Dear investors and media friends, welcome to LITEON Technology's 2025 Q2 earnings conference. Besides the Q2 and H1 results, we hope that you will understand better LITEON's strategies and deployments after many operational adjustments and transformations in recent years to face uncertainties in the macro environment. The meeting will begin when everyone is seated. The senior executives present today include President Anson Chiu and CFO...
KT Lim.
The agenda consists of three parts. I'll first explain the financial results and performance of Q2 2025. Next, President Anson Chiu will explain the operating outlook and growth strategy. The Q&A session is open for questions and further explanations by Anson and KT . For those here for the first time, this page provides an introduction to the three major business segments, which are: optoelectronics, including optoelectronics, semiconductors, and autoelectronics. Next, cloud and AIoT, used in data centers, servers, 5G networking equipment, AI, IoT, etc. ITC, applied in laptops, workstations, desktop computers, game consoles, etc. LITEON's Q2 revenue was TWD 40.4 billion, GP TWD 8.9 billion with a rate of 22.1%, OP TWD 3.7 billion with a rate of 9.2%, OpEx TWD 5.2 billion with a rate of 12.9%, OIOE TWD 540 million. Net profit after tax TWD 3.16 billion, EPS TWD 1.39.
Overall, in Q2, revenue went up 21% YoY. All the three segments achieved YoY and QoQ growth, driving the overall revenue back to the YoY growth track. Despite the sharp appreciation of the Taiwan dollar, GP went up 21% YoY and 9% QoQ. OP went up 14% YoY and 1% QoQ, mainly benefiting from growth of high-value businesses, optimization of global operational efficiency, and close collaboration with the supply chain. OpEx went up 27% YoY, mainly due to shipping-related costs and increasing R&D investment in Q2. R&D accounted for 5.2% of revenue, up nearly 20% YoY, especially in cloud computing, 5G, optoelectronics, and new businesses. OIOE TWD 540 million due to the recognition of losses on financial investment evaluations. Net profit after tax TWD 3.16 billion, EPS TWD 1.39.
In H1, our revenue was TWD 76.8 billion, GP TWD 17.2 billion with a rate of 22.3%, OP TWD 7.4 billion with a rate of 9.6%, OpEx TWD 9.8 billion with a rate of 12.7%, OIOE TWD 1.5 billion, net profit after tax TWD 6.6 billion, EPS TWD 2.89. In YoY terms, revenue went up by 24%, benefiting from growth of the three major segments and growing share of high-value businesses. GP went up 30% YoY, and GPM up 1 percentage point. OP went up 34% YoY, and OPM up 0.7 percentage points. This reflects the synergy of operational flexibility and resilience with high-quality growth in high-end businesses. OpEx went up 26% YoY. In it, R&D accounted for 5.4% of total revenue, up nearly 20% YoY, focusing on enhancing the value of core products and investment in new businesses.
OIOE TWD 1.5 billion, net profit after tax in H1 TWD 6.6 billion, EPS TWD 2.89, up 20% YoY. Okay, now the three major segments in Q2, optoelectronics and cloud and AIoT together accounted for 60% of revenue, up 2% YoY. OP went up 14% YoY. All the three segments saw both YoY and QoQ growth. Cloud and AIoT revenue reached TWD 16.7 billion, accounting for 41%, up 37% YoY. Thanks to shipment growth of new-generation high-end cloud-powered products, revenue went up by 50% YoY. OP TWD 1.9 billion, roughly up 30% YoY. Now, optoelectronics revenue TWD 7.6 billion, accounting for 19%, up 5% YoY. The visible light Mini LED and invisible light core applications in optoelectronics semiconductors continue to improve, with revenue up nearly 10% YoY. OP TWD 740 million, up 42% YoY. ITC revenue TWD 16.1 billion, accounting for 40%, up 16% YoY.
Shipments of IT high-end power, low-orbit satellites, gaming console power supplies, and smart input devices grew YoY, with revenue up nearly 20% YoY. OP TWD 1.4 billion, up 3% YoY. Now, let's look at our balance sheet. In YoY terms, accounts receivable in Q2 went up by TWD 2.2 billion due to sales increase. Inventory went up TWD 600 million YoY. In current liabilities, short-term loans went up by TWD 5.5 billion YoY. Accounts payable went up by TWD 5.7 billion YoY. Current assets decreased by TWD 4.4 billion, and current liabilities increased by TWD 9.5 billion. As a result of that, quick ratio 1.18x and current ratio 1.45x, which are relatively stable. Accounts receivable and inventory days decreased by seven and five days, respectively. CCC cash cycle improved by 12 days YoY, reflecting improved working capital management. Net cash in Q2, cash expenditures including treasury stock repurchases and cash dividends were about TWD 8 billion.
Net cash position in Q2 was TWD 52.6 billion. This will prepare and improve business performance in the future, as well as investment and growth in core businesses. Okay, since 2021, the company has strategically increased the share of high-value businesses while reducing non-core businesses. In recent years, our GPM has increased from 18.5% to 22.3% in H1 this year. OPM has increased from 7.9% to 9.6% in H1 this year. Revenue in H1 grew 24% YoY, and OP grew 34% YoY, reflecting high-quality growth. Now, operation optimization, we develop high-value businesses towards system integration. The share of optoelectronics and cloud and AIoT in total revenue has increased to 61% in H1 from 51% in 2021. Cloud and AIoT revenue reached TWD 32.3 billion in H1, up nearly 40% compared to the same period in 2021. The growing share of high-end businesses has led to overall profit margin growth.
Very quickly, in Q2, revenue TWD 40.4 billion, up 21% YoY and 11% QoQ. All the three major segments achieved YoY and QoQ growth. GP went up 21% YoY with a rate of 22.1%. OP went up 14% YoY with a rate of 9.2%, benefiting from the growing share of high-value businesses, global optimization of operational efficiency, and close collaboration with the supply chain. R&D accounted for 5.2% of revenue in Q2, up nearly 20% YoY, focusing on cloud, optoelectronics, 5G, and new businesses. Net profit after tax TWD 3.16 billion, EPS TWD 1.39. In H1, revenue was TWD 76.8 billion, up 24% YoY. GP went up 30% YoY, GPM 22.3%, up 1 percentage point YoY. OP went up 34% YoY, OPM 9.6%, up 0.7 percentage points YoY. EPS TWD 2.89, up 20% YoY.
Thanks to smooth shipments of new-generation AI server power, cloud computing products, and power management systems, cloud and AIoT achieved YoY growth of more than 50%. The core visible light Mini LED and invisible light core applications in optoelectronics semiconductors continue to improve, with revenue up nearly 10% YoY. ITC, the proportion of high-end products has increased, and shipments of low-orbit satellite s, gaming console power supplies, and smart input devices grew, with revenue up nearly 20% YoY. This morning, the BOD approved a cash dividend of TWD 2 per share for Q2 2025. On June 9 this year, the repurchase of 24 , 219,000 treasury stocks was completed, accounting for 1.03% of the issued shares. These shares will be written up for capital reduction in order to protect shareholder interests and strengthen corporate governance. This concludes the financial highlights for H1 2025.
Next, Anson Chiu will explain the company's operating outlook and growth strategy. Thanks.
All right, thank you, Julia. Thank you to everybody here for coming to LITEON 's second quarter investors conference. When I came in, my colleagues told me that today's turnout is very high, and it definitely seems that way from up here. Thank you all for coming. As we all know, starting in the second quarter of this year, the Taiwan dollar has appreciated very rapidly against the U.S. dollar. Currency appreciation affects Taiwan's businesses both in terms of revenue and in terms of profit. I don't know about other companies, but looking at LITEON , if we were able to exclude exchange rate factors, then actually our second quarter revenue would have been higher by 4%, our gross profit rate would have improved by 0.2 percentage points, and our operating profit rate would have increased by 0.5 percentage points.
Of course, currency exchange rates are a factor that's beyond our control. What we can do is to continue to innovate on our technology, continue to optimize our costs, improve our operating efficiency, and do financial hedging to respond to these changes. The most important thing is to strengthen our customers' identification with our values and strengthen their trust in us. Also, in the second quarter, the U.S. announced a pause in the new tariffs, so the tariffs did not cause a major impact on our operations in this quarter. However, regardless of how high the tariffs end up being, we will continue to pursue our strategy of globalization. We will expand our production capacity in Taiwan, in Vietnam, and North America. This will improve our global operational performance and scale and allow us to build a flexible and resilient supply chain management system.
We anticipate that our planned capacity expansions will be completed on schedule in the third quarter, allowing us to meet local market and customer needs. This strategy is not a response to short-term changes in the environment; they are part of our long-term planning and preparation. This also includes the introduction of digital simulation, automation, and building more production flexibility across our different manufacturing sites. All of this strengthens our operations in the face of a changing environment. We talked about tariffs and exchange rates. These are external factors that are beyond our control. What we can do is to continue to strengthen our own competitiveness. We will continue to invest in our high-growth, high-value-added core businesses. Currently, we're seeing continued strong demand in cloud computing, including in our BBU and 33 kW power shelf products, and also including our 72 kW power shelf.
The growing demand for these products is very clear in the second quarter and will continue into the third quarter. In the future, we will launch new products such as the side power rack and the liquid-to-air cooling system. These products have now entered the customer certification phase, and we are confident that they will contribute to our shipments in the second half of this year. This May at COMPUTEX in Taiwan and this June at the Datac loud Global Congress in France, LITEON showcased many of our innovative technologies under the theme of LITEON Power AI. This includes our 800-volt HVDC power supply, our silicon carbide and gallium nitride high-performance power supply racks, and our modular liquid cooling systems. These allow us to provide integrated power supply and liquid cooling solutions, allowing our customers to build low-energy consumption AI data centers.
We forecast that for this year, the AI contribution to our revenues, last quarter we said that it would be between 15%- 20%, and now we see that it would likely be toward the higher end of this range. With the growth in volume of AI chips, it will see steady growth in the future. Looking forward to the third quarter, although uncertainties such as the exchange rate and tariffs will continue and international geopolitical complexities will grow, all of this will cause some uncertainty in ICT and consumer markets. However, LITEON's core businesses will still see quarter-over-quarter and year after year growth. We are very confident in this because our high-specification AI power management systems, including power supply, energy storage, and integrated racks, will see continued growth momentum in the second half of the year. In addition, photocouplers are regaining momentum in the new energy and industrial control markets.
Mini LEDs are also seeing new applications in the second quarter. Also, our high-end gaming consoles and gaming power supply markets are very stable. In low-orbit satellite power supplies, we are seeing good performance. LITEON has become the main supplier in this field. Looking forward to the rest of 2025, we will continue to pursue technological innovation, our globalized manufacturing strategy, and sustainable operations. This will improve our corporate resilience and competitiveness while we become a reliable and trustworthy partner for our customers, and all of this will contribute to our next phase of growth. That is my overview of the second and third quarters. Thank you again for coming to today's conference, and I wish you all a good rest of the day.
Thank you, Anson, for your clear explanations. Now is the Q&A session, and we will provide more explanations.
Hello, the management team. This is Terry from KGI. Here's my first question. The Q2 numbers, the GPM and OPM went down QoQ. Is it because of the product mix or tariffs or some other factors? This is my first question. Thank you.
The GPM growth, as I have mentioned the whole time, we have been improving our operational quality. This is the direction that we have embraced. Our GP growth is due to, as Julia mentioned, in Q2, cloud computing data center growth was more than 50%. Because of this, our GP and our OP grew as a result. Of course, there are negative factors. As I said, if we exclude foreign exchange rate impact, then our results, our performance should be better than this.
Hello, managers.
This is Sherry from Linjia Investment. You talked about new capacity in Q3, BBU in Taiwan and in the U.S. How many lines are there respectively? What about the new capacity in Vietnam? When will that be ready?
Taiwan and North America focus on BBU and PSU for now. There will be three lines added in Taiwan and in Plano, Texas. There will be four lines added for BBU. In Q3, they will be ready. As for Vietnam, we continue to relocate our capacity from mainland China to Vietnam, especially in terms of ITC and consumer products such as gaming consoles. This is about Vietnam. The new capacity there will be ITC and consumer products based.
A follow-up question. Last year, you mentioned that the OPM went down because of high-end power going to Vietnam for production.
I want to ask you, server-related products shipped from Taiwan, from Vietnam, and from mainland China, what are the percentages?
Mainly Taiwan and mainland China accounting for roughly 80%, whereas in Vietnam, we only move some enterprise PSU there. It's less than 10% from Vietnam. In terms of BBU, Taiwan and North America account for 50% respectively.
Okay, my last question. Liquid cooling. Next year, what will be its contribution to your revenue? Now you have liquid-to-air shipments already. What will be its contribution to revenue?
Next year, we hope to achieve 5% in our total revenue. It seems that in Q4, we will have a chance to ship some CDU. Our current plan is that these products next year can help us achieve 5% of the company's total revenue. Thank you.
Hello, President and CFO. I have many questions. I will ask them one by one.
Otherwise, I won't remember. First of all, in Q2, the cost number was higher. Julia mentioned R&D, and also she mentioned shipment-related costs. Can you elaborate? What's the absolute amount from that part?
Let me first answer the first part of your question. Our CapEx in Q2 went up quite a lot, and part of it comes from the fact that we prepay tariffs for our clients. In terms of BBU, we need to ship to the U.S. directly to our clients, and the tariff is 10%. We prepay this tariff for clients, and in their monthly settlement, that money comes back to us. Of course, that affects our GP and OpEx because when we prepay, it's in our CapEx. It's an outbound cost, but when we receive the money, it becomes our lower material cost. The impact is not that big. This is the first thing.
Second, our R&D compared to the same period last year, if you look at the absolute amount, this year, the absolute amount is still much, much larger. In high-value-added segments such as liquid cooling or some future-looking NV300 or GB300, for example, from NVIDIA, we invest a lot of R&D expenditure for development. Because of R&D and tariffs, our CapEx in Q2 went up significantly. That's the main reason.
The prepayment in Q2, is there an absolute amount?
Roughly TWD 400 million.
So high. Can I calculate? Can I do the math?
10% is a tariff percentage in general, but unit prices are different for different products. It's not possible to calculate back. The total amount is roughly TWD 400 million.
TWD 400 million?
Yes, correct.
Tariffs may change in the future, but regardless, the prepayment in the future will continue, right?
If you continue to ship BBU from Taiwan to the U.S., and every month, that becomes the revenue and GPM. Right?
That's the current situation, but we hope that clients will ultimately deal with that by themselves. We're talking about this with them so that the numbers become clearer.
Okay, so again, I would like to ask, since it's TWD 400 million under a 10% tariff, does this mean that you're selling about TWD 4 billion?
No, that's not the case. I can't tell you how exactly to calculate this.
Okay, but the prepaid tariff is TWD 400 million tariffs. All right, thank you. Next question is, you mentioned the 72 kW power shelf in the future. Is that 12 kW per PSU?
Yes, for the RV3. Yes, the single PSU is 12 kW.
For LITEON, when will the 12 kW product be ready?
It's already ready. I believe by the fourth quarter, the shipments will begin.
In the fourth quarter, there will be 72 kW power shelves being shipped. We also mentioned that the AI revenue contribution for 2025 will be 15% to 20%, likely toward the high end. Can I ask about the contribution for the first half or the second quarter?
The second quarter or the first half? For the first half, it would be 15% or 16%, if I remember correctly, because BBUs didn't start mass shipment until the second quarter. The second half, the contribution would be significantly higher than the first.
For the first half, it's 15%- 16%. The BBU started shipping en masse in the second quarter. Within the 15%- 16% in the first quarter, can we get a further breakdown, for example, BBU and PSU?
Looking at the second quarter, the BBU and PSU should be about one to one, I believe. I don't think I can give you a more detailed calculation than this.
Let me add to this. In our cloud computing segment, we have three categories of products. First, we have power products, including the PSU and the BBU. In terms of absolute amounts, PSU is still greater than BBU.
We believe that in terms of revenue, we have PSU and BBU, and we also have RAC. That's the three major categories of products in cloud computing: PSU, BBU, and RAC. Within the 15%- 16% contribution of AI, about 80% of this is still PSU. BBU accounts for about 10%- 15%. That is the case right now.
Thank you. One last question. You mentioned CDUs and liquid cooling in the fourth quarter. Can I ask about the specs?
It will be 120 kW.
And it's liquid to air?
Yes, liquid to air, 120 kW. Thank you.
Actually, a lot of my questions have already been asked, but I would still like to ask a little bit about the exchange rates. You said that, like the previous asker said, the GPM and OPM is lower in the second quarter, and you said that there were many reasons behind this.
For example, tariff prepayment and R&D expenses. Are there any more?
Yes, this affects both. Of course, for GPM, it was affected by the exchange rate. As I said, the exchange rate impact was about 0.2 percentage points. As for OP, this was affected by the prepayments of the tariffs. If we look at our overall operations in the second quarter, the impact of exchange rates on revenues is due to the currency conversion. Because the revenues go down and NTD goes down, that affects our margins, of course, because the overhead is the same. If the revenue goes down in NTD terms, then, of course, the percentage of the overhead compared to the revenue will go up. There are many reasons, so you can't attribute it to a single reason.
Okay, I have another question, which is that, does the tariff prepayment only apply to BBU?
Yes, basically, because it does apply to other products, but the share is very low. For example, we do export some LEDs directly to the U.S., and that would be affected by the tariff prepayments as well. We have many products that are shipped to our ODMs, and then our ODMs ship the final products to the U.S. For those products, the tariffs don't have to do with us. For the BBUs, we ship them directly to our customers in the U.S., so the tariff impact will be greater for the BBUs. For the other products, the impact of tariffs is low. To give you an example, when we work with PC system manufacturers, we provide them with keyboards, adapters, mouses, etc. We ship those to the computer system manufacturers, and then the computer system manufacturers export them to the U.S., and they are in charge of the tariffs.
The tariff impact for those products is lesser for us.
Can we have an estimate for the third quarter in terms of revenue? Because you said that YoY and QoQ revenue growth is confident for the third quarter. Is that high single digits or low single digits, etc.?
Looking at revenues, we are forecasting a currency exchange rate impact of about 10%. What do you mean by 10%? I mean that compared to the same quarter last year, the currency would have, the NTD would have appreciated by about 10%. What does that mean? That means that our revenue in real terms, in USD terms, will need to grow by at least 10% in order to overcome this currency appreciation rate. There will be an impact of about 10% on our revenues.
What about the margins? Will the margins be flat or increase compared to the second quarter?
That would depend on our actual operations, but generally, the second half of the year is a peak season for us. I did mention that due to tariffs, some of our ITC customers may have pulled ahead their demand to the first half. That is a factor. We do anticipate that the third quarter will be at least as good as the second quarter. We are optimistic about the third quarter, and due to AI, we're quite optimistic that our performance for the second half would be better than the first half.
President, I have a follow-up question. You mentioned that in Q2, the AI percentage was 15%- 16%. If the entire year is about 20%, and if in H2, ITC is going to be worse, what about the percentage of AI power or cloud and AIoT segment? Thank you.
It should be more than 20%, simply put. If we look at this, as I said, 80% comes from PSU. AI percentage is about 80%, while 80% comes from PSU or enterprise. If in the second half of this year, the entire company's percentage is going to go up, then there needs to be an increase of 10% to 20%. This is roughly the logic behind this.
Mr. President, sorry, one question. You said that in Q2, the BBU shipment was massive. Is it related to the Q2 GPM going down? You said that the GPM in Q2 was relatively lower.
You said that BBU GP is lower than average. Right now, Taiwan to U.S. tariff is 10%. We don't know about the future tariff percentage yet. I think you have new capacity in both Taiwan and the U.S. Production in Taiwan plus 10% or 20% tariff versus production in the U.S., which is better?
If we just look at BBU products, indeed, the GP is lower, then the margin is lower than PSU. In the entire portfolio, when BBU share goes up, the gross margin goes down. Second, now the tariff in Taiwan is 10%. Even if we produce in the U.S., we still need to pay this 10% tariff because we need to ship materials to the United States, right? When we ship final products to the U.S., we need to pay 10% tariffs. Even if we just ship materials to the U.S.
for production there, we still need to pay 10% tariffs. Regardless, production costs in the U.S. will always be higher than that in Taiwan. This fact will never change. If that's the case, why do we still want to do that? Because locally we can get closer to client needs. Of course, the costs are different. Clients understand this, and they are still willing to buy from us.
Hello, President, CFO, and Julia. This is Sharon from Morgan Stanley. I have two questions for you. First of all, if we look at the numbers by segment, in Q2, the ITC operating margin was much lower than that in Q1. What does that imply? Is it related to the tariff prepayment? Is it unrelated or totally unrelated? Maybe you can explain to us why in Q2 the operating margin was lower than that in Q1.
Can I understand in the ITC segment, the operating margin was lower in Q2. Why is that? This is my first question.
Okay, let me answer this question first. In ITC, this tariff issue is almost nonexistent. In Q2, the operating margin was lower because, first of all, foreign exchange rate, there's no question about that. As I mentioned, if the revenue is affected by exchange rate, then the percentage is going to be different. Your overhead will be different because of that. This is the first reason. Second, in Q2, we already started massively to relocate from mainland China to Vietnam. In this process of relocation, in Vietnam, we need to spend a lot of time learning. Regarding Vietnam, we told you that last year in Vietnam, we achieved TWD 12 billion revenue.
This year, when there are more things moved to Vietnam, this year we may achieve TWD 23 billion in Vietnam. Most of the products are ITC products moving to Vietnam. In the short term, we will suffer because we dispatch many personnel to Vietnam to build up teams. There's a learning curve in front of us. Operation cost, as a result, is higher. The GPM is lower as a result.
In the second half of this year, in terms of OpEx as a percentage of the total revenue of the company, should we compare that to the number in Q2, which is 12.9%, right?
This is what I think. I think things are getting better because the learning curve is getting gentler. At the beginning of everything, the learning curve is very steep. When things are more ready, when mechanisms, rules, and plans are ready, the cost is going down slowly.
At the beginning of a transition, which is in Q2, the cost is higher. In Q3 and in Q4, it's going to go down. We can be optimistic that in Q3 or in Q4, our manufacturing cost is going to go down a lot. There's another important factor, which is initial installation cost is recognized in that very quarter. This is why the operation cost is increased. Thank you.
Here's my second question.
You mentioned standalone power racks, which will start shipping in the second half of this year. Can you talk about the specs of the power rack as well as the components in addition to the BBU, the PSU? Are there capacitors or CDUs, etc.? Are they sourced externally or are they made internally? Can you talk about the specs and the value contribution?
I can't go too far into detail about this because the product has not been officially revealed. I can say that in the fourth quarter, the first version of the power rack will enter small-scale mass production. This is something that we're sure of. I can also say that the first version of the power rack will be 500 kW. As for the components inside, most of them are power components. The BBU, the CDU, all of this are sourced internally.
The key rack and shelf components are also sourced internally as well. The PSU, the CDU, all of these are LITEON products that are integrated into the power rack. The CDU is not the right term. The main flow, the power cooling system. Oh, the cooling system for the power rack itself. Yes.
Will the initial manufacturing be in Taiwan or in the U.S.?
It will be in Taiwan.
It will be shipped to where the customer is, so maybe it could be in the U.S.?
Initially, the manufacturing will be in Taiwan. Once we deem this product mature, we are also planning on manufacturing in the U.S. as well. That's why in Texas, in addition to the BBU manufacturing line, we are planning further production lines as well.
Thank you.
Can I follow up a little bit? You talked a lot about the impact of tariffs.
Can I also ask about the impact of exchange rates? I haven't seen the full financial report yet. Did you recognize any forex losses for the second quarter? If you did, then in theory, your GPM and OPM should be improved in the third quarter. Is that a correct assertion?
As I said in my opening remarks, if we could exclude the currency exchange factors, our revenues would have grown by a further 4%. Our GP would have increased by 0.2%, and our OP would have increased by 0.5%.
You said a lot about the impact of prepaid tariffs, but that should affect the net profit, right?
No, it affects everything because it affects the CapEx as well. It impacts the CapEx because of the currency exchange rates. Why? Because we sell in USD.
We make our money in USD, but all of our investments in Kaohsiung are denominated in the Taiwan dollar. We pay our colleagues here in Taiwan in the Taiwan dollar. That is where the impact from the exchange rate comes from, and you see this in the OpEx. That is why there is a big impact on our OpEx.
Our President explained the impact of exchange rates in our revenues in USD, and there is a loss that occurs when converted to NTD. For the financial statement, forex gains and losses, the impact is actually limited because all of our sales and purchases are denominated mostly in USD. For our USD assets and our RMB assets, we do hedging. Compared to the first quarter, our assets denominated in foreign currencies did not see a large impact due to changes in exchange rate. One moment.
To put it simply, whether you're looking at the second quarter or the first half, if you look at OIOE, you see that the net income is TWD 540 million, and much of this is from interest and forex gains. When it comes to our financial assets, after marking to market, we actually still see gains. Whether we're looking at the second quarter or the first half, we see forex gains. Correct. If you look at OIOE, actually, the only point of impact is lower interest rates overseas. This affects our interest income. When it comes to the forex item, it's always been gains.
Hello, I'm Jerry from Yuan ta Securities. My first question is, what is your outlook on revenues by segment in the third quarter, both QoQ and YoY? Also, regarding exchange rates, it's true that exchange rates affected a lot of your top line, including revenues and profits.
What are your strategies for mitigating this in the third quarter? I have another question, but that can wait for later.
Currently, as I said, we do forecast both quarterly and yearly growth. The biggest risk is in the exchange rate because we are forecasting an appreciation of 10% in the NTD. If the exchange rate were the same as last year, then we would see a 10% revenue growth. Obviously, it's higher, but we do still forecast revenue growth. What about by segment? Most of the growth will come from cloud, cloud computing. The other segments will not see growth quite so strong. You can see that when it comes to cloud power supplies, we grew by over 50%, and we do anticipate this growth momentum continuing into the second half.
Okay, so ITC and optoelectronics, if we consider the exchange rate issue, there might be a decrease?
No, we do not anticipate any decrease. We do see maybe slower, we still see growth momentum, but the numbers would not be so high due to the currency exchange issue. Okay, so what are your strategies to mitigate this impact on your revenues or bottom line? For example, will there be price increases?
I think price increases are not possible. Prices holding steady is possible because, of course, every quarter or every half year, the customers come to us to negotiate prices, and they try to negotiate them down. Now they do understand that we're facing currency exchange rate issues. They have been less strong in their requests for price drops. Of course, the price reductions, the renegotiations have preceded in past years as well. This is part of our normal operating mindset. It's something that's part of our usual work. This is a level playing field, right?
It's something that everybody is doing. The exchange rate issue does not just affect us. It affects everybody. Everybody is facing this issue. We have to go back to doing our good job. That's the most important thing.
Can the BBU tariffs be transferred to clients?
Absolutely. We just prepay, and the next month, clients pay back to us. That's how it works.
My second question. This year, AI revenue can achieve 20%, right? This is higher than the projection from the beginning of this year. Why is that? Is it because of BBU, PSU, or some other product's contribution? Also, in terms of BBU production lines, you have new capacity in Taiwan and the U.S. How many lines are there in total?
There are six in Taiwan, six in mainland China, and four in the U.S., so in total, 16 production lines. In the second half of this year, the share will go up because demand continues to increase, including PSU. The AI CAGR continues to go up, right? It's not just because of BBU. I think it's across the board.
The AI market continues to grow, and PSU or enterprise grows along with ASIC demand growing. The growth is across the board, not just from BBU.
Basically, GPU ASIC growth is one thing, and PSU and BBU also grow at the same time, right?
Yes.
This year, if AI revenue can achieve 20%, what about next year? Based on this 20% and cooling 5% more, next year, AI will at least enjoy 25%?
I think we can be more optimistic than that because we keep saying that we want to become a system or solution provider. Starting from this year, at the end of this year, if the power racks can be launched, then the ASP is much, much higher. Next year, we may have the opportunity to go from 500 kW to 1 MW, and by then, the product value will be further enhanced.
If you just look at market CAGR saying that it's 20% or so, then the growth is only limited to 4%- 5% percentage points. If we consider ASP, then the growth will be more than that.
The 5% coming from cooling, do you have some target clients that you are talking with?
This is ongoing. Production review has been implemented. If everything goes smoothly, in Q4, some cooling products will be shipped to our clients. What types of clients? We cannot disclose that right now, but as I said, our first product will be 120 kW CDU. Thank you.
I'm from Yuanta Securities. You mentioned that PSU 80% and BBU more than 10% in terms of AI servers. This is the market situation right now. BBU adopters are mainly GB servers or ASIC servers? This is my first question.
Mainly ASIC servers.
Okay.
Second, you mentioned PSU specs 12 kW, and will BBU specs also go up?
You mean BBU specifications? Yes. Previously, we used 5 kW, right? Now we're going to move to the next generation, which is 8 kW.
Okay. You mentioned power racks that are now distributed in different power shelves. If they become just power racks, how will the unit prices go up? What are the differences between power shelves and power racks?
It's hard to make a comparison this way. Power shelves are just PSU mainly, but power racks are not just power shelves. There are other things included, including racks, cooling, and also energy storage. It's impossible to compare these two very different things.
Got it. Thank you.
We can accept one more question.
Okay. Let me ask my question very quickly. Side power racks, what will be the contribution next year?
You said 500 kilowatt by the end of this year. What about 1 megawatt by the end of next year? What will be the impact for next year or the year after next year? What will be the contribution of HVDC products to your growth? It's hard to make such projections. We don't even know the unit prices now. It's very difficult to make such projections. I can tell you the trend. If the next generation is 1 megawatt, we believe that it will take place in Q4 2026, and mass production will take place in 2027. This is the trend which remains for now. As for HVDC 800-volt products, I think the implementation will take place in 2027. That's the current situation.
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