Hello, good afternoon everyone, and thank you for joining us today for Quanta's Second Quarter Result Webcast. Quanta is a leading solution provider in notebooks and cloud computing, and they also continue to innovate in the era of data economics, exploring new opportunities including quantum computing as well as satellites. My name is Howard Kao, and I'm the coverage analyst here at Morgan Stanley . We are very honored to have Mr. Chee-Chun Leung, Vice Chairman and President, Mr. Elton Yang, CFO and spokesperson, as well as Carol and Ali from the IR team here with us today. We look forward to their insights and comments on the company as well as the market. Carol will first walk us through second quarter results and also provide some forward-looking commentary. After that, we will open it up to questions. I would like to turn it over to Carol for opening remarks. Carol, please.
Thanks, Howard. Good day and welcome to Quanta Computer's Second Quarter 2025 Earnings Result Conference Call. Maybe there's some echoing. Good day and welcome to Quanta Computer. Welcome to Quanta Computer. Second Quarter 2025 Earnings R esult Conference Call. The call is called Talking about the DevOps Standards. The presentation material for today's call is available in the form of a mock and on Quanta's website at q2w.quantacu.com under IR Specialists. This is Carol. I'm joined today by Quanta's management, Mr. Chee-Chun Leung, our Vice Chairman and President, Mr. Elton Yang, Chief Financial Officer and Senior Vice President, and Quanta's IR team. We will start with the financial presentation. After that, the management will have the opportunity to share our view about the business and industry outlook. During this call, we will be making forward-looking statements, which are predictions, projections, and other statements about future events.
These statements are based upon our current expectations and assumptions that are subject to lots of risks and uncertainties. As such, the actual results differ materially from our forecast. We undertake no obligation to update or revise any forward-looking statements. Now, let's walk through the financials. Revenue reached a record of $504 million in the quarter, up 3.8% quarter-on-quarter and 62.6% YoY. Even as the sharp rise in Taiwan dollar has weighed on the top line by growing substantially since revenue. Modern forces have driven investment robust year-over-year, by elevating bottlenecks in high-end AI server rack evaluation, as well as stronger and expanded local systems. We shipped 12.1 million units of notebooks in the quarter, up 12% quarter-on-quarter and 3.4% year-over-year, all testing our previous forecast on high-second digit situation work.
That outperformance was driven by a pull forward in demand, as customers have generated orders to mitigate U.S. tariffs-related price increases. This trend aligns with broader industry behavior observed in 2021, where OEMs globally have front-loaded notebook shipments, particularly into the U.S., as a hedge against expected cloud pressure, resulting in two consecutive quarters of special shipment upside. The company's gross profit was $35.5 billion, down 7.7% quarter-on-quarter from the record of $38.5 billion in the first quarter, and grew 33.5% year-over-year. Gross margin came in at 7% quarter-on-quarter, representing a decrease quarter-on-quarter and 164 basis points decline year-over-year. We estimated that FX volatility accounted for roughly two-thirds of that decline, and the remaining margin reduction stemmed from product mix. While servers maintained a steady 65% - 70% in revenue share, our mix shifted toward higher-end AI rack.
AI servers continue to grow, higher-end units scaling up, and offsetting the supply of lower-end models. Though this mix shifts, it puts downward pressure on margin rates. Operating profit totaled $20.4 billion in the quarter. The reserve for the sector is the second highest level in the company's history. That reflects a decline of 17% from the record $24.6 billion achieved in the prior quarter, yet an impressive 34.2% gain from a year ago. The operating margin for the quarter was 4%, which declined by 102 basis points quarter-on-quarter and 86 basis points year-over-year. Operating expenses were $15.1 billion for the quarter, grew from $13.9 billion last quarter, or 9% sequential increase. On a year-over-year basis, both have increased by 33.4%, primarily due to R&D expenses associated with AI development, continued talent recruitment, and increased employee compensation. The worldwide strong sales momentum of 62.6% growth year-over-year.
All pass ratio stayed at 3%, reflecting that the all-pass increases remain disciplined and sufficient to drive growth. Non-operating income for the second quarter was $1.2 billion. The primary items included net foreign expenses of $668 million and net interest expenses of $213 million. The remaining operating income of $759 million stemmed from equipment disposal. Stepping down the income statements, the net income after tax came at $16.9 billion, decreased by 13.5% quarter-on-quarter and grew 11.5% year-over-year. The net margin after tax was 3.3%, which declined 67 basis points quarter-on-quarter and 165 basis points year-over-year, respectively. The tax rate for the quarter was 21%. All of the above concluded earnings per share on $4.34 for the quarter, representing a crucial decline of $0.69, but an increase of $0.45 from the same period last year. Please switch to the next page.
The first six months of 2025 delivered record-breaking results. Our revenue growth from operating profit and net profit all hit the all-time highs. Local shipments reached 22.9 million units, up from 32.2 million units a year ago, representing an increase of 3.2% year-over-year. Revenue for the first half came in at $990 billion, grew by 74% year-over-year. Gross profit for the first half reached its record of $74 billion, grew from $48.6 billion the same period last year, implying 52.4% growth year-over-year. Operating profit was $45 billion, showing a surge of 67.3% year-over-year. The net income after tax was $36.4 billion, which grew 33.7% year-over-year, and EPS for the first half was $9.43. In terms of margin rates, gross margin was 7.5%, declined by 106 basis points year-over-year.
Operating margin was 4.5%, dropped to 18 basis points year-over-year, and net margin after tax was 3.7%. Switching to the balance sheet, cash flow shortening value at $194 billion, decreased from $215 billion at the end of last quarter. Account receivables reached $395 billion, down from the record level of $451 billion in the previous quarter. Inventory increased further this quarter, reaching a record $286 billion. The rise was primarily driven by ongoing AI submissions and the preparation of new generation AI project development. The shareholders' equity attributed to the parent company was around $188 billion, decreased from $193 billion at the end of the previous quarter. During our last financial report, we announced the increase of the four-year CapEx budget to $20 billion.
While the CapEx for the first half totaled $7.6 billion in cash savings, we fully expect a significant acceleration in the second half to meet the planned target. This anticipated increase reflects our commitment to strategic growth and the continued execution of our investment program. We are pleased to announce that our Board of Directors today approved several significant investment projects. This includes a capital injection of $170 million U.S. dollars into our 100% owned U.S. subsidiary, QSM, reinforcing its operational capabilities and accelerating AI server capacity expansion in our U.S. site. To address tariff-related cost impacts on AI server production, our Mexico facility will kick off its expansion later this quarter upon customers' requirements. The infrastructure and facilities are adjusted as needed and scaling up for AI server manufacturing.
This adds extra flexibility to support our major final phase of assembly operation in the West Coast and the middle of the U.S., alongside our existing AI production facilities in Taiwan and Thailand. We expect that the AI production in Mexico will start pilot run at the end of this year and begin mass production in early 2026. Additionally, the Board has approved a $50 million investment in Quantium, Inc., a U.S.-based company specializing in quantum computing technologies. This strategic goal aligns with our long-term objective to explore and invest in next-generation computing innovation. By engaging with industry pioneers at an early stage, we aim to position ourselves to capture emerging opportunities as the commercial potential of quantum computing evolves. Turning to our server video, the supply chain has successfully achieved commercial ramp-up for the GB200 platform in the quarter.
Looking ahead, the next-generation platform is just around the corner and is set to enter the market soon. For the third quarter, we expect AI server sales to maintain a similar pace as Q2. This is primarily driven by the initial small volume shipment of the new GB300 platform, which is expected to start toward the end of the quarter. Initial feedback from the supply chain on the new generation has been positive, suggesting that the ready process from the pilot production to mass production for GB300 is likely to be smoother than with the previous generation. This has prompted some of our clients to adjust their project plans, slightly slowing down their impact of the prior generation product. These customers are keen to move quickly to the new generation of servers, take advantage of the higher computing bandwidth, and improve the capital expense efficiency that the new platform offers.
We believe this quick migration is a healthy sign of a strong sustained AI spend for the adoption of adaptive technology, and sets a solid foundation for accelerating AI server business in the coming quarters. On the other hand, momentum in general compute servers is strengthened after a strong shift in the first half. Overall, general compute servers are returning to healthy growth for the four years, reflecting a recovery in demand compared to last year. In the notebook segment, we are seeing stable shipments in the third quarter, slightly ahead of what we expected a couple of months ago, following better than seasonal demand in both the first and second quarters. We now anticipate low single-digit sequential growth in the third quarter. However, we expect a so-far fourth quarter that some demand was pulled forward earlier in the year.
That said, we are maintaining our four years of optional guidance of single-digit year-over-year goals. Turning to our auto business, we've shifted our focus and prioritized resources toward higher value and custom-based products by investing in Quanta Computer. Elton Yang, as the result of this strategic achievement, auto sales slowed down year-over-year in the first half; however, margins remain constantly above the corporate average. With the AI server outgoing, auto's contribution will be diluted to low single-digit of total sales for the year. In the third quarter, we expect to see some pressure on our margins. This is primarily driven by a shift in our revenue base, with major shipment momentum from higher-end AI server models, offsetting a more moderate sales contribution from other product lines, including general compute servers, notebooks, and auto-related products.
On top of that, we expect some residual margin pressure from second quarter's FX volatility to carry into the third quarter, primarily resulting from the material pooling problem. FX assets often flow through the financials with a delay, causing a less impact due to timing differences between revenue and cost recognition. In terms of operating expenses, in view of new customer acquisition and more project weight, we anticipate ongoing increases in our R&D expenditure as we continue to invest in the upfront cost of new project development. During recent earnings calls, hyperscaler customers have consistently reaffirmed their commitment to continue to develop AI. They are focused on leading their foot in both the AI infrastructure and application market. This is at a high-stake competition. While we all hope for downsize, the spirit is not the best, centered on the computing power, talent, technology, capital, and energy resources.
Our demonstrated strength and track record have earned us the trust of more customers and secured new projects, providing us with a critical opportunity to widen our leadership position in the AI server market. Experienced and high-skilled R&D engineers in AI server design and manufacturing are a scarce resource globally. The competition for AI talent is intensifying, and we believe our people are the ultimate key to our success. Over the past few years, we've been steadily strengthening our R&D pipeline for AI, a critical pillar of our long-term strategy. We are working on multiple fronts to deepen our talent bench, retain our top performers, and attract the best people in the industry. This includes expanding recruitment efforts, significantly enhancing compensation, benefits, and bonus programs, and optimizing resources allocation through internal mobility.
This initiative has not only boosted our competitiveness in the talent market, but also helped us maintain a high retention rate among our most critical R&D personnel. We are seeing a lot of promising opportunities, but that also means we need to tackle some internal and external challenges and make sure we have the right resources in place to support that growth. As our business continues to scale, we are seeing a corresponding increase in our working capital need to support it. To proactively maintain strong financial profitability and a healthy balance sheet, our Board of Directors has approved $1 billion ECB usage and a refinancing program of $1.5 billion dedication loan today. The strategic combination allows us to fund our robust growth while minimizing shareholder dilution and capitalizing on favorable market conditions.
Following a successful distribution of a record high of $15.2 billion in cash reserves, or $13 per share in July, we remain committed to providing long-term sustainable and above-market shareholders' returns. Despite an external environment that continues to present challenges from U.S. tariff policies and currency fluctuations to geographical factors, our management team has delivered on its commitments. The solid performance of the second quarter result is a powerful testament to our operational excellence and the resilience of our business model. We will build on this momentum and continue to deliver superior long-term value for our shareholders. That concludes the review of the second quarter result and business outlook. We'll now open the call to Q&A. Please submit your questions to one and one follow-up. Thank you for standing by. Now, may we introduce the first question, please?
Yes. Thank you, Carol, for your prepared remarks. If you'd like to ask a question, please raise your hand. Before we get to the questions in queue, Carol, can I quickly ask you, maybe there's some audio issues on my side, but your prepared remarks on AI server comments, can you please run through them again?
Thank you. The balance sheet or?
Just on the AI server part in your prepared remarks. Thank you.
On the overall AI server shipment, we'll remain at the similar pace as it was in the second quarter. There will be some project migration from the prior generation to the new generation. The final round of the new generation is expected to start at the end of the third quarter.
Got it. Thank you. Before we get the questions on the queue, just two questions from me. The first question is on AI servers. I think last quarter, Elton, maybe you mentioned that there is some supply constraint in terms of GPUs for these GB200 racks. Is this still the case? Is that the reason why maybe some of your competitors are seeing stronger revenue momentum while you are not? Can you just kind of touch a little bit on that versus what you saw three months ago? Thank you.
Now it's loud.
Howard, this personally, it's not exactly a good comparison between the key suppliers for ODM for the GB200, 300s because different customer needs, different client needs. As we touched on the prepared remarks, the GB200, the delivery is greater ease. It's getting smoothly worse. During the time, customers try to enter into the transition into the next product cycle of the GB300. Different customers, different adoption curves and the schedules. Some of them are shifting gear to the sensor adoption of the next-generation products. Anyhow, we still see the demand is very strong. Different customers, different schedules, this kind of mix wild. In terms of the different ODMs, some of them have different customer needs. More comfort customer products, some of the different product mix is more comfortable instead of low level. Different profiles, so kind of hard to do a peer-on-peer head-on head-on comparison to keep up.
In terms of year-on-year, we still see the over 25% growth in year-on-year. It's still exciting about the involvement. It wasn't exciting about the customer migration progress. We're still excited to see the new emerging customers still excited about our performance in the GB200. They are more than happy to work with Quanta. We'll see more new projects bring and the emerging customers to work with. A few more comments about this involvement for our AI business.
Yes, thank you. Very helpful. Elton, one follow-up from me. Within your AI server, especially these GB rack projects, I think previously you have mentioned that most of your projects are still by itself, where your ASPs will include the price of the GPUs. Is that still the case, or have some of these projects now transitioned to more of a consignment model where the GPUs are not included in the final ASP?
Almost all customer business models still are on the buy-and-sell model. Very few projects are on a consignment basis. We still keep it on the buy-and-sell model for now and keep going on that kind of business model.
Got it. Very clear. Thank you.
Sorry, Howard. What is the plan? Why is the margin to be diluted?
Got it. Perfect. Thank you. Very clear. Now we'll move to questions on the queue. The first question will be Timson Lee. Please go ahead.
Yeah. Thanks, Howard. Hi, Elton, Chee-Chun, and Carol. First of all, I think congrats on the solid quarter. I'm also asking on behalf of Randy. I've got a question and a follow-up. I guess related to AI servers in July, do we see the July softness in sales mainly due to the transitional period of AI servers, or do we see other reasons for this?
Okay. As we touched on in our prepared remarks, we see the customer actually has entered into the transition migration. Some of them moved migration phases into next generations. That's why it's a couple of different agendas and the schedule discussion curve. Let's explain what the month-on-month AI strategy we expected. By year-on-year, still on the double 20% over the growth rate. That's why I'm trying to explain our business for customer profile and the product profile is different with others. It cannot be a direct comparison.
Okay. Thank you, Elton. That's a good color. Could we expect that July and August to be more of a transitional period ramping up the next-gen platform in September? I guess how should we think about the ramp and the throughput there?
As we mentioned, we're starting from the end of the quarter. It starts more shimmering out from the earlier first quarter. The revenue will gradually accelerate progressively, quote-unquote.
Thank you.
Okay. Thanks, Timson. The next question will be Kai Huang. Please go ahead.
Hello, management team. Thank you for accepting my question. My first question is about the margin profile. As we have mentioned in the pre-built meeting, we mentioned that maybe the higher percentage of high-ASP or AI server may have a dilutional effect on our gross margin. My question is about whether or not this trend will continue into the future, since some of our competitors have mentioned that we may have some ability in the corresponding component of AI server, which may yield a better gross margin in the future. My question is about the margin profile, about the impact from AI or high-ASP AI server in the future.
That's a good question. By nature, by principle, when they enter into a high, extremely high ASP product, by nature, the margin rate should be diluted. On the other hand, to lower down our total cost is our mandate. We'll always keep moving on to provide the lowest TCO product for the customer and for the contact as well. That's why our migration has more automation for our product. Where we have our affiliate to provide a kind of robotic arm to help us, that's a twofold in this one. By nature, when you migrate to the next high ASP product, it should be diluted. Our mandate, our regular cost to lower down the production cost. Again, when we get a learning curve from a GB200, we are expanding to about a GB300 euro. It also helps cost as well. I would say it's a mixed one.
Understood. Appreciate that. My follow-up is about the overall server revenue forecast for this year. As you have mentioned, we still expect triple-digit growth from AI server this year. What I'm curious about is that since the revenue seems to be flat quarter-o ver -quarter in the third quarter for the AI server, you had mentioned some transition problems. Do you still see the same size of revenue contribution from AI server as you see at the beginning of this year? Is there any difference from what you see in the first quarter in this year?
By far, it's still on track. We're still targeting for that. This is kind of about the allocation and the distribution between the AI server and non-AI server. We're still targeting that and still aim for that. By far, it's still on track.
Okay. Understood. Thank you.
Thank you, Kai. Next question will be Albert Hung. Please go ahead.
Thanks, Howard. I mentioned in our list is Albert from JPMorgan . Thanks for taking my question. In the opening remark, I think Carol mentioned that third-quarter AI revenue growth will be similar to the second quarter. Could you help us understand more what kind of second-quarter AI server revenue growth was in, say, second quarter? How much is the AI server revenue in percentage in the second quarter? A follow-up on that is, is it fair to say GB200 still has a lot of EO issues? In that case, why do customers decide to migrate to GB300 while there is a lot of GB200 backlog? Thank you.
Okay. You may be late to the earlier call. As Carol touched on, the EO issue is easy, but the issue is the GB300 is around the corner. Customers now depend on migration phases into that. It's not an EO issue. It's kind of customers' production schedule issues. By the way, we don't provide that kind of granularity by quarterly about AI server contributions. I'll still tell you, AI server, kind of total server, about 70% on a yearly basis is still unfair.
Thank you. Could you help us? Maybe it would be better if you can help us understand how much is the GB200 order backlog at the moment? I mean, it looks like when we transition into GB300, there's still a lot of strong demand for the legacy product. Is it fair to say, even when we talk about slower transition into third quarter, we are going to expect a very big jump in the fourth quarter?
Okay. I'm driving a notebook. Okay. You know, in the server business, every CSP for the new emerging customers, they keep a multi-platform in the data center. They have an H, they have a B, they have a GB200, GB300. Moving to a GB300 doesn't mean GB200 is gone. What I'm trying to touch on is not some of the customers, some of the customers, not every customer moving to GB300. Different customers, different agendas depend on how their application and their agenda for their data centers. We see some customers, some new customers, although target on the GB200, some customers looking for the GB300s. Again, it's kind of granted for us. We still see both of them keep going on forward. Our view is for the AI server is still very strong.
Understood. Thank you.
Okay. Thank you, Albert. The next question will be Alex Wang. Please go ahead.
Hi, everyone. Thanks for taking my question. This is Alex from Bernstein. I just want to confirm what I've heard. Do you mean that for the third quarter, you expect your AI server revenue will be the same as the second quarter, or do you expect there is a double-digit growth as in the second quarter?
We have touched on about the spend is kind of top line for everything in total. During the third quarter, it's kind of mixed. Some of the customers shifted gear to moving to GB300s. The AI total server contribution kind of slightly increased in the second quarter.
I see. The revenue mix will increase quarter over quarter.
AI server percentage will slightly improve during the third quarter. We target to maintain 70% AI server overall to overall servers.
I see. That's very clear. The second question is about the gross margin. I think Carol mentioned that in the second quarter, there's some FX impact. How much is that? Can you remind us? If we move from GB200 to GB300, is there further margin dilution between these two platforms?
Okay. In the second quarter, several is about two-thirds is coming from the FX impact. Let me kind of elaborate about that. It depends on when you acquire the material. It could be two months or three months ahead due to the tightness of the supply or customer required to acquire. It's a different FX profile. That's kind of the impact about our gross margin. When they migrate to the third quarter, when you move to a high-ASP, GB300, definitely, that means by nature, there was dilution about gross margins. It depends on how you're digesting about your currently material, which acquires two or three months ahead, there's probably still some FX impact, but maybe not significant in the second quarter, but still some minor impact in the third quarters, which I touched on about in the prepared remarks.
I see. Without FX impact, let's just consider the gross margin for GB200 and GB300. Do we see more margin dilution to that from?
As I mentioned, high-ASP AI products by nature should have margin rate dilutions, not margin dollar, margin rate.
Okay. Great. Very clear. Thank you very much.
Thanks, Alex. The next question will be on Chen. Please go ahead.
Thanks for taking my question. What is Quanta's progress in AI or ASIC servers? Is there any guidance from the company on how the current sales contribution of ASIC AI server is, and what would it be in 2026? What's the major?
Sorry, go ahead. Sorry.
Sorry. What is the major customer for AI ASIC server for the company? In terms of the sales contribution, how can we evaluate that? Is it also only in a buy-and-sell model?
We still stick to the buy-and-sell model for all the AI business or server business. Secondly, we do have an ASIC project at hand now. In the past, due to the R&D bandwidth, we cannot fulfill customer requirements. As Carol Hsu touched on in our prepared remarks, after our complete R&D batch and our retention and recruiting R&D, we are inherently on the distribution of current ASP and TSC customers to be the ASIC server provider because we know customers well, we know customer demand, and we are landing new projects and going to rip-off in 2026. We don't provide that granularity for the screen and the customer, particularly for the ASIC servers. We're happy to see the ASIC server to win and to land after we have more R&D resources.
Okay. Thanks. Just a quick follow-up. Can you give us a recap of the sales contribution of AI server in the first half of 2025?
Over 60.
Okay, thank you.
Great. Thanks, Yvonne. Elton, maybe just one question from me before I go back to the queue. I think last quarter, you mentioned HGX Systems, these lower-priced AI server order momentum, you still see it growing every single quarter throughout the rest of the year. Is that still the case from what you're seeing in terms of the order forecast, or has that changed within the past three months?
Okay. Firstly, I think you never touched on specifically about SGS3 and the kind of momentum thing. What I'm going to say, the problem is the AI industry keeps growing. Every sector, including the GB200, GB300 kind of high-ASP server, AI server, or edge versions of server, or ASIC server, they are all growing. However, at a different growth rate and growth trajectory. The AI GB200, the high-ASP server, AI server, should enjoy the highest growth rate. The risk still keeps growing. Whether we can have a, whether we can land more order just because of our R&D resources, once we fix our R&D resources, so far, we have to fulfill all the customers' requirements. Every CSP customer has their own design. They have different models for the AMD model, for the NVIDIA model, for the ASIC model, F86 model. They have unfulfilled demand from us.
We keep seeing the strong demand, and we can explore our, this is our opportunity, even from the same CSP, not to mention some new emerging ones. We are still excited over AI system going forward.
Got it. Very clear. The next person in the queue, Timson Lee. Please go ahead.
Hi, Elton. It's Timson from UBS again. I'm kind of curious on the high-end AI server form factors. We have 36 x 2 and 72, and also the 1 GPU form factor. Going into GB300, should we be expecting more of the 72 form factor taking the larger mix, or how should we be thinking about this?
Yes. Moving to the next series, we're more 32. Sorry, 72 ones. And when they migrate to the next one, they will double that as well. We are seeing more and more 72 ones as a mainstream product. Moving forward to 144, maybe the next one is a mainstream product.
Okay. Thank you. My follow-up on a different question, maybe on section 232. I know that Carol Hsu touched upon our CapEx plans in the U.S., but could you touch upon your sort of more detailed view on importing components into the U.S. assembly on tariff exposure or potential semi-tariffs? Do you see signs of exemptions, or what is our pretty much the strategy into dealing with this?
Again, the major CapEx in the world will be more focused on Panama and the U.S. We'll keep exploring our presence, our capacity in the state onwards.
Okay. Great. Thanks, Timson. Elton, just to follow up on the capacity question. On Mexico, if I remember correctly, in the past, it was only automotive that was produced there. You guys are now investing and expanding, I guess, server and AI server production capacity there that will ramp up sometime next year in terms of mass production timing. Is it L6 that you guys are expanding in Mexico, or is it rack-level assembly? Can you give us a bit more color on that?
I don't want to explore more, but more than L6. Let me put it this way.
How do you think we?
You need to make sure you fulfill USMCA. How do you unlock it, only L6?
Right. Okay. Is there a possibility whereby a very, very large portion of your server production will shift from the U.S. to Mexico because of USMCA compliancy?
That will depend on how the involvement of the 232 specification, reciprocal tariff, and the customer commitment as well. That's why we have opened nine production sites to provide the flexibility to work with the customers. What's the best way to detour to get the lowest tariff is the customer's intention. When you go along with them, the key thing is the customer's decision. We have flexibility and resilience and the speed to help them to meet the target. I cannot tell them exactly what will happen, but they will substitute how the trend administration decisions.
Got it. Very clear. A question on yield rate. I think you guys mentioned in your prepared remarks and also in a bunch of the Q&As that GB200, you have said yield rates are improving. Is there any additional color you can provide in terms of what the yield rates for GB300 look like at this point in time versus 200? Is there a meaningful improvement, and are you expecting GB300 to ramp up much more smoothly versus GB200 a couple of months ago?
Okay. It's a different design from the GB200, GB300. After the learning curve from GB200, we are being appreciated by our customers as well as GPU vendors. Our performance in the GB200 also helps the customer to improve. By far, for the GB300, ramping the EO rate, the learning curve is better than GB200.
Got it. Very clear. Thank you. We have a question online from Clara Wang. Clara, please go ahead.
Hi. Thanks for taking your question. I just want to simply ask, I understand that we have a lot of TPEX going on, could management just update on the investors, like on the shareholder returns, maybe in terms of the dividend payout ratio or dividend yield? Thanks.
Okay. It's a kind of Quanta always makes a decision between the case for meaningful investment and the investment in the high growth year and high return to our shareholders. Based on our experience, we almost provide over 80% of our payout ratio. Even if nothing changed, we try to target to maintain that percentage.
Thanks.
Okay. Thanks, Carol. Albert, please go ahead.
Yep. Thanks, Howard. Yeah. For Elton, for the margin side, Carol mentioned that 2/3 of the sequential gross margin decline was due to FX, right? Sequential. If I add that, say, 0.6% back, and assuming like normalized gross margin is like 7.6%, the growth probably better actually remains just flattish quarter -on -quarter. My question is, when nobody is growing like 12% quarter -on -quarter, general server, as you say, there's some point demand and AI is ramping up, why the gross profit better only remains flattish quarter- on -quarter? Was there any like other one-off expense, not just FX, maybe ramp-up costs, etc.? Could you help us understand more about that? Thank you.
Okay. Actually, firstly, when we have more GB200, the margin rate dilute definitely. Now we have FX. We have a product mix as well. We keep emphasizing again and again, these are the things, it's a different product mix profile. We're mixing different. I appreciate your math. Anyhow, you know that's the reality. When we migrate to a high-ASP product, by nature, there are dilutions about our gross margin definitely. I just want to give you more color about how you know the other impact from.
Got you. A second follow-up is, if I look at inventory, actually, our inventory was controversial. We were well under control if the same second quarter didn't increase that much. My question is, usually, inventory is a leading indicator for the, say, sales, right? If like AI demand is so strong, why shouldn't we see the big jump in the inventory decrease in the second quarter? Also, if the inventory can sustain at the current level, then why do we need more like working capital, say, help from this ECB or syndicated loan? Thank you.
Firstly, syndication is a great finance thing. To have an ECB, they have a twofold. Firstly, to have more financial flexibility. Secondly, to test the low interest rate with low dilutions. It's kind of financial tool. It's a financial department. We need to look for the best financial vehicle to funding our needs. In terms of inventory, it depends on when you increase your warehouse. Some of them are already in our warehouse. That's why they have a double impact. When you're early in your warehouse, you have an FX impact, but you also secure your orders. When you move into the next one, some of them are already in our warehouse. We don't see significant growth about the inventory. That's a dynamic look for your reference.
Thank you. I'll go back to the queue.
Thanks, Albert. Maybe one last question from Kai Huang. Kai, please go ahead.
Thank you for accepting my question again. My final question is about the notebook business. Could you please share with us the percentage of contribution from notebook in the second quarter? Also, what is the dynamics for this segment in this year, like from Chromebook, the gaming, or commercial? What is the outlook for this business for 2026 to go? Thank you.
Notebook now is currently about 20% - 25% of total revenue. Chromebook in the second half were back to the 10% at a regular cost. We still have a console percentage on the high. Game console. They were back to the normal in the second half, were back to the normal distribution between the regular notebook and Chromebook.
Yeah. Understood. Do we expect like a 50 to 50 distribution of notebook business for this year, or still some higher demand for the second half?
I would say 50/50 split between the first half and second half.
Is that for like revenue-based or like a shipment-based?
Shipment-based. Again, in our notebook, we still have different customers, different profiles, different price profiles as well. Anyhow, you know the shipment will be more approximate to evaluate that. Otherwise, you're falling into so-called margin dilution issue as well.
Okay. Understood. Appreciate that. Thank you.
Okay.
Okay. Thanks, Kai. I think in the interest of time, we are getting closer to the one-hour mark. Maybe let me turn the call back to Elton or Chee-Chun to see if you guys have any closing remarks.
Okay. Alexis is there. In summary, our better quarterly results reflect the momentum we are building across our business. We are facing some headwinds from dynamic macro regulatory environments. We believe they are more than offset by the powerful tailwinds from our leadership product portfolio and resilient manufacturing capability. The outstanding performance shows our grit and determination by quick adoption to dynamic markets, focus on what we can control, extending our strategy into those high growth opportunities. We're excited about that. Thank you.
Perfect. Thank you, Elton. Thank you, Chee-Chun. Thank you, Carol and Ale, for your time. Thank you, everyone, for joining us. We will see you all next time.