicle chargers, and infrared products of opto-semiconductors continue to maintain a high growth trend.
In Q2, LITE-ON 's performance would have been even better without the lockdowns and supply chain issues. In addition to the pandemic, there are also different voices on the market, especially for consumer electronics and PCs. The market is indeed fluctuating and some short-term inventory adjustments are made. In the long run, market development is quite stable. In particular, the momentum for Cloud Computing, Automotive Electronics, and 5G AIoT is still strong. The future growth momentum remains optimistic. To sum up H1 of this year, net sales grew by 7% YoY. Gross profit grew by 8% YoY. Operating profit increased by 24% YoY.
The growth in profit is mainly due to our continuous increase in the proportion of optoelectronics and cloud, which is in line with the company's goal of high-quality growth, and our profit growth continues to be greater than revenue growth, and the business proportion reaches 4-3-3. As for the second half of this year, I believe that the market is still full of uncertainties. For example, the development of the pandemic, the diversification of the supply chains, and risks such as inflation and economic downturn may all impact the supply and demand of the market. LITE-ON will continue to focus on power solutions for cloud data centers, applications of opto-semiconductors in automotive electronics, fast charging of EVs, 5G small base stations, and AIoT. Through continuous investment in R&D, we continue to launch more and better energy-saving products and solutions.
Therefore, we are confident that in the future operation of the company, through increasing market share, the trend of double growth of YoY revenue and profit can still be maintained. In response to the future growth needs, the company's global presence will not only proceed as scheduled in Taiwan, Thailand, and Vietnam, but will also consider increasing investment in the US and Mexico in H2 this year to expand North American market in cloud computing and automotive applications, laying a good foundation for the future growth of the company. Thank you again for your participation today, and I wish you all good health and great success.
Thank you, everyone. Now is the Q&A session. We will open the floor. To ask questions, please click Raise Hand on top of the screen, and our staff will follow the order, turn on your microphone and invite you to speak. Before speaking, please make sure that your mic is on and state your organization and name. Please limit each chance to two questions to ensure others' right to ask questions. Thank you. The first one is Hank from China Life Insurance. So please turn on your microphone, Hank.
Thank you for your time, dear management team. I have two questions. The first one is that it seems that the current OPM trend is quite positive. I want to know that in the second half of this year, will it remain high and going up, or will it be affected by the revenue scale and thus suppressed? My second question is about PC power as a percentage of the revenue, and will it possibly go down? This also leads to another issue, which is Q3's revenue projection. What is the range?
Thank you for your questions, Hank. Hank raised two questions. The first one concerns our OPM, operating profit margin. In the second half of this year, what is the trend and what is our internal projection? This is the first question. The second question is about PC power as a percentage of our revenue in Q3. PC power is under IT and consumer electronics, so I'll hand this question to the President. Regarding the first question about OP, in the presentations a while ago, we saw that in Q2, just as the CFO said, the cost reflection has started to be done in Q2. So the cost reflection in prices will continue towards the second half of this year. Last time, I also talked with you about that market demand in the second half of this year in terms of semiconductors remains strong.
We continue to try to satisfy client customer orders shipment as our top priority and consideration. We are optimistic that in the second half of this year, we should be able to maintain the current OP trend. As for power is the largest share production line. Its revenue accounts for about 40% of the company's revenue. I think consumer electronics will maintain more or less the same percentage. As for the high end, such as Cloud Computing, over the next two years, it will enjoy very rapid growth. I believe that our total revenue will go up thanks to power, and its percentage will also go up.
Hank, does that answer your questions? Thank you.
Yes, thank you.
The next guest is Zifan from Kinbest Capital. Zifan, please.
Can you hear me?
Yes, very clearly.
Hello, this is Zheng Zifan from Kinbest Capital. You said that you will focus on Cloud Computing, but it seems that this year, many companies, many CSPs have revised downward the cloud business. For the second half of this year and for next year, it seems that the cloud business will be affected, but this is not the case in your company, so why is that? The second question is about photocouplers. What is the current market share and market penetration rate? And there are high- to mid-end and low-end photocouplers, and you focus on high-end photocoupler products, right? Thank you.
Zifan asked two questions. The first one is about the cloud computing market's future. This year and next year, well, we've heard different projections on the market, but in LITE-ON , we believe that we can continue to grow. Why is that?
The second question is about our Photocouplers. What is our market ranking and status, and what are the major applications for that? Okay. Regarding Cloud Computing, from our perspective, in the second half of this year and for the next two years, the CAGR remains positive growth. There are some people on the market saying that there may be some risks in the second half of this year. From our point of view, when we look at the forecast and demand from the clients, things are better and more than expectations. I don't know why people say that there might be risks of downward revisions in the future. I can only say that, first of all, the market is not declining.
Second, over the past two years, we have added some new clients, and we also have some new products that are being qualified and entering into mass production. All of these, with all these factors combined, I believe that over the next two to three years, we will enjoy significant growth. This is the main reason. As for the market share for photocouplers, LITE-ON currently has the largest market share worldwide. We focus on the high-end because we don't really quite participate in the low-end side. Well, there are many applications for high-end photocouplers such as Automotive, Industrial Automation, and AIoT devices. The market growth opportunities and demand remain very high. This year, if we look at Q2 YoY, in terms of high-end, the growth trends remain. This is my explanation for you. Thank you.
The next one is Xiaowen from Commercial Times. Xiaowen, please turn on your microphone. Thank you.
Can you hear me?
Very clearly. Thank you.
Okay. My question is quite simple. I want to ask you how you look at Q3's revenue growth opportunity. Will Q3 still be the peak season? Will Q3 be the peak of this year or not?
Let me answer directly this question. Regarding Q3, currently speaking, we will have the chance to achieve QoQ and YoY growth. This is the current situation. Of course, the biggest growth source is cloud computing. I believe that this will be a major growth momentum for Q3. Another reason is because in Q1 and Q2, there was a shortage of semiconductor materials, so some orders have been delayed to Q3, and it seems that the supply of semiconductors has been stabilized.
With materials available, we will be able to digest our orders. Another major growth comes from automotive electronics, both for other spaces inside the car or chargers outside the car. The demand is still higher than supply. The Automotive Electronics business is another major growth momentum for Q3. There are, of course, some other areas such as networking products and also IT products. Even though people say that the PC market slows down in Q3, but we have a major client who suffered from some impact in Q2. Some of their orders have been postponed to Q3 for us to ship. Because of this, we don't really see a so-called decline for Q3, as some people may say on the market. We are optimistic about Q4.
As we just said, our future growth will focus on the high-growth areas such as cloud, power supply and automotive IIoT, etc. These areas, the demand for these areas is still there in Q4. If we look at last year's trends, I believe that we will be able to maintain the same trends and the growth in the second half of this year will be better than that in the first half of this year. I think this trend is for sure.
May I add another question? I want to know that in terms of Q3, the QoQ growth rate, will it be possible to achieve a double digit?
Well, last time I answered a similar question, which attracted quite a lot of attention, so I may not be able to provide you with a precise answer, Xiaowen. In QoQ terms, what we are seeing now is that we will have a growth better than that in Q2.
Okay. Got it. Thank you.
Thank you.
Thank you.
Lolly from B&K, please. Lolly, please turn on your microphone.
Hello. Can you hear me?
Very clearly. Great.
Thank you, President Chiu. I want to ask you said that in the second half of this year, you will add investment in the U.S. and Mexico. Could you elaborate on that? Will you build a new plant or expanding the existing plant in Mexico? And you said that it's for data centers and automotive electronics. Will it be for chargers or will it be for automotive optoelectronics semiconductors? Thank you.
For Mexico. In Mexico, we already have automotive electronics plants there. Some products will be transferred to Mexico in the second half of this year. For Mexico, it's about expanding existing capacity on the existing site. As for the U.S., it's in response to the trend of Made in the U.S. and also in response to local new infrastructure charger products and also cloud computing data center power supply products. These two products will be our focus. In the second half of this year, we will find a place in the U.S. to localize our production in order to make the supply chain shorter as a trend. Cloud power supply and chargers will be our focus initially.
Understood. The location in the U.S. will be decided in the second half of this year, but the building of the new plant will be next year or what?
Well, in the US, we will not consider building a new plant. We will first rent a plant, rather, because building a plant takes longer time, relatively. Based on the current demand, we will first rent a plant in the US, and we will put our production lines into this plant for production. In the long run, whether or not we will need to have our own plant and land, we will have a mid to long-term planning for that.
Understood. The production output from the US and Mexico will take place at the end of this year or next year?
Well, at the end of this year already.
Great. Thank you.
Thank you so much.
Sorry. Hancy raised her hand a while ago. Hancy, do you still want to ask questions?
I wanted to ask about the Mexican plant and the Q3 outlook. I couldn't turn on my microphone, but my questions have been asked by others. Thank you.
Thank you, Hancy. The next one is Hank from China Life Insurance Company again. Please, Hank.
Thank you, everyone. Let me ask a few more questions. How do you look at the inventory turnover days in the second half of this year? Will it start to go down in Q3, or will it improve more in Q4? Another question, could you share with us about the revenue scale for car lighting, car cameras, and car chargers, in the second half of this year? What are the sizes respectively?
Thank you, Hank, for your questions. You mentioned two questions. The first one is about our inventory level. In the second half of this year, what will be the situation? Will it? Oh, because in Q2, our inventory went down already.
In the second half of this year, will it continue to go down? The second question is about the automotive electronics. We have a few major products, including car lighting, car cameras, and car chargers. What are the respective percentages? Okay. When it comes to inventory, we have to mainly consider the supply chain's supply and demand in the second half of this year. We think that it will become more balanced. We will probably not need to build up additional safety inventory to address COS concerns. Second, we also believe that when it comes to materials, we will not have to address long-term and short-term materials issues. In the past, there was a serious shortage of materials, but now the situation has been stabilized.
We will start to utilize the long-term materials that have been prepared in the second half of this year. We will clearly see that in Q3 and Q4 as orders go up, our inventory will go down. As for the second question about automotive electronics, this is an area that we have always wanted to grow. In the past, it was about 5%, but it has increased gradually to 7%-8%. I'm sure that by the end of this year, we will have the chance to reach about 10%. This is my answer. Thank you.
Got it. Thank you. I want to follow up. In previous years, in Q3, there was always a larger revenue scale with an economy of scale, which was beneficial to the profit rate, the gross margin. You mentioned that you are positive about the QoQ, so will it be a similar situation in terms of margin as in the past?
Yeah. I believe that it will be similar to the trends that we have seen in the past.
Okay. Thank you.
Xiaowen from Commercial Times, you can ask your questions. Thank you. Thank you. I want to follow up on Nikkei's questions. If at the end of this year, the rented plant in the U.S. can already start functioning, it means that you already know the location. I want to know where it is. Well, the initial plan is in Dallas. Dallas? Yeah. What is the reason for this choice?
Well, we mentioned that we have two major product lines, cloud power supply and chargers. Both of them are related to power. As you know, AT&T has long been in Texas since early days, so it's easier for us to hire engineers there.
Got it. It's more related to product line engineers.
Yeah, including FAEs. We need to have engineers with power-related experience to join us.
Understood. Well, how should I put this? The initial capacity plan for the end of this year, what is the situation?
Well, initially, with limited resources and with the speed of client approval, we have two assembly lines for automotive electronics, and for power supply, we have one assembly line. The capacity in the second half of this year will only account for a very small share of our total revenue.
Okay. You will see what to do next year?
Y es. Because we will go step by step. If the clients think that there are no problems, then we will be able to duplicate much faster. Initially, it takes longer time for client approval and setting up the teams. We only have one to two product lines at the beginning as a start.
Got it. I don't have any other questions.
Thank you. The next one is Ray from Fubon Asset Management. Please, Ray.
Good afternoon, managers. Thank you for the opportunity. I have two questions. The first, said that Q2's margin was quite impressive indeed, which this had never happened in the past, and you attribute that to price increase and product mix. I want to ask you, would it be possible for you to break it down further for us? Which contributes more? And does the exchange rate play a role as well?
In the second half of this year, will the gross margin stay above 20%? This is my first question. The second question is this. We mentioned that there are some noises about cloud on the market, and you have one to two major clients in this area. There's also some content increase in cloud, like 1,000, 3,000 W. If we purely look at the volume, the Q3 and Q4's QoQ will continue to go up. Also for next year, will the growth be similar to that of this year? Thank you.
Thank you, Ray, for your questions. Ray mentioned two questions. The first one is about our Q2's gross margin, which was 20.4%, and the growth comes from which contributions. For example, product mix, cost structure improvement, and exchange rate, etc.
He wants us to provide a clearer analysis.
At the same time, Ray mentioned that the gross margin in the second half of this year, will it maintain the same level as Q2 or as the first half of this year? CFO, please.
The Q2's gross margin was a historic high, which you could see from a chart that we just showed. The main contributor, of course, is that over the past two years, we have continued to optimize our product structure. In cloud AIoT and in optoelectronics semiconductors, their shares continue to go up, and these segments have higher gross margin. When the sales of these segments go up, naturally, our gross margin goes up. At the same time, we continue to optimize our cost structure.
We also mentioned that in Q1, there was some key components, material shortage, and we needed to purchase at higher spot prices. In Q2, this was reflected in selling prices with our clients, which also helps us increase our gross margin. As for the exchange rate, of course, more or less it helps, but I want to remind you that most of our materials are actually denominated in the US dollar. Most of the exchange rate benefits are actually offset in our cost structure. Of course, it helps a little bit, but the help is limited. Basically, these three factors will continue towards the second half of this year. We will also continue to optimize our product structure and also improve our cost.
Of course, some other questions a while ago mentioned that when our sales go up, naturally, it helps us increase our production line utilization rate and the overall operational performance. We remain optimistic about Q3's growth margin.
Thank you. Ray's second question is about cloud computing. He mentioned that, well, we are confident about the continuous growth for cloud, and he wants to know that in Q3, in terms of volume, what will the QoQ be like? And also for next year, the cloud computing related product shipment, what is our outlook?
Let me answer this question. We kept saying that our overall growth comes partially from the growth of the cloud market. If you pay attention to our growth in cloud in the past, you can see that in Q1 this year, our cloud grew by 37%, and in the first half of this year, our cloud grew about 20%. With these trends, in terms of volume, of course, the volume will go up in the second half of this year. The volume will be higher than that in the first half of this year.
Apart from such a market factor, as I said, our market share is increasing as well. This is because over the past two years, we have had new products and new clients, and these new clients didn't exist in the past until this year in terms of mass production. Because of these two factors, our growth is significantly larger than the market growth.
Thank you.
The next one is Tate from Maxim Group. Please, Tate.
President Chiu and Ms. CFO, good afternoon. You mentioned that there would be a peak season for H2 and Q4. In the past for Q4, sometimes it was a QoQ growth, sometimes it wasn't. Do you mean to say that in Q4 this year, there will be a QoQ growth? Also in terms of Q3's QoQ, can you tell us which segment will grow the most? Thank you.
Let me directly answer these questions. In terms of QoQ growth, apart from cloud, automotive electronics is also a major growth driver. Networking products as well. If we want to rank them for the second half of this year, the biggest growth driver will still be cloud power supply. The second one will be automotive electronics chargers, which will also grow a lot.
The third one will be networking and AIoT products. These three areas will be our major growth drivers. As for whether or not Q4 will see a QoQ growth, currently speaking, we will have the chance to achieve it because, well, when we pursue growth, and if we look at the market CAGR, it will have the chance to continue to go up. From that perspective, as long as the market trend is going up, we think that we can maintain a QoQ growth for that.
Thank you so much.
Thank you. If you have other questions, please raise your hand for us to know. Thank you. I have a question from an investor who wants to know about VIZIO. In the first half of this year, it created unrealized valuation loss for us. In terms of its handling and management projections, what is the company's attitude? This question is for the CFO.
Thank you. VIZIO is an investment outside of our core businesses, so we don't plan to hold it in the long run. With an appropriate price, we will deal with it. Please don't worry about its impact on us. The impact will continue to go down. Thank you.
I see that Hank is raising his hand again, but we have other questions. Let's invite Sharon to speak first.
Hi. Anson, Patricia, and Julia. Good afternoon. This is Sharon from Morgan Stanley. Can you hear me clearly?
Yes. Please go ahead.
I have a quick question. If we look at the presentation slides on page 8, there are some breakdowns about the different segments, gross margin and operating margin. There are some numbers there. If we look at different business segments, and if we look at the operating profit margin. If the cloud and AIoT segment's operating margin is lower than the company average because it's less than 10%.
Anson also said that in the second half of this year, a lot of growth will come from cloud and automotive. I'm sure that they are both included under the cloud and AIoT segment's revenue. A while ago, you also said that the profit will continue to grow in the second half of this year. I want to understand, when you talk about profit growth, do you mean the absolute amount operating margin or do you mean the percentage? This is my first question. The second question is, when will we see the cloud and AIoT segment's operating margin enjoying a significant growth? Thank you.
Okay, let me organize Sharon's questions. Thank you for the questions, Sharon. First of all, she mentioned that in the second half of this year for networking and AIoT, we expect to see continuous growth. In cloud and AIoT segment, the operating margin is lower than the company average. She wants to know in the second half of this year, networking and AIoT growth, will it help with our OPM or OP absolute amount? This is the first question.
Well, the page number 8 shows that, well, under the cloud and AIoT, there are many different things and items. Some products GP may be 15%, some products may be between 20% and 22%. As I said, cloud power supply and AIoT's GPs are both above the company average.
This is to clarify for you. You can also see that in Q2, our operating profit growth comes from the cloud and AIoT segment. It grew by 60% YoY, and in Q3 we will maintain this trend. This is the growth of the absolute amount. Let me add one point, because it's operating margin, it excludes our operating expenses. Under the operating expenses, a major item is R&D. In cloud and AIoT, we spend quite a lot of R&D because its technology thresholds are high, and there are some long-term projects which require a lot of research and development. The operating profit, the operating margin reflects that. This is our long-term R&D investment, which embodies our optimization of product mix and our enhancement of technological capabilities. Thank you.
Sharon, does that answer your questions?
Yes, thank you. Thanks.
The next one will be Hank from China Life Insurance Company. Hank, please.
Hello. Let me quickly ask my question. When we look at our niche products over the past four quarters, they have maintained their growth momentum. I want to ask you, when we look at the niche growth drivers, what is the rough GP range for them after the capacity expansion? What would be the level roughly? This is my question. Thank you.
Well, Hank just asked one question. Thank you, Hank, for your question. He mentioned that, in our three major business segments, we have a few niche growth pillars, and he wants to understand the growth margin range for them and what is the future trend for them.
By niche, we mean that in the future we will focus on these growth markets. For example, automotive, electronics and cloud power supply. Their overall growth profit is between 25% and 30%, depending on different products of course. Overall, on average it's between 25% and 30%. This is the current situation. As the market grows rapidly, this can be maintained for quite a while. Understood. Thank you. There's another investor saying that we are now seeing inflation around the world, and governments are having a headache about it. Faced with the impact of inflation, how does LITE-ON tackle the impact? I remember answering another question. I don't remember who raised that question, but I remember saying that inflation is not unprecedented, and it will not be the last time in history. We are facing the same situation. In the short run, of course, it will have some impact.
For example, in terms of consumer products, people dare not spend a lot of money. In the short term, some consumer products, the demand for them will be affected. In the long term, as we have been telling you, LITE-ON 's overall growth strategies focus our resources on future high growth areas such as Cloud, Automotive, Electronics, 5G, AIoT, etc. These are quite different from, separated from consumer products, and these enjoy better growth margin actually. Our future operation will be affected by inflation. In terms of some consumer products, there will be some decline. These growth areas, the growth will far surpass such decline. In Q2, you can see that PC declined quite a lot, but we didn't decline and we grew by 4% YoY.
This tells you that in the growing areas, the growth can cover, can offset the decline from consumer products. I believe that the impact of inflation on LITE-ON will not be as large as on individual products.
If there are no further questions, this concludes our earnings conference. All the content will be put on our official website.
Thank you, investors and dear media friends for your participation. I wish you health and success. Thank you. I hope that next time we can meet face-to-face. Thank you.