Good afternoon. Welcome to Compal's Q4 2025 results conference call. I am Randy Abrams. I'm Head of Taiwan Research at UBS, and I am joined by the Compal management team. We have with us Mr. Tony Bonadero, CEO, Mr. Jack Wang, CFO and Spokesperson, and Miss Tina Chang, Senior Director in Investor Relations. The format for the call, we will start with Tina for a financial review, followed by Tony for the business update and guidance, and then we'll turn it back over to Q&A, where you can raise hand to ask your question. With that, I'll turn it over to Tina to go through on the financial review. Thanks, everyone, for joining us.
Thank you, Randy. Thank you, everyone joining today's call. This is Tina from Compal IR team. Before I move into the financial detail, please turn to page two for the presentation, the safe harbor notice for today's call. Please take a moment to review this statement. Okay, now let's move to page five for the product mix. Compal Q4 revenue, TWD 190.9 billion, 2% growth quarter-over-quarter. It's mainly driven by the PC revenue growth and the growth in our key pillar, server and 5G products. Overall, the revenue mix stayed at similar level as the Q3. Next page is for the full year. Full year revenue is TWD 757.5 billion, down 17% year-over-year.
It's mainly impacted by the weaker global consumer demand, market competition, and our strategic business adjustment. However, our overall product mix improved. Now, PC revenue increased from 25% to 29%, while mobile PC account for 71%. The non-PC growth in 2025 include the smartphone, 5G product and the server. Please turn to next page for the income statement. If we look over Q4, Compal will continue with our efforts in the product mix enhancement and the business transformation. Q4 gross margin improved quarter-over-quarter to 5.8%. However, due to the seasonal increase in operating expenses and ongoing investment in our new business, Q4 operating margin remained flattish at a 1.4% level. We booked some non-operating losses in Q4, and we will provide the detail later.
Overall, the Q4 net profit was TWD 1.4 billion, and EPS was 0.32. Next page. Next page is on the full year performance. The full year gross margin increased from 5% to 5.6%, reflecting our steady improvement in the fundamentals. 2025 was Compal's first year of AI transformation. We ramp up investment in R&D and the new business. However, the revenue contribution from this new initiative haven't yet scaled, resulting in the limited operating leverage. Therefore, there is a slight decline in the operating margin from 1.6% to 1.4%. However, we believe these investments are important for Compal's next growth cycle. Overall, the full year net profit was TWD 6 billion and with EPS 1.38. Next page. Next page is the details on the operating, non-operating breakdown.
Overall, for the Q4 non-operating performance was mainly impacted by the investment losses, about TWD 213 million, driven by the losses booked by their equity method affiliates and our mark-to-market adjustment on some financial assets. For the full year-wise, non-operating losses was primarily caused by the TWD 1 billion foreign exchange losses due to the sharp NT dollar versus U.S. dollar fluctuation during the second quarter of the last year. Next is the balance sheet. If we look at the balance sheet, with improved the cash flow for 2025, Compal's total cash and its cash equivalent increased to TWD 83.3 billion at the end of the last year, which is account for 19% of our total asset. The total cash conversion cycle remained healthy at around 50 days plus in Q4.
Liability ratio remained stable at 66%, and book value per share was TWD 29.9 at the end of 2025. Let's move to next page. This page summarize the key financial metrics for the past three years, including the revenue, gross margin, operating margin, and net margin. We have been talked about that pretty much. Next page. Next page is the balance sheet trend for the past three years. If you look at the bottom left of the chart, you can see slightly increased the cash conversion cycle day in 2025 compared to 2024, was mainly due to the increased inventory day levels, inventory days, driven by the product mix and the inventory build up request by the smart devices customer in Q4.
Overall, the cash conversion cycle again stayed about like 50 days plus minus, still remain a healthy level for the company. Next, let's look at page 14, on the earnings distribution, the cash dividend for 2025. Last week, Compal, the board of directors meeting has approved the TWD 1.1 cash dividend per share for 2025, which representing payout ratio about 80%. The higher payout ratio shows Compal board's commitment to the shareholder returns. Updates on schedule here is that its dividend record date will be on April 4th, and the payment date expected to be on April 24th. Okay. This conclude the financial review session. Now I would like to hand over to Tony for the business update now. Okay, please.
We continue to focus on, in addition to the transformation efforts at Compal, in addition to the core business, the core PC business, the kind of plus five initiatives that we talked about, infrastructure solutions, automotive electronics, advanced communications, 5G, medical technology and industrial. In 2025, we showcased our high-density liquid-cooled AI servers at SC25, featured and powered by AMD EPYC processors and AMD Instinct GPUs. We also showcased our flagship AI server, SGX30-2, built on NVIDIA HGX B300 at SC25. In December, we joined forces with our medical affiliates showcasing group integration at the 2025 Taiwan Healthcare Expo. We were also recognized by Taiwan's top 100 sustainable enterprises for consecutive years, winning the prestigious awards at GCSA and TCSA.
We are also continuing to focus on the gaming area, introducing the Apache Neo handheld ultrasound device by Compal for healthcare and also in other areas, including gaming. Compal was again awarded the Ministry of Education Silver Medal in 2025 for advanced rural education and supporting underprivileged children. We continue to focus our corporate events on some of the things we're doing. If we go to the next slide, continue to focus on ESG achievements and investing in the areas of ESG. We won the Gold Award for Circular Resource Excellence by Taiwan's Ministry of Environment. We continue with Morningstar Sustainalytics Low Carbon Leaders Badges, recognizing our sustainable service and climate transition management.
Sustainability, we continue to focus on that area, and governance achieved the recognition of top 5% of Taiwan's corporate governance evaluation among other areas in that space. If we go to the next slide, I'll talk just a little bit about kind of our outlook and what we're seeing in the areas that we're focused on. In PC, due to seasonality, memory shortages, and rising component prices, we expect first quarter 2026 PC units to decline by 15%-20%. We expect the component constraints to persist in 2027, at least through 2026 into 2027, and we will continue to monitor the situation closely and work with customers on product planning and prioritization. For memory, you know, obviously our pricing is proprietary.
Not gonna share our specific percentages, but if you look at just the spot market for a gigabyte of DRAM over the last six months is up nearly 5.5 x at 239 Gb . NAND, the cost is about TWD 0.20 Gb , almost nearly 4x over the last six months. We continue to see industry analysts predict Q2 is up over Q1 in the range of anywhere from 20%-40%, Q3 at 5%-15%, and Q4 at 5%-10%. We will continue to see impacts throughout 2026 and into 2027. For smart device, supported by inventory builds in Q1, we expect our smart device business to deliver double-digit growth quarter-on-quarter in Q1 2026. For servers, we are seeing steady progress in our infrastructure server services business group.
We will see sales in our server business more than double quarter-over-quarter. In 2026, we expect server to be greater than 10% of total 2026 Compal sales. On non-PC diversification in 2025, our non-PC revenue achieved 29% of total revenue. In 2026, we are targeting 60%, 40%, about 60% PC to 40% non-PC. That's our business outlook, and we'll turn it into the Q&A.
Okay. Yeah. Thank you. Our Q&A session will be moderated by Ken from OpenExchange. You can raise your hand to get in the queue, and we'll make sure we pull you for questions. Actually, maybe I'll just kick off with two questions first, and then we'll open up to the audience. Tony, in the business outlook, you mentioned about the server greater than 10% of this year's sales. Could you talk. It does sound like an acceleration from what you were previously looking for. If you could recap just where you're seeing the strength, and how does the profile ramp up for the server business. And both just from a timing, if it's second half weighted, and how is the weighting between traditional and AI server. J ust start with that one.
Sure. Yeah. Compal server business is seeing strong customer traction, and the AI server platform progress and solid supply chain component management. We expect the server sales to more than double, as I mentioned, quarter-over-quarter in Q1 2026. We have solid order visibility through the first half of 2026 and into the second half. We also expect, as I mentioned, server revenue to exceed 10% of total sales in 2026. As we look at general versus AI servers, the growth being driven primarily by AI servers. We're seeing strong demand for HGX B300 and RTX AI platforms in the first half of 2026, and we expect AI servers to account for approximately 80% of the total server revenue in 2026.
Okay. No, that's helpful. Yeah. In Q&A, we may get some follow-up questions. Yeah. The second one, just before we open up to the audience, to go into the notebook guidance for the 15%-20% decline, is that maybe just the decline, is that a kind of a seasonal outlook where you're seeing just seasonal slowdown? And I'm curious how much it's the memory impact, either from the price hike we saw at some of the PC OEMs or is there any, like, outright shortage that might be impacting some of the volume where they can't get enough components? So yeah, just curious a bit more on the 15%-20% seasonal-
Sure
impact from memory.
I think what we saw in Q4 is some increased inventory build-up in Q4. Not a ton, but some, which would lead to some weakness in January. You, of course, have your normal seasonality. January is usually down 11%-13%, something like that. It's a little higher than seasonal. Some of that is by some of the build-up in Q4 that we saw. Again, I think the price increase is mostly impacting the consumer market. I think that's typically what's driving the January weakness. You know, we saw some in the earnings calls over the past, you know, several weeks, we saw, you know, Lenovo talk about mid-single-digit year-over-year decline.
We saw HP and Dell be a little bit more conservative in double-digit. I think Dell mentioned 11% or 12%. IDC recently came out with a revised forecast that's down 11.3% year-over-year to 253 million total PCs, and minus 11.4% year-over-year to 181 million notebooks. So they're very much in line with the Dell speculation. We do expect that it's somewhere in that range. You know, they say the market always finds a way. Through pricing and reconfiguring and really focusing the memory allocation for 2026 on the right products, you know, I think the revenue stays whole. Some people are even talking about revenue growth. We're talking about, you know, higher price band products getting, you know, more TAM, more share as there's a de-emphasis on lower end consumer and Chromebooks. Those are some of the dynamics that we see playing out right now.
Okay. Yeah, I may ask a follow-up. Let me see,
Let me see.
Yeah, I'll turn it over to Ken to direct if there's any questions on the line.
Thanks, Matt, Randy. We don't have any guidance yet.
Okay. Yeah, let me ask a few follow-ups. We're getting some in from participants on the line. Once they do, I'll look out for it in my email if you send a message to me. One follow-up. I'll ask a couple of follow-ups on the notebook business while we're waiting for questions. First, last year in the notebook business, I think you acknowledged there was a little bit more competition from China that affected market share. For this year, for the Compal business, like relative to the market TAM, how's your view on market share in the bidding for projects for this year?
You know, I think through the transformation efforts that we've been undergoing here, which, you know, range everywhere from just getting better at what we do through automation, through digitalization, through performance in the factory, to also just understanding what's happening in the PC notebook supply chain and kind of the alternative solutions that are available today. I think our feeling about our competitive position is way better today than it has been. I think we've looked at various different supply chain options for some key components. Outside of what maybe the largest OEM customers are constantly working with us on, right? Their AVLs, their standard vendors. We've also now found some alternative ways to manage things and design things and propose those solutions to our customers.
We're way more competitive today. If we're competing apples to apples with the same approved vendor list, the same supply chains, we can compete on cost with anybody. From a competitive perspective, we feel way better about our competitive standing now after much improvement through the transformation and through understanding those supply chain variables. For Compal, despite all the headwinds that we've talked about, we expect our PC business to remain flat to slightly up in 2026, which again reflects our transformation results on competitiveness, the automation, the digitalization, the rolling out of AI, cost reductions, et cetera.
Okay. No, good. Okay, I see questions. I'll turn it to Ken because I see Irene, Albert, and now Kai Han. I'll turn it to Ken to moderate that.
Yeah. Thanks, Randy. The first question comes from Irene. Irene, please go ahead.
Hi. Can you hear me?
Yes.
Yes.
Yes.
Hi. This is Howard from Morgan Stanley. My first question is to follow up on the notebook business. I think if you look at 2025, just among your Taiwan ODM peers for notebook, it looks like Compal was a share loser. Just wondering if this was a result of you pouring and focusing more of your resources on the server business, or was there any other dynamic that you know led to this kind of result? I know you talked about this year being flat to slightly up, just wondering what are you doing differently, I guess this year versus last year?
I would say, Howard, our focus on non-PC adjacencies to go drive revenue has not distracted us away from PCs. You know, we're totally separate teams, totally separate areas of focus. As I mentioned, you know, I think the reason we kicked off these transformation projects within the company over a year ago is because we recognized that we needed to get a much better handle on our competitive situation, our competitive roadmap, where we were going. You know, keep in mind that our business today, if we ship a product today for the first time, first mass production of a product goes out today, that product was awarded to Compal anywhere from 10- 18 months ago.
A lot of what you're seeing in share loss or some delay in that system because of the time it takes when we get an RFQ, we bid on an RFQ, we win it, we design the system, we take it to mass production. I think you know, quite frankly, our customers told us, you know, dating back a couple years ago that, "Hey, you need to catch up on digitalization, on automation, on just modern factory processes." That's what we've been hard at work on for the last 18-plus months. Really, the transformation exercises after we went through diagnostics, after we mobilized everybody, we've been at for about 12-14 months now.
A lot of that has been paying off with vastly improved productivity at our sites, vastly improved quality, you know, lower instances of human error on the line. We've embraced digital and rolled out AI, not just in the factories, of course, but also within our R&D department, within our supply chain area, within our quality and service areas. In a short span, we've caught up and positioned ourselves to be more competitive in those spaces.
Thank you. Very clear. My other question is on your AI server business. You talked about seeing strong demand for HGX as well as RTX platforms, but can you talk a bit about your opportunities within the rack-scale systems like the GB300s or the Helios rack from AMD? Are there any opportunities to see revenue contributions later this year?
Yeah. In terms of rack solutions, we are definitely working with AMD on some of the rack solutions that they provide. We continue GB300, you know, honestly is the life cycle of those platforms as we all have heard time and again from Jensen, is pretty quick, right? Like they're turning those within 12 months and a lot of talk now about Vera Rubin. We will focus on next generation. We will focus on trying to be enabled for Vera Rubin into the next phase of that development. We will definitely focus on rack solutions this year. That'll be a big focus for us.
Got it. Thank you. Just one last follow-up on that. For Vera Rubin, is your intention to primarily do level 10 or level 11 assembly? Thank you.
Yeah. We will initially start with level 10 and then migrate to level 10 and level 11.
Got it. Thank you so much.
Thank you, Howard.
Thank you. We have the next question from Albert. Albert, please go ahead.
Hi. Thanks for taking my question. This is Albert from JP Morgan. My first question is, Tony, you showed some color, product pipeline for AI server mix. Get more color, the customer mix for at least 10% AI server contribution. Is it fair to assume majority of lab business is coming from existing customer, or we should see also some new customer? Thank you.
No, I think for the server space, you can expect us to have some new customers as well, not just existing customers. You know, we look at you know whether it's kind of regional customers, whether it's you know some of the hyperscalers that we're talking to or some of the enterprise customers. We'll continue to support old friends as well as gain new customers in that space.
Understood. Thank you. How should we think about the profitability for the business in terms of the pricing? Is it fair to assume more aggressive pricing for Compal to, say, capture the business in early stage? How should we think about the OpEx, the OpEx leverage in the business?
Yeah. I think gross margin, overall gross margin for Compal in 2025 was 5.6%. You know, we expect some pressure on that as our server investments ramp up in 2026. Right now we see the server business as slightly above that number. As we transition more of the business from a board level business to L10, we'll see it migrate more towards that number. You know, just the scale of it will obviously deliver more operating profit for us, but it will end up somewhere about where we are today.
Understood. Lastly, the notebook one, I know you have shared some covers, but I guess there's still a lot of market concerns on the competition from China, especially they have a lot of subsidy from local government. If we have very high confidence to reverse the market share trend this year, could you share how much, what kind of, say, change are we seeing from the competition side? If we're going to outperform the market, is it because some market share gain in the existing customer or it's more like a new product share gain for this year?
No, I would say that our PC business, as I mentioned earlier, our Compal's PC business, what we see will be flat to slightly up this year in the face of a lot of headwinds. We kind of agree more with Dell and HP. It's probably more conservative, you know, double-digit decline. There'll be some growth to market, if you will, in that space. I think it's. We're already seeing it, right? We're already seeing some wins. You know, from a subsidy perspective, we heard a lot of the same things.
As we really go in and dissect, you know, the competition and look at what's happening, really it's more of kind of rethinking supply chain a little bit and also just rethinking overall, design, guidance design, tolerance levels, things like that. When you start looking at those types of things, you know, there's new supply chains. There's new opportunities in the supply chains which can provide lower cost components that in some cases weren't considered in the past that could be considered in the future. I don't believe that the government subsidies are really that's what's making the difference. Again, I think if we're competing apples to apples, you know, we produce in China too. We deal a lot with the local governments over there. We believe we can be cost competitive with anybody on an apples to apples basis.
Understood. That's clear. Thank you. I'll go back to the queue.
Thanks, Albert.
Thank you. We have the next question comes from Kai Han. Kai Han, please go ahead.
Hello, can you hear me? Thank you for accepting my question. Kai Han from Fubon Life. My first follow-up is about the PC business. Just want to be clear whether the guidance of PC to stay flattish to slightly up this year is due to the ASP growth or just the shipment-wise or the market share-wise.
That's just a unit statement.
Yeah.
We expect the revenue. I mean, I think people will do some co-component matching, right? How much memory are we getting and then where are we gonna place that memory? We expect, you know, we expect ASPs to be better obviously as pricing goes up. We expect the revenue side of things. My statement was strictly from a unit perspective.
Okay. Understood. Thank you. That's very clear. My second follow-up is about the server business. Could you please remind us about the percentage of the revenue contribution from server last year?
Kai Han, last year is low single-digit from server revenue.
Yeah. Understood. We have very ambitious target for server business for this year and the years to come. I also very curious about the funding. Since most of the ODM players on the market has been raising an additional funds to support the growth of server business. What do we need for the extra funding for the future?
Well, we can't talk about everything that we're doing, but we are obviously aware of those fundraising efforts on some of the convertible bond efforts that happened, and we are pursuing some of those avenues as well. Stay tuned, more to come.
Yeah. Actually, Kai Han, Compal Board of Directors approved the ECB funding proposal last year in November, $600 million, and we also get approval from the FSC. We get approval. Overall, I think, you know, how, when to implement that and when to issue it actually still depends on how overall the market condition and as well as the Compal overall, the working capital financial needs, right?
Yeah. Understood. Thank you. That is very helpful. My final follow-up is about the profit margin percentage-wise. Since we all know that the AI server may have some pressure on the gross margin rate and the OP margin rate as well, what is our forecast for our overall margin ratio for the years to come?
Hey, Kai Han, actually, you know, we cannot give a specific number, right, so on the margin percentage, right? Overall, I think, Tony already gave you some overall color on how we think about the margin trend for this year, right? Gross margin, when for Compal this year we are getting the more revenue contribution from server, and the server business model actually trending from the core level to the full system level. Definitely, that will be put some pressure to the overall company's gross margin rate. Overall, if you look at the product by product wise, we still see the very healthy margin rate for each product wise, right? Overall, fundamentals-wise for Compal is still solid, and we will continue to actively manage their product mix, productivity, and efficiency overall to mitigate the potential impact there. Yeah.
Yeah. Understood. Thank you.
Thank you. We don't have any questions yet. Randy, I'll get back to you.
Okay. Yeah. Thank you. I'll ask a follow-up actually to Kai Han's question on margin. Within the notebook business, factoring the pass-through should, because you mentioned server will have a little bit dilution, but within notebook, because you already have a bit of unit growth, but then component cost inflation, should we model just due to the higher pass-through a lower margin for the notebook business while we go through the memory price hikes?
On an apples-to-apples comparison on a SKU, if you look at the working capital and the memory costs and what we're carrying through, it's about $100-$150 per unit is kind of what we're talking about.
Yeah. I think as for Tony's overall comment here is that, you know, if you look at the margin rate, right? Definitely there will be downside overall to the ASP, right? Given the higher BOM cost. Actually, on the margin dollar-wise, actually it's really no impact because it's just pass-through.
Okay. Yeah. No, that's right. It's the inflation of revenue. We should be thinking the units, unit growth, and then getting a dollar margin on that if it's a low single unit growth, and then the ASP uplift is mostly the pass-through on the revenue.
In ASP will be also several factor dynamic there, right? Will be impact on the overall BOM cost, but overall also will be depends on how is the commercial consumer performance for this year, and also depends on how is the customer they're adjusting their configuration on the models, right? That will be the impact on overall blended ASP.
Is there a way to think about, because you have a few trends, I would think, you know, maybe if you can see how you're seeing commercial versus consumer and also premium. Is there a discernible trend where we should think factoring the adjustment of configuration, focusing on premium? Like, do you see a discernible year-over-year ASP trend, on top of versus the units, like in addition to memory also?
Yeah, I think that's a good point. I mean, obviously, with the trends that we're seeing, the price is up, right? It's gonna blunt consumer. We see commercial continuing, you know, the kind of Windows 10 refresh is continuing into 2026. It's like the longest protracted refresh cycle that I've ever seen. But that'll continue. We'll see a stronger commercial customer. They're also, you know, picking up AI PC. We expect AI PC to reach about 60%, or, you know, high 50%, 60% in 2026, 80% in 2027. More of a trend for, you know, higher compute, higher CPUs, higher capability CPUs, memory, etc. Yes, we expect to see, you know, commercial stronger than consumer, given all of the headwinds and the consumer and economic sentiment.
Okay. Is there behavior? I mean, the guidance doesn't seem to reflect it, but there were some talks about pull-in, if the channel and customers now are aware of the memory price, then it pulls in demand. Are you seeing that overall or in the commercial?
Saw a little bit of that and not with commercial. We saw a little bit of that in Q4, anticipating memory prices going even higher. That led to what we're seeing now, which is still kind of a lower cost inventory position, which is quickly, you know, going away. We expect probably this month, sometime in the March timeframe, certainly by the end of March, all that kind of lower cost inventory gets flushed out, and now we're dealing with the new cost, new pricing.
Okay. On the margin side, the OpEx I think last year grew 5%. As you grow out the server, is there a thought on the range you're planning for the OpEx and also with the U.S. expansion? You could go through on the CapEx, kind of where we were last year versus expectations for this year.
CapEx. Randy, your question is CapEx, right?
Actually, sorry, I asked two parts. I asked, OpEx, like the expectation after growing 5% last year for OpEx.
Oh.
Also the CapEx last year, where it ended up and this year.
Okay. OpEx, if you look at OpEx, you're right. Last year, TWD 32.1 billion, right? Increase about 5% year-over-year. If you break down into the details that the mainly increase actually is our investment in R&D. R&D is about like a TWD 20.2 billion, so it's up about like a 7% year-over-year. However, the marketing and the main expenses is only grow like 2%-3% year-over-year. That shows. Overall, the increase of OpEx shows that the company can continue the investment in the new business in the R&D. This kind of investment for the new business R&D definitely will be continuing to 2026 this year, right?
However, as you can see that the company actually will still closely monitor our overall expenses trend, and to take the disciplined approach to manage the OpEx growth while supporting the long-term growth. That continue to be their approach and our expectation for this year on the OpEx side. Okay? On the CapEx side, CapEx actually last year, if you look into the cash flow statement, is about like TWD 8.2 billion, the CapEx for Compal last year. Compared to historically, we're running about TWD 7 billion CapEx. Incrementally, we add another TWD 1 billion CapEx last year is mainly for ramping up our U.S. factory, right? And overall, those are the investment going to continue, right? As we mentioned this year, we're going to see a lot of the growth from the server side.
This year, the overall CapEx plan is about TWD 18 billion. Okay? Incrementally, we are expecting to increase an additional TWD 10 billion, the CapEx for this year. Roughly, the TWD 6 billion will go into the server-related investment, including our building the server lab in Taiwan and the capacity, some additional capacity in Taiwan, some SMT line in Vietnam, as well as the capacity ramp for U.S. factory. Right? And also additional TWD 4 billion will go to Taiwan, our headquarters construction spending. Okay? That's some details on the CapEx.
Okay. Oh, Tina, I might have missed it. You said TWD 6 billion server, TWD 4 billion Taiwan headquarters. Oh, that's for the increase.
Yeah.
Or is that... And then, um-
Yeah. That's the increase, TWD 10 billion, right? Last year is TWD 8 billion. This year guidance is TWD 18 billion.
Okay. Which is incremental. Okay. Since we're waiting for a question, I'll ask a couple others. To clarify, I think you mentioned last year server low single. We should assume Q4 just for the doubling year-over-year that we're not off. It was still at the end of the year, low, like low single digit, a couple percent of revenue for server by Q4?
Yeah. Last year, Q4 still also low single-digit percent.
Okay. Then a follow-up on server. I think originally your plan was 5% going to 10% by reaching that in 2027. Now if you could do an initial look forward that, maybe a rougher level, how are you thinking about the further growth as we go into the Vera Rubin, or we'll start to go to more advanced like AMD Helios. How do you, I mean, should we expect or see potential, another like we get to 15%-20%? Is there kind of a rough look how you see that server business scaling out as we go out into 2027?
Yeah. I think, I mean, depends who you ask, right? If you ask my boss, yes, absolutely. We're gonna, but we do see again, a strong pipeline. We are talking to a lot of customers and potential customers, and capacity is something, you know, qualified, very good capacity with good yields, good quality, good automation is in dire need. So we believe our timing to the market is great. We believe that there, you know, there could be a path, certainly by 2027, we believe that 20% number is absolutely achievable.
Okay. Yeah, great. Oh, I see a question on the line, so I'll come back in the queue.
Yeah, next question from Kai Han. Kai Han, go ahead.
Thank you for accepting my question again. I'm just wondering whether you could give us more colors on the competitive advantage on the server business, especially for those like HGX and RTX model. We have seen many players on this market, such as like Supermicro, Gigabyte, and their gross margin seems to be some erosion there due to the price competition between those player. How do we stand out in this AI server market in the future?
Yeah. I think for us, you're right, and especially as we talked about, you know, kind of standardization of the rack and things like that, things are getting more, you know, getting more crowded from a competitive perspective. We believe that our background in being best of class in manufacturing, delivering quality solutions, providing state-of-the-art manufacturing facility, and providing the proper engineering resources, both in the design phase and also in the factory, is critical. We also believe there's a critical element of back-end service and being able to service the products that are whether they're failing in the factory or whether they're failing in data centers. Being able to have the right level of service infrastructure in region, we believe is absolutely very critical. We're looking at a total kind of end-to-end solution to provide, you know, a competitive advantage to a crowded market.
Yeah. Understood. Thank you so much for the color. A follow-up question is about the funding. Like many, many ODMs players on this market for now seems to be adapting the buy and sell mode for their server business. The more revenue they gain, the more funding, demand they need. Do we consider like the consign mode for the server business in the future, or the buy-sell will be the main mode?
As we talk to new customers, there's always new ideas in how to do this, and we are actually looking at some consignment models as well. It doesn't always obviously have to follow a traditional break-fix or buy-sell type of model that we're used to. We're open to anything. Recognizing the amounts of capital that it takes to hold the inventory and to run these types of businesses. We are talking to customers about a variety of different options.
Yeah. Understood. My final follow-up is also about the server business. Since the DRAM and SSD prices are just going higher and higher in the recent quarters, is there any impact you see on the server demand, whether it's AI or non-AI for now?
No. We don't see anybody. Now, let me put it this way. The prioritization that's been made for HBM and to kind of prioritize higher-profit memory and storage products are leading to obvious changes for PCs and non-PCs, consumer electronics, everything like that. We have not seen any shortages or reports of shortages in the server, AI server space. Yeah, the lead times are longer to fulfill POs and those types of things, but by and large, we've not seen any shortages, so to speak, in the server area.
Yeah. Understood. Thank you for the colors.
Okay. Thank you.
Yeah. Thank you, Kai Han. A follow-up question, Tony. On the server mix, you had mentioned earlier L10 moving to L11. For the profile between HGX, which your focus has been versus doing the bigger NVL72, how do you see the mix evolving between those? Is it gonna mostly, as the revenue scales up, be driven by ramp of the full NVL72 racks?
Yeah. Well, certainly gonna be driven by just the transition to L10 as we transition our business from mostly board business or majority board business in 2025 to way more L10 this year. Yes, it'll be driven by you know the larger racks, but also again, we're seeing strong demand right now for B300 and other products as well.
The demand on B300, because we've had a few recently, like Dell has talked about it, even CoreWeave and NVIDIA mix of HGX is higher. Are you seeing a new inflection like diversification out for those B300, or is it just more supply able to go into that market? Like, how are you seeing the demand trends, like what's driving B300 now?
Yeah. I think you know, clearly, demand, the availability is certainly one thing, and then I think there's certain workloads that are being identified that can maybe be more economically run on that. You know, the usage and applications are evolving, but of course, the availability helps a lot.
Okay, great. Actually, I wanted to ask a question on Vera Rubin’s that NVIDIA for certain customers may standardize where they'll control more of the L10 value chain for the racks. Are you seeing that change in business model? How do you see participating? Would you be participating in those? Is there like any change in economics or how it would impact the Compal server ramp if you are seeing that?
Yeah. No, I think there's a vested interest. I think NVIDIA has a vested interest into controlling more of that because of, you know, I think with GB200 and GB300, lots of complexity, lots of manufacturing complexity, lots of people doing customization and changing things, I think also led to a lot of complexity. I think to clean that up, I think there'll be a, you know, kind of a much greater focus on standardization and on, you know, design for manufacturing and less customization. We'll fit within that model, and we'll compete based on the things I mentioned earlier about how we provide a competitive differentiation.
Okay, great. We have a little bit of time. There's one or two areas that I think you still may wanna cover. We focus on notebook and server. If you could give a sense on the other like growth pillars and expectations for this year just for other applications like automotive, 5G, smart devices, just how like if you see any growth engine or potential, how you see those businesses.
Sure. Yeah. You know, as I mentioned earlier, we've got several growth pillars in addition to. We talked a lot about notebooks and servers today, primarily, of course, automotive, 5G, industrial, med tech. You know, a lot of those businesses are going through changes, automotive especially. You guys are aware of a lot of the last two or three years, I guess, or more maybe, that industry's changed pretty radically. Our growth pillars in 2025 grew almost 20%. That's AI, again, AI servers, automotive, 5G, and medical. You know, 5G, we saw related revenue nearly double in 2025, and we see that momentum continuing into 2026 as we look at more not just 5G, but also 5G integrated into solutions.
That brings in the industrial part of it. You know, auto and medical, as I mentioned, auto changed pretty radically. Medical, you know, we think there's a component of M&A involved in medical growth, and there are some opportunities for us to continue to look at that. Both of those areas remain strategic to our long-term growth, and we're adjusting as needed. With automotive, for example, we're focusing way less on contract manufacturing. You guys have heard me talk a number of times in these calls about diversifying away from EMS businesses and contract manufacturing and looking more towards ADAS and thermal-enabled detection systems and other higher margin, you know, full component solutions for automotive. We continue to invest there, knowing that, you know, automotive takes time.
A dollar of revenue spent today or a dollar of R&D expense today, you may not recoup that for two, three, four years just based on the timing of some of that business. Still important. We still continue to invest and again, collectively, those non-PC pillars grew 20% in 2025.
Okay. The last one, I think, and then I'll turn it back to Ken if no other questions. The smart device, I think in your business outlook, you said double digit sequentially for inventory build. First quarter will start to rebound. Do you see much momentum for smart device for this coming year?
I think what we're seeing is just based on a customer profile or a couple customers profiles that we have that require inventory builds in Q1. I'll call that somewhat seasonal for those types of businesses. I would say overall, you know, the consumer electronics market, the impact of memory is pretty minimal. I think, I mean, it's still everybody's scrambling where we're gonna get memory from. I said, I think the industry always finds a way, but the, you know, the usage in most of those devices is pretty low.
You know, that's not just memory prices, but also other component prices we think are gonna cause consumers pause in these economic times and as people think about you know the affordability issues that they're dealing with and some of the economic sentiment. You know, we expect some of those areas like smartphones, we think is down low double digits year over year. I think watches, you know, wearables also probably flattish, that type of thing. I don't think anything major in that space, but nothing stand out in terms of growth either.
Okay, great. No, that's helpful. Okay, let me turn it back to Ken. We can pull up any other final questions before we wrap up the call. And then we'll hand it over to Tony for closing remarks. Ken, do you wanna see if any final questions?
It looks like we don't have any questions yet.
Okay. Yeah. No, let's then hand it over to Tony Bonadero to do the closing remarks and yeah, ahead of that, I just wanna thank everyone for joining the conference call. Let me turn it to Tony.
Yeah. I'd like to also thank everybody for joining today's call. We continue, as I mentioned, to focus on the transformation effort of Compal, kind of rebuilding a lot of our businesses and how we serve them, in some cases, if we serve them, right? Selectively looking at every dollar we're investing across the business and in the areas that don't make sense, that don't align with our strategic vision. We are decisively moving away from those businesses and reconsolidating in others. 2026 is kind of a touchstone year for us because we believe that a lot of the efforts that we've been putting in these adjacent businesses and these growth pillars and in the transformation all kind of start to take root this year in terms of results.
Well, we think we have a really good story in the second half with servers. Again, a strong momentum now, but we think that continues and we look forward to talking to you guys next time and updating you further. Thank you very much.
Great. Yeah. Thank you, Tony.
Thank you, everyone. Have a great one.
Okay. Yeah. Thanks, everyone. Feel free to reach out to the Compal team or also to us if any follow-up questions. Appreciate everyone joining. Thank you.