Hello everyone. Welcome to our second quarter 2020 investor conference. We have released our financial results of the first half and the second quarter of this year. As usual, we will have our IR, Rodney, to present the financial numbers of Q2 and the first half. After that, you may raise your questions during the Q&A session.
As usual, I'm going to report the second quarter and first half financial numbers before the Q&A session. With regards to our sales revenues, with the mixed impact from COVID-19, Q2 revenue was up 27% year-on-year and down 4% quarter-on-quarter. Sorry, my mistake. Our second quarter revenue was up 27% quarter-on-quarter and down 4% year-on-year. In terms of our gross profit, thanks to the better product mix and some cost reductions, our GP margin in Q2 set a new record at 32.9%, with gross profit up 58% quarter-on-quarter and 17% year-on-year.
With the COVID-19 impact on the business trips and many trade shows, our Q2 SG&A was down 10% year-on-year and only up 3% quarter-on-quarter. Our R&D expenses in Q2 also just moderately increased by 6% year-on-year and 17% quarter-on-quarter. As a result, R&D expenses as a percentage of sales decreased to 9.2% in Q2 from 9.9% in Q1, while increased from 8.3% a year ago. SG&A as a percentage of sales dropped to 10.6% from 13.6% in Q1 and 11.4% a year ago.
The OpEx ratio declined to 19.8% in Q2 from 22.9% in Q1, but slightly increased from 19.7% a year ago. Thanks to the historical high gross profit and the lower OpEx, OP margin in Q2 hit a new record high at 13.1%, compared to the 3.6% in Q1 and 7.3% a year ago. In terms of the performance by segment revenue-wise, with a normal low base in Q1, we saw significant sequential growth for all segments, which were 32% for Power Electronics, 24% for Automation, and 21% for Infrastructure. Year-on-year, we benefited from the work from home demand and the recovery of China IA market.
Therefore, we had benign growth for both Power Electronics and Automation segments, which were 4% for Power Electronics and 6% for Automation, mainly coming from our cooling fans, passive components, and IA businesses. Our power supply business was relatively flattish while onboard EV solutions were suffering from the global shutdown of OEMs. With the slow demand in telecom and EV charger networking and display markets, the sales of overall Infrastructure dropped by 18% on the year-on-year basis.
Though data center business was relatively strong earning-wise with the reductions in both cost and incentive size , we had pretty strong profit improvements across the board. The percentage of Power Electronics increased to 54% in Q2 from 51% in Q1, and 49% a year ago. Automation was slightly down to 15% in Q2 from 16% in Q1, but up from 14% a year ago. Infrastructure contracted to 31% in Q2 from 33% in Q1 and 37% a year ago. The operating profit was around TWD 929 million in Q2, which was within the normal range.
The TWD 7.1 billion operating profit a year ago was mainly because of the one-off and non-cash disposal gains of DET, which was basically an accounting treatment. In Q2, we had TWD 10.2 billion profit before tax, and our EBITDA in Q2 was TWD 14.2 billion. Our Q2 tax expense was about TWD 2.1 billion, representing a 20% effective tax rate. The net profit after tax in Q2 was TWD 7.6 billion. The EPS in Q2 was TWD 2.92. If we exclude the one-off disposal gains from the DET, the second quarter of last year, Q2 EPS grew by 52% on the year-on-year basis.
Now we have a look at the accumulated numbers of the first half. The first half revenue was TWD 126.4 billion, down 1% from a year ago. With the better mix and some cost reductions from production, the GP margin in first half sets a new record at 30.1% from 26.7% a year ago. R&D expenses in first half increased by 11%- 9.5% as a percentage of sales from 8.5% a year ago, mainly because of the consolidation of DET.
Being impacted by COVID-19, SG&A number in first half decreased by 1%, but the ratio was slightly increased to 11.7% in Q2 from 11.5% a year ago because of the unfavorable scale. OpEx in first half moderately grew by 5%- 21.2% as a percentage of sales from 20% a year ago. With the advantages of margin improvement and benign growth of OpEx, the operating profit in first half increased by 32% year-on-year, and the OP margin expanded to 8.9% from 6.7% a year ago. That's to the strong work from home demand.
Year-on-year, we saw the most significant sales and profit increase in Power Electronics followed by Automation segment. However, we saw both sales and profit contraction in Infrastructure due to the slow market demand. In first half, we had about TWD 1.8 billion non-operating profit. The significant drop from a year ago was mainly because of the one-off disposal gains from DET. In total, we had TWD 13 billion pre-tax incomes, and our EBITDA in first half was TWD 21 billion.
The first half tax expense was around TWD 2.7 billion, representing a 20.6% effective tax rate. As mentioned, if we exclude the one-off disposal gains from DET, the EPS in first half was up 15.5%- 3.72% from 3.22% a year ago. Okay, my first question would be, can you share us about your guidance and also outlook for the third quarter and the fourth quarter?
I think in terms of the sales number, the third quarter should be better than the second quarter, but for the fourth quarter, it's still too early to say because there are still many uncertainties. In terms of our GP margin, we hope to maintain at the 30% or above level.
Okay. For your question regarding our passive component business. I think the passive component business, in terms of the cost structure, is a bit different from our other businesses. For example, compared to many of our other businesses, our passive component business is more capital intensive.
The depreciation accounts for a big part of the cost for our passive components. The utilization rate is actually pretty critical when we look at the GP margin of our passive components. Currently, as far as I know, the utilization rate--
Our capacity for the passive components is fully utilized currently. I think that is also the reason the gross margin, the GP margin for our passive components in the first half was better than the historical numbers. With your concerns on our expenses controls, yes, with the impact from the COVID-19, many business trips and trade shows have been suspended for a while. After the COVID-19 is over, I think that we still need to invest into this SG&A.
For example, we still need to travel and to host these kind of trade shows in order to approach new customers and promote our new products. In terms of our subsidiary, Delta Thailand, yes. After we acquire or increase our shareholdings in Delta Thailand for over a year, the current production quality is much better than the beginning.
Their business is also growing quite nicely this year. If we can keep this trend, I think the outlook for Delta Thailand should be quite nice for this year. In terms of our new factories, construction progress in India, because of the sudden outbreak of COVID-19, there was some delay of our construction project. After this, I think that we will be able to catch up.
Okay, in terms of the capacity plan or allocation between India and Delta Thailand. Actually, after we have increased our shareholdings in Delta Thailand, after a year, we actually made a lot of efforts on improving their production quality and efficiency. Actually, we implemented a project of factory automation, just like what we have done in our China factories. I think that is also one of the reasons that you see the improvement or expansion on the gross margin of Delta Thailand.
Because some people are worried about that, there was some delay, and there is some delay of our factory construction in India. What about the capacity?
After we have streamlined the production line in Thailand, we actually found out that we don't really have the urgencies for massive or further capacity expansions for now. We can still release some capacity by streamlining the original production lines in Thailand. I think that it should be fine.
Okay. For your questions regarding our EV solution business, actually, even with the lockdowns of many cities in the U.S. or European countries, our EV solution business in the first half was still doing okay. After the release of the lockdowns and the reopen of many OEMs, I think that our EV solution business is going back on track for the rest of the year.
Can you share, the next question would be the current progress of Delta's factory automation.
I think for this project, factory automation project within our own factory is still in progress. Because of the pandemic of COVID-19, many of our team members who are dedicated for this factory automation progress, were not being able to visit the factories in China or other regions.
For your question regarding how many labor-- I mean how many labors have been saved or reduced from this factory automation projects?
When we look at the performance of the factory automation, we can't just focus on only the number of direct labors because when you implement more equipment or devices into factories, actually, you need to hire more indirect workers in order to maintain the equipment. When we look at the performance of the factory automation, I think that you need to combine the direct labors and overheads together. If we look at our conversion costs for this year, that conversion cost is 1% or less than 1%.
In terms of our data center solution business, actually the data center market or the business is basically on the upward trend. Yesterday, I just talked to an expert in the telecom market. We just had discussions. The underlying market of data center might be growing by double digits for the next few years. The products we provide to the data center market is basically the energy management solutions. Right now, the total power consumption of data centers accounts for 2% of total global energy consumption. In the future, maybe just [15] years later, the number might be 15% of global power consumption. Where is just where we can make efforts or contributions for our customers and the globe?
Okay. For the EV solution business.
As I just mentioned earlier, that with being impacted by the COVID-19, many cities were locked down, especially in the first half. Even though we actually have many project wins at hand, but we were still not able to ship our products because even our customers, those OEM guys, they actually just shut down their factories in this year. Because we still have many project wins, I wouldn't be too worried about this business. I think we should be okay.
The next question would be, would you be considering looking for or doing more acquisitions during the COVID-19 when the valuations are relatively lower?
Yes, certainly. I think the acquisitions is part of our growth engine, for the long term. Of course when the macro environment is slow, there might be more available targets in terms of the acquire companies, but also those kind of companies, they might be weaker than others as well. For ourself, Delta, that we only do strategic acquisitions. We are not going to buy a company just because the price is reasonable and the valuation is reasonable. We still need to consider the synergy.
If you ask me about the outlook or are there any growth driver for next year, I think there are still many uncertainties, especially during this macro environment. I think some trends are still pretty clear. For example, the factory automation, or what we call industrial automation, is definitely the trend there. EV is definitely on the upward trend, that's for sure.
If you look at those traditional OEM guys, they are making many efforts into this EV market as well. The 5G is also there, the problem that is still that for the vendors or for the operators, they still need to find out some killer applications in order to really see the market flying, before we really see the market taking off. Also the passive components and the cooling fans. I think those might be the growth drivers for the longer term, or at least for the next year.
Can you share, do you have any new products in your Industrial Automation business?
I think that, as I mentioned, that the software is going to play a more and more important or critical role in our Industrial Automation business. Because if we want to fully realize the goal of highly automated factories, the communication between the equipment and equipment is pretty important.
Is there any impact on you because of the recent Huawei issues?
I don't see any significant impact on us, because Huawei is both our competitor and our customer. I think that we only compete against in our telecom power. Our products, the telecom power, is highly competitive in almost every regions or markets. I don't think there will be any big issues on this.
If you ask me our financial goals, for example, such as our ROA and ROE or GP margin and OP margin, I would say that, of course, we do have our internal expectations for our ROA and ROE, but for the GP margin and OP margin, if you look at our GP margin for this quarter, you will see that just as we always communicated, our goal is to pursue higher GP margin by providing more value-added products and solutions to our customers.
That's what we did. Also because of the impact from the COVID-19, we had lower OpEx in the second quarter. After this, we still need to invest into R&D and SG&A afterwards. I think that our direction is pretty clear, that we would do the necessary investments for the future sustainability, we will still have an eye on our internal financial targets.
Because many European countries, they are providing more subsidies for EV makers, do you see that as a tailwind for your EV solution or EV charger businesses?
I think for sure that if the government's providing more subsidies for the EV makers, that we will be benefiting by somewhat degree. Because of the impact of COVID-19, and some of our customers, their factories are still closing up. I think that things will become more clear after they reopen factories and reopen the business.
Can you please talk about or share your view on the red supply chain, the impact from the red supply chain?
Yes, red supply chain is a pretty hot topic currently. I think that it's not just happening recently. In every markets or regions, there is always competition. I think the core is still how to add more values to your customers. If you look at our R&D investments for this year, you can actually see that we didn't really cut down any investment on our innovation and R&D.
Which means that we always try to provide better products and/or more value-adding solutions to our customers. That's how we keep our competitive advantages. We are not like some of the peers. They compete just with their lower prices of similar products. I think that's my answer for the red s upply chain.
Do you think that work from home trend can be sustainable?
I think as we just talked about this at the beginning of the meeting, the strong demand for notebooks were mainly driven by the work from home trend at this moment. Even if many U.S. companies, they just announced that their workers can stay work from home for at least another year. I think that many people, they have replaced or just bought new laptops, that they're not going to buy a new one just in the near term. We would be more conservative about the trend.
I think that those are all the questions that