Welcome to our Q3 annual meeting. Today we have so many attendees, so many visitors coming to join our 3Q 2025 annual meeting. As usual, we will have Rodney to report the financial numbers at the beginning, and then we will have the Q&A session.
As usual, we are going to review the financial numbers of Q3. Q3 revenues reached TWD 150.3 billion, marking a record high quarterly result. This represents a 34% year-over-year growth and a 21% sequential increase. Driven by strong shipments from server powers and liquid cooling systems. Q3 revenue was above normal seasonality. Gross profit in Q3 was TWD 52.4 billion, up 34% year-over-year, and 19% quarter-over-quarter, marking a new all-time high. GP margin for Q3 was 34.9%, slightly down from 35.5% in Q2, and flattish from a year ago.
OpEx in Q3 increased by 21% year-over-year, and 9% quarter-over-quarter, with SG&A expenses growing faster than R&D spending. Benefiting from improved economics of scale, OpEx ratio declined to 18.4% compared to 20.3% a year ago and 20.4% in Q2. R&D expenses as a percentage of revenues stood at 8.5% versus 9.6% a year ago, and 9.5% in Q2. SG&A expenses as a percentage of revenues were 9.9% compared to 10.6% a year ago and 10.9% in Q2.
Supported by operating leverage, OP margin in Q3 further improved to 16.5%, up from 15.1% in Q2 and 14.6% a year ago, reaching another record high. Operating profit increased by 51% year-over-year and 33% quarter-over-quarter. Segment-wise, driven by robust data center demand, Infrastructure recorded both the strongest year-over-year and quarter-over-quarter revenue growth, followed by Power Electronics.
In contrast, Mobility continued to face challenges amid market weakness, while Automation was also affected by broader macro headwinds. From an earning perspective, all segments except Automation saw varying degrees of sequential improvement. On a year-over-year basis, Infrastructure delivered the strongest profit growth, followed by Power Electronics. On the other hand, Mobility swung to a loss, and Automation also came under pressure from the slow economy. In terms of the non-op, Q3 was TWD 2.2 billion versus TWD 900 million in Q2, and TWD 1.3 billion a year ago.
In Q3, we had TWD 27 billion profit before tax, up 53% year-on-year and 38% quarter-over-quarter. Q3 EBITDA reached TWD 35.4 billion, up 45% year-over-year, and 32% quarter-over-quarter, setting another all-time high. The Q3 tax expense was about TWD 6.1 billion. The effective tax rate in Q3 was 22.5%, and profit after tax was about TWD 18.6 billion, up 51% year-over-year and 33% QoQ. The Q3 EPS was TWD 7.16, achieving a new historical high.
Now we have a look at the cumulative numbers for the first three quarters of the year. The revenue was TWD 393.3 billion in the first three quarters, up 28% from a year ago. Gross profit increased by 32% year-over-year, with a GP margin of 34.1%, compared to 33% in the same period last year. The operating expense in the first three quarters was up by 19% year-over-year, with SG&A up 20% and R&D up 17%. OpEx ratio dropped to 19.85% from 21% a year ago, with the SG&A expense ratio contracting to 10.4% from 11.1% a year ago. R&D expense ratio decreased to 9.1% from 9.9%.
OP increased by 56% year-over-year, and OP margin in the first three quarters improved to 14.6% from 12% a year ago. For the first three quarters, the infrastructure segments again showed the strongest growth, followed by Power Electronics and a modest 4% increase from Automation. While Mobility continued to struggle due to the sluggish demand. Earning-wise, both power electronics and infrastructure showed substantial profit improvement, while the profits of Automation and Mobility both shrank from a year ago.
For the first three quarters, we had about TWD 4.7 billion, up slightly higher than a year ago. In terms of the profit before tax, we had TWD 62.2 billion pre-tax income, up 50% from a year ago. Our EBITDA was TWD 85.2 billion, up 40% from a year ago. The tax expense was around TWD 13.9 billion, representing a 22.4% effective rate, and the net profit after tax in the first three quarters was TWD 42.8 billion versus TWD 28.1 billion a year ago. The EPS the first three quarters of the year was TWD 16.47 versus TWD 10.8 a year ago, representing a 53% year-over-year growth.
First of all, big congrats on your very strong performance for the third quarter. My first question is related to your capacity planning for your liquid cooling and other data center related businesses. Can you also please walk us through the latest progress in the solid-state transformers, and also the 800 HVDC. How should we think of the contributions in 2027? Can you give us a rough idea?
In terms of the current capacity, the capacity is actually pretty tight. We are actually building many new factories. By the end of this year, we may complete some of these factories. We may have three new factories in Thailand. Are likely to be complete in terms of the constructions by the end of this year. In the meanwhile, we also have the discussions with our customers. For example, for those non-American market , most customers, they actually agree that their products could be made in China.
That is also pretty helpful and beneficial in terms of our capacity flexibility. Anyway, in terms of the capacity, we continue to expand the capacity, because we are seeing pretty strong demand from our customers. In terms of the 800 HVDC, I think it's still going to take some time before it become more meaningful to our revenues.
In terms of the dollar amount of the CapEx for this year, actually for the first three quarters, it was around TWD 29.7 billion. For the whole year, I think it's going to be somewhere around TWD 40 billion. For next year, I think in terms of the dollar amount, should be quite similar to this year. In terms of the composition of the CapEx, I think for next year it's going to be more related to the factory automation and equipment procurement and setting.
The next question is related to the gross margin. Could you please give us more color regarding why the GP margin, in Q3, was lower than Q2?
I think the main reason was still related to the inventory reversal and inventory write-off. The difference between that, between Q2 and Q3, I think the difference was around 0.6% percentage point. Generally speaking, the GP margin is still mostly related to the product mix. Despite the fact that we actually saw a pretty strong growth, increase in our revenues in Q3. Mostly, the revenue was driven by the data center-related business. For that part of business, in terms of the GP margin, inherently, it is naturally not higher than the component business. The GP margin is still mostly related to the product mix.
My next question is also related to the margins. First of all, related to the GP margin, as you said, the GP margin was mostly related to the product mix. Given that the AI-related or data center-related businesses actually are becoming more and more meaningful within the portfolio. Still, we saw a higher GP margin in Q2 compared to Q3. Can you give us more colors regarding the margins? Secondly, how should we think of the OpEx rate going forward?
First of all, I think I already covered the question before. Because the strong or the rapid growth in our revenues was mainly driven by infrastructure in Q3. The solution or the infrastructure system business in terms of the margins is not necessarily higher or is not going to be higher than the margin of component business. I think that is actually the main reason. Speaking of the OpEx ratio, if we are able to continue to accelerate our revenue growth, it is likely or it is possible that we will continue to enjoy some operating leverage and to see the OpEx ratio continue to decline a little bit.
The first question is related to the tariffs. In terms of the tariffs, basically, as we are in the ODM business, theoretically, the tariffs are all on the customer side. In reality, how the tariffs really be paid?
It can be negotiable. For example, sometimes for some orders or customers, the customers, they may pay the tariffs directly by themselves. Sometimes we may pay the tariffs first and then our customers will pay us back maybe one or two months later. In terms of the tariffs, I think 95% of our revenues or more than 95% of our businesses are on this FOB basis, which means that it is our customers to pay the tariffs. That's my answer related to the tariff question.
For your second question related to the capacity, when I said we actually had a pretty tight capacity, still we have some alternative ways to actually to ramp up our capacity. For example, most of the equipment in our factories are made in-house by Delta. Also for most of the manufacturing process or the assembling process. We actually have some flexibility to switch lines or to actually ramp up the capacity in a relatively faster pace. In reality, for example, you know that it always takes at least a few years to construct a new plant.
For example, the plant we have today, which was built two years ago. By then, two years ago, the capacity was planned for maybe different business. Over time, the business landscape and the demand landscape can change. That's why we always need to have such flexibility to switch the production lines maybe from one product line to another. As I said, in order to fulfill the customers' demand, we actually have the discussions with our customers. For those non-American market orders, they actually agreed their products to be made in China, because in China we still have pretty much capacity.
In India, because of the tariffs, if we are maybe not able to see the further decline in terms of the tariffs in India, we may not be able to shift our productions there. In Taiwan, basically in Taiwan, I think there is some natural ceiling in terms of the capacity because of the electricity, in terms of the labors and in terms of the lands. Also in America, in the U.S., we are building some new factories. We may also rent some more factories in the U.S. to build up new capacity.
For the third question, which is related to this year and next year's driver for the company. I think if you happen to notice recent news in the U.S., actually, a data center very recently just signed a deal with an operator. This operator is actually a data center infrastructure construction or, sorry, building company, which actually provides or offers data center infrastructure. The deal size was around $40 billion. Of course, the company, the operator, is a private equity, we couldn't really see its revenues.
But still, it means that if data center are willing to pay such a high multiple to buy a data center infrastructure company, which means that the data center companies, they are still very highly committed to the AI CapEx investment. Given all those reasons, we do believe that at least for this fourth quarter or for the whole next years, I think the momentum should be fine.
And for the fourth quarter and for the first quarter, I think we are quite optimistic. But still, I think the environment always changes so fast, we still need to be cautious and be prepared. For the next question, which is related to whether we are going to have new capacity in Thailand for your liquid cooling solution products. I think, as I said, actually for the non-U.S. orders or non-U.S. products or solutions, they can actually be produced in China, because in terms of the components, especially those mechanical parts, the ecosystem and supply chain is most comprehensive in China. That can also ease the capacity tightness a little bit.
My next question is related to your DC/DC converter business, because earlier you mentioned that this year the revenues is likely to drop maybe by 25% because of the design changes. How should we think of this business going forward? Have you seen any big customers, they decided to use the DC/DC modules again for their new generation products?
For this year, the new generation products, they are still not using the DC/DC modules. Still, I think for not just the big customers, actually for other customers, we have been seeing increasing penetration, increasing our adoption rates, from other customers for our DC/DC converters.
My last question is related to your ESS, energy storage system and your BPU business.
I think for the large scale, energy storage system, in terms of the application, it is not just for the data centers. Indeed, we have been seeing increasing demand for these energy storage systems. In terms of the energy storage systems, there are actually some critical components and critical functions within the energy storage system, including the BMS and the battery management. Because we actually do not make the battery cells, we need to carefully select the competitive suppliers.
Speaking of the energy storage system, as I said, they are used in a wide range of different applications. In terms of SST, because I think it is still a relatively or pretty new technology and idea to the customers, it still take time to see the penetration rate to ramp up. For your first question, which is related to the revenue contribution in terms of our server powers and our cooling solutions. In Q3, our server powers was around 23% of our total revenues, while the cooling solutions was around 11% of our total revenues.
The second question is related to our customers. They may actually think of to look for some second source for their solutions. The question is actually, I think there are actually pretty few companies in the market, just like Delta, being able to provide the total solutions for customers. How do your customers, or how are your customers able to find a second source? Given that there are maybe just pretty limited candidates or pretty limited suppliers in the market being able to provide the total solutions?
Of course, we do always want to provide the total solutions, or provide as much as we can to the customers. Still, if we already account a big portion of our customers in terms of their orders, if you were the customers, you would definitely think of, okay, I should find a second source. It is actually pretty natural. They also want to actually increase the competition among the suppliers. I think that is something that is definitely going to happen.
My next question is, could you walk us through the motivation and background behind your acquisition of the Japanese company which you announced yesterday?
Actually, our acquisition of this company is driven by our goal to integrate critical technologies in semiconductor power systems to expand both the depth and the breadth of our offerings in this space. This Japanese company brings leading RF power expertise with a strong product portfolio and design capabilities. On the other hand, Delta has strengths in global operations, large scale manufacturing, and efficient supply chain management. Together, we believe the two companies are expected to create strong synergies across both technology and market fronts.
Technically, this company's RF power and Delta's DC power are highly complementary. Commercially, our combined customer base helps expand product reach and R&D momentum. The fundamental reason we acquired this company is because we believe the RF power is becoming increasingly important in advanced semiconductor process. That's the reason why we believe that it's actually a good deal for us to make.
I think, sorry, chairman didn't really answer that. What is the estimated sales contribution from the AI related business next year? I think it's really hard to say because we actually shared the numbers, shared the sales percentage of the server power supplies and cooling solutions, Q3. We do hope to see the further increase from the data center related business. Still, I think there are so many swing factors, so it's really difficult to forecast the percentage.
Okay. My first question is still related to your capacity planning. Sorry, capacity planning. Because you actually mentioned in your previous earnings call, you said, no matter how high the tariffs are going to be in Thailand, in terms of the overall manufacturing costs, making products in the U.S. is going to be much, much higher than making the products in Thailand in terms of the manufacturing costs. Does that mean that you have actually different thoughts in terms of the U.S. manufacturing?
I think, as I previously elaborated, I think it's not just about the manufacturing costs in the U.S. is indeed pretty expensive. Also there are some other factors making U.S. is even more challenging. For example, the labors are actually one of the key bottlenecks when you think of making the products in the U.S. There are actually many different factors you need to think of when you consider the capacity planning for your products.
Still, we do continue to expand our capacity in the U.S., but it's not going to ramp up very quickly. I think it's probably going to take maybe two years before we see the bigger or more meaningful capacity in the U.S.
Before that, I think we may just rent the factories in the U.S. in order to fulfill the needs of our customers. Still, I don't think the U.S. capacity is going to account for a really big part as a percentage of overall capacity.
My first question is related to your hydrogen energy. Can you please give us some updates on the hydrogen energy batteries, including your technology deployment, capacity build out, and the [temp view?] When will you begin to contribute to Delta's revenues and profit?
Delta's hydrogen energy technology is licensed from the U.K.'s Ceres Power and used solid oxide stacks. For example, hydrogen fuel cells can generate electricity, water and heat from oxygen and hydrogen with maybe around 60% efficiency. With the heat recovery, the overall efficiency can reach up to 85%, which is notably higher than the centralized gas turbine generators at maybe around 40%-50%.
Because of the energy efficiency in terms of it's much higher than the traditional gas turbine generators. That is the reason why we acquired this company in the first place. However, as this is a new business, it requires significant resources and time, and within the next one to two years, we do not expect hydrogen to make a meaningful contribution to Delta's financials.
The second question is related to your M&A strategy. I think we actually keep looking for the good targets in the market. Either for the new technology or for the market assets. Still, when it comes to the deal, whether or not we are able to close a deal, is actually subject to many different factors. For example, I think timing is actually one of the issues.
One of the factors, because, for example, even though that we may believe that a company is really a good target to acquire, but if the multiple, the valuation is too high for us, and we are not able to have good returns from this investment. I don't think that we will go on, or we will make this deal. Sometimes, if a target, with really good, for example, technologies, but with very poor financials.
We may also think twice or maybe very likely to decide not to acquire, because we don't really want to spend so many years to turn a company around. There are actually many reasons or many factors to consider, when it comes to the M&A strategy. Overall, we do always keep an eye in the market, and we do view this M&A as one of our main tools or growth engines to accelerate our growth.
Because everybody is really concerned about AI, I want to ask the question which is related to your non-AI business. Can you give us some updates on your Mobility and your Automation business?
I think the Mobility business and Automation business, these two businesses have been very challenged this year. With evolving U.S. tariff policies, many manufacturers are in wait-and-see mode on capacity investment. IA demand remains very weak. However, with the lower base, growth has recently turned positive, and we hope for further improvement by year-end. Our Automation division's losses were primarily related from the building Automation lacking scale, especially under soft commercial demand in Europe and the U.S., which has widened the losses.
The EV components market also remains depressed. Outside China, nearly all major OEMs are seeing clear declines in EV sales this year, and many have paused or even stopped new pure EV platform development. I think having said that, we still remain positive on the long-term EV trend, especially with solid-state battery technology. Once there is a meaningful breakthrough, it could transform the industry.
We will continue to strengthen our technology and operational base. What we have been always doing is, there are always upsides and downsides for different businesses. For example, in terms of the Automation business, it's actually a very long-term business. We do hope to be prepared before the market recover. That is the whole idea. If you don't have any other questions, thank you for joining us today. Thank you.