Good afternoon, everyone. We're so honored to have Primax Electronics to participate in the earnings call held by IBF Securities today. To share the company's operation and financial result, we have General Manager and CFO, Y.Y. Hsiao to join us today. Hello, everyone. We also have Investor Relations Senior Director, Ellen Tseng. Hello, everyone. Thank you for coming to our earnings call. Thank you for hosting this earnings call and share information. I will give the floor to the management team. Thank you.
Thank you, General Manager. In the first quarter's earnings call, I remember it was on April 29th. At that time, I shared this particular information with you regarding the future highlight to be tariffs and exchange rates.
Sure enough, I remember on May 2nd , our company had a four-day vacation, and then I happened to be on the highway, and I learned about the appreciation of the New Taiwan dollar . I think that tariff war and exchange rate have actually brought most companies more or less, how to say? I don't want to say that is a problem. It may encourage technological breakthrough or become an opportunity for growth. I believe that such a chance for growth and breakthroughs could also be applied to Primax strategies. Next, I will provide the overall situation of our revenue and profit in the Q2 .
What we can say is that in the Q2 of this year, I think that New Taiwan dollar appreciated by nearly 11%. Our revenue in the Q2 reached TWD 14.6 billion, which went down by 5.1% YoY. It was TWD 14.768 billion in the Q1 . The same period last year was TWD 15.368 billion. We can see that, in fact, although this revenue has declined moderately due to the large demand for the NTD, I think you can see our operating profit margin, our gross margin in the second quarter reached 17.5%, increased 0.3 percentage points QoQ and up by 0.2 percentage points YoY. 17.5% is also a new high in our history.
You can find that, in fact, even in the case of appreciation of various currencies, because of the overall transformation in our product segmentation strategies, we have very good product segmentation approaches, so that our gross profit did not go down, but rose. This was the highest gross margin in our history. You can see our quarterly R&D expenses. We have shared our operating expenses with you in the past. Basically, we only increased the expenses on all the R&D personnel, which means especially referring to our Auto and AIoT businesses. I would like to convey a very important message. It is concluded last year that we are going to do system-level modules, which is commonly known as SOM, short for system on module. Far in Northern and Central Taiwan, we have recruited a number of people.
I'm not referring to just dozens of people, but more than that. We can see that the future development of our new businesses will move faster, and we don't have to go to the market to seek system-level modules because we can do it ourselves. From Auto to AIoT, the revenue had dropped a little, but we have increased our R&D expenses, all of which are increasing in what we found has potentials and most needed in future market. For those, from our past experiences and knowledge, our price was basically at high unit rates, probably more than three digits than when we purchased from others for our cost. We should put it this way. Its saving percentage will not be single digit. It will be a very large saving.
I have been thinking about our investment in R&D personnel, who are not just in the transformation of the products, but also in the rapid transformation of our own mindsets. It has been finalized, and I can share with you now. Originally, we had a small number of people working on it. This year, we have much wholesome settings, and it is already there because our TIH, short for Taiwan Innovation Hub in Hsinchu, which should be officially launched in September this year. Throughout Northern Central Taiwan and Hsinchu, we have distributed such teams. Basically, I have monthly meetings with them. Every time I met them, I actually felt very excited. I could see that in some future applications. We have finished our own product portfolio. We don't need to seek other companies in the market like we used to.
Of course, I have shared with you on April 29th , one of the good things about our company is that we have a full hedging strategy every month. We don't seek external assistance, and we don't rely on pure luck. However, we have been very lucky, and this year, the hedging has been fully done. You can see that in our overall performance, even facing the exchange rate fluctuations, we still enjoy foreign exchange gains in the Q2 . Our interest income and foreign exchange gains accounted for 50% each. We remain the stable hedging strategy. We also want to avoid being affected by market fluctuations. Either we profit from it or facing serious damages because of it.
What I wanted to explain to you in our EPS in the second quarter of this year was NTD 1.6 , and the Q1 was NTD 1.61 . We still have to say, in the case of various internal and external difficulties, we actually performed no worse than the Q1 . The overall EPS was NTD 1.6 , and that was the highlight of Q2 this year. Let's look at the general gross margin that we have just shared. I think overall, when it comes to the operating expenses, we are not just reacting to the rough times in the market. We just have to learn to economize on expenses even when the market conditions are not good.
If our business orientation is right, we think because we have been emphasizing in the past, we will not rule out our aspirations to become a growth company. We also hope that in the next one or two years, I remember I have shared this in 2017 or 2018, that the year should be our growth year. I am sorry that at that time, we used to bear the USD in mind. However, since we were in Taiwan, we had to use NTD. I still have to say that if this year our overall result, I see that the number of the USD is better than last year, even if the NTD remains at this year's appreciated level of NTD 29-NTD 29.5 , I think our annual revenue this year should be slightly better than last year.
I have shared the overall performance of comprehensive income in the Q2 . We should spend on items where it should be spent. Let's take a look at the balance sheet of the Q2 . Our cash level, of course, that was before we issued cash dividend of TWD 1.9 billion. At the end of the Q2 , our cash on hand was TWD 125.84 billion, then deducted our regular use as well as our long-term borrowings. We have approximately TWD 9.7 billion-TWD 10 billion in net cash. I also want to remind you, because there is an 11% appreciation of the NTD, that's why the TWD 1 billion. Otherwise, the cash on hand should be TWD 11 billion.
I have probably shared that this is the actual changes in the market because we have hedged all the risks. We will not deliberately convert our NTD into currencies that not particularly in needs, because after all, we paid and receive in USD. When it comes to our real OpEx, the real impact on OpEx was about 30%-40%, because strictly speaking, at present, the appreciation of the RMB is extremely limited. We have applied local currencies in some places to buy materials, so the impact on our overall gross profit is actually not that obvious. We can see that the overall amount of inventory increased compared to the same period last year.
I think I have shared with you in the Q1 , we now have two very important customers in the industry of Auto, AI, and AIoT because they have seen some possible challenges in the future. We are helping them build the buffer stock for inventory. Of course, regarding this, I remember I mentioned it in the previous earnings call because they will also return us with the prime rate. If our deposit is at 4%, you can see that the prime rate is quite high in profit. That's the inventory amount. The number also slightly increased, but I think these are fairly positive, so to speak. In the other aspect, I want to mention that most of the short-term borrowings, because we have been friendly with the banks, so we will make a moderate allocation at some point.
These long-term borrowings due within one year are mainly to support our hub in Science Park in Hsinchu, because I want to further elaborate. The expenses for our Hsinchu hub should end this year. We probably spent approximately TWD 3 billion in total from buying the land to the construction, which is almost the same as our budget. That was this number. We have not added civil engineering and hydropower works at all because of inflation in the past. Also, we have not increased our fine decoration because of the inflation. Our land is about TWD 700 million, and the rest were the building with three floors underground, seven floors above.
I hope that in September this year or next year, I kind of forget the exact time, that we can invite everyone to visit our Hsinchu hub, which I want to emphasize will also be our future production capacity under the Trade Agreements Act, also known as TAA. That is what can't be manufactured in China, Thailand, we can do it in this place to comply with TAA regulations in the United States. We will launch a product trial in September this year. That is also one of the products in law enforcement sector. For other aspect, we can see that here I will share with you roughly that is in our overall CCC, short for cash conversion cycle days, I think you can see that relatively speaking, in the past, our overall account receivable days compared to the same period last year.
In fact, we have also reduced from 77 days to 68 days. The accounts payable days in the past, I want to highlight this. As a matter of fact, the changes of the accounts payable days were relatively small, but the accounts receivable days were relatively large because we saw that some customers were moderately extending the terms of account receivable days. Our performance was actually not bad, that for the inventory level, last year was 59 days, currently up to 68 days. That has also been shared with you because we have assisted more than NTD 1 billion of safety stock for our customers, and it seems that the implementation of such a safety stock approach was actually beneficial to both us and the customers.
We can see that in the Q2 of this year, the overall cash flow statement, our operating income is still flowing in, the inflow is usually relatively large from the Q3 and Q4 because this year's inflow was actually similar to the same period last year. In the Q3 and Q4 , our safety stock is probably expected to come to an end at the end of this year. Basically, the level of the entire inventory should drop moderately. For now, we will probably allocate our budget in September or October, and at that time, we may have a clearer forecast for the first half of next year. For me personally, I'm now going through future year trends once in every two months.
Now you can see that in the future, the growth trend of the USD next year will actually be consistent with this year. Sorry, no precise percentage to share just yet. I can only say that the growth trend is consistent. These you can see in the capital expenditure, it referred to our other investment and amortized cost every year. This year, as we had shared in the Q1 earnings call, we are about to maintain approximately TWD 1.5 billion, and among them, in fact, have already included our Thailand Phase II plant expenditure, and if it goes per our plans, and even to add the steel structure in Thailand, these budgets have all been included. This year, in fact, we have made some differences than in the past. We also made some breakthroughs in interface segment.
In this business, our capital expenditure was slightly higher. In the past, for IT business, we held a relatively stable mindset in developing, and then we have seen some different business opportunities this year. Hence, we will probably allocate NTD 150 million-NTD 200 million particularly in IT business, within the total of NTD 1.5 billion. For the interface business, I think you can also see that no particular different financial activities taking place. The long-term and short-term borrowings are very stable. I think in the next slide, we can see that that is the combinations and applications of our products. Information Products accounted for 49% of our total revenue. The performance of PC related products are relatively stable. I think I remember in the Q1 earnings call, I said that these belong to the exempted products.
In the Q2 , in fact, our main customers still continue to ask us to ship a certain amount. Some of these would have entered the market. Some entered the FTZ, short for free trade zone. Let's say that the performance of gaming was relatively low. Information Products dropped around 2% YoY because of the gaming product sector, I think had been affected by some slight fluctuations in the market, and the proportion of Smart Lifestyle had fallen to 18%, which was mainly affected by the end of life of our smart speakers. The annual decline had been presented at a convergence trend. Of course, we can see that it is probably coming to an end this year and for the next year. Basically, it looks like, I think it is still predictable that the amount should maintain the same.
Of course, the most important part that I wanted to highlight is the proportion of Automotive and AIoT had increased to 33%. Benefiting from the continuation of AIoT shipment momentum, as well as the contribution of new projects, I think I can say that this SOM, short for system on module, has appeared to demonstrate very positive benefits for our product in some business of AIoT. I think it's from fleet management to public safety and even to conferences, which have actually brought very positive benefits. You can see, I mean, I remember in the previous earnings call, we emphasized that even facing such difficult tariff challenges, our customers in these industries, they are still putting additional orders in the second half of the year.
What I wanted to reiterate is that, in fact, what we see from our customers is that they are not affected by tariffs, because in terms of the tariffs, camera module applications are included. The camera module is basically the subsidiary product to their main products. The main products are Compute Box related, other interface related. The price of their camera modules and shipping were not affected by tariffs. It led to a reverse result instead. I think this is our overall product revenue in the Q2 . Relatively speaking, as you can see, if we compare with the same period last year, Auto AIoT businesses still grew by 3.5% YoY, which is the proportion of our overall Q2 products. Next, we will move on to the third quarter outlook.
Overall, as you can see, first I wanna apologize for not being able to see the trend of NTD in the H2 of the year, so I can't share my views today since it is also a relatively sensitive topic. We can see the comparison of the USD revenue to increase mid-to-high single-digit YoY. I've also mentioned it, if it is to maintain, then our whole year NTD is actually better than last year. We can see that this is the case in the annual performance. Our gross margin this year is continuously rising. The product portfolio continues to be optimized because in the H2 of the year, some orders for the high unit price and high gross margin products are placed. It will help to ease the pressure of the appreciation of NTD.
If it continues to appreciate, then I will have to tell you very conservatively that it would affect gross margins. If it is maintained like today, to close at above TWD 29.6, like today. However, there are still various uncertainties, and those are not something we can solve. Basically, we can only passively accept. Since this is a passive acceptance, we don't think about it because we can't do anything about it. What we can only do is to have best allocation between the long supply chain and short supply chain in the future. I think this is what we are doing now. There are some of the customers' future needs, the best delivery to fulfill their demands. Let us make the best arrangements. Frankly speaking, in the current situation, the product, the Information Products, of course, our customers may have more suppliers.
When we talk about these Automotive and AIoT sectors, in fact, we remain to be their single source. In this case, we still have to set the best price for our customers and also the best solutions for tariffs. Under this condition, we still think that if it is at this level, I think we should be able to maintain last year's gross margin because there are still a lot of uncertainties in the third and fourth quarters, whether the U.S. will cut interest rates, and after the interest rate cut, how it's going to reflect on the USD. I think this should be clearer in October in our next earnings call. We should be able to see the overall exchange rates in the second half of the year more clearly by then, and how it's going to look like, and then we can share more with you.
The operating expenses, because I think this year our revenue, in fact, does not enjoy a significant growth. I think the percentage ratio is about 12.3 percentage points-12.6 percentage points . As I just shared, we have a few projects, and frankly, there are quite a lot of them. Among these projects, they are related to system on module, and some are not. I can't give you the names, but those customers are fairly large, and they have special requests to us regarding the products. They have high expectations in us. In fact, we have recruited more than a single digit of talents. We started from 15-20 people. This is a fairly large scale for R&D. At the end of the year, there may be a more fruitful conclusion to be seen. We can wait until the Q3 .
I also want to take a look at the operating expenses. Even under these situations, we won't deliberately reduce expenditures on our business trips or our main focus, which is the relationship with customers. These expenses for business meals or some other communication expenses, roughly all other expenses are related to people as long as the expenses are benefiting us. Basically, we don't want to reduce the expenses because after all, people are our most important assets. From the perspective of Information Products, from the current visibility, the performance of the overall Information Products will demonstrate a single-digit increase YoY. When we are working on this, in fact, we bear the higher goal in mind, higher than the single-digit growth. In fact, if to see from last year to this year, in terms of USD, it had almost reached this double-digit number.
The performance of PC peripherals is at present better than this year's gaming peripherals. The multifunction printers went down on a YoY basis. From the current point of view, these customers in this market are also in the process of integration. And they also have some manufacturing sites. They are in their transition phase. I think we have a good chance to be able to receive orders in the process of their consolidations and cooperations. However, judging from current perspective on the second half of the year and the first half of next year, I think this might not be that optimistic. This year it seems to decrease on a YoY basis, but in the first half of next year, we may have to observe the consolidation and collaboration of our customers, and we are already aware of our roles in accelerating the processes.
We have seen new projects for Smart Lifestyle coming in continuously. Generally speaking, the quarterly increase in the Q3 will probably reach double digits. Because of end of life for consumer audios, the life cycle ends this year, and it should be about a single digit annual decline throughout the year. We continue to develop this high value consumer audio products and optimize the customer's product portfolio. Maybe in the third quarter, we can share more with you. We want to mention that because it also includes professional audio and automotive. Basically, we have obtained the orders that should be awarded. What we want to talk about is that mass production phase seem to occur in the second half of 2027, maybe in the Q4 , or more evidently, the revenue upturn will be seen in 2028.
I can be very certain that we have obtained the orders. Some are not EVs, but traditional vehicles that benefit from the contribution of new projects are also an AIoT expected strong annual growth at high double digits. We can also see that as what I have just shared. The professional audios and Auto regarding conferencing or audio, that is for Auto and AIoT. I think that in the H2 , our overall proportion should be expected to be the same as the H1 of this year. The overall gross margin is expected to improve. That said, if major currencies continue to appreciate, the margin gains could be partially offset. I think this should wrap up the Q3 of this year about the overall outlook. That is Q3 situation.
About the dividend, I have gained the verbal consent from our chairman. I can't say it's a promise, but consent from the chairman, and I'm already grateful for that. Next year, basically, our dividend payout ratio will be 80%. Of course, I think the focus is still on the results. This result is still the same as last time, which is to say that this year will basically not be worse than last year. Last year, we have shared was the second highest at TWD 560 million. This year will not be worse than last year. It means that this year will be better. If to challenge a new height, I can tell you or because of many factors, not that we are trying to use them as excuses. The factors exist, but these interference factors should be spotted.
Just like conducting a hearing test, you can still locate the source despite the buzzing. I think I'm certain that our business orientations are right, we still have to accept the existence of interference factors. Basically, this year will be better than last year. What about the next year? Let's anticipate more in the third quarter. We might have more in-depth and convincing outputs. I think what we valued has always been providing you the stable and robust remuneration. We have been making sustainability commitments, especially in the entire ESG, from carbon neutralization to carbon emissions, from our community to us as a whole. I think everyone, our corporate governance this year, we are in the top five of the listed companies. I think we have been working very hard on this with actual practice.
It doesn't mean much without actual actions. We put efforts in doing it. Hope that every year, regarding to corporate governance, we can keep up with the market improvement, and we can gain something and improve more because basically, this effort is never ending. To work harder, hope to be able, dare not to say to surpass others, but at least for now, I don't think we are lagging behind. The next slide, we can see this. I will pass the microphone on to Ellen.
Thank you.
We have received some questions before the call. We will ask our CFO to answer these questions.
The first question, just now, when we provided the operating outlook, we have already mentioned that the outlook for revenue, gross margin, operating profit margin in the Q3 and the visibility of orders in the H2 of the year. In fact, our CFO has just mentioned our gross profit margin can be maintained at the same level at the same period last year. The CFO just mentioned that the expense rate is roughly the same as the H1 of the year. We have answered this question already. Regarding the second question, we're talking about the estimated year-over-year revenue growth rates for each product line. Have customers adjusted their outlook for the previous year? Our CFO also brought this up, and I can answer for him. For information product in terms of the USD, this year's performance is probably at a mid-single-digit annual increase.
Smart Lifestyle is at a slight year-on-year decrease this year, but the decline compared to last year, the first two years has been evidently converged. It's at a low single-digit decline YOY. This is the outlook in the perspective of USD. For Auto and AIoT, this year is at a double-digit growth. This year's double-digit should be better than last year. The third question is for our 2025 and 2026 capital expenditure plans, depreciation expense, and tax rate estimates, and operating expense outlook. We will have our CFO to answer this question. As I just shared, the capital expenditure is about TWD 1.5 billion this year, so the operating expenses are higher this year. I have also shared that we have invested mainly in our R&D talents. The amounts increased as we specifically pointed out are yet to be shared.
For those I can reveal, I have just shared with you, that is the SOM, has its own R&D manufacturing, then the depreciation expense will increase next year. It is expected that the expenses for our Hsinchu hub will probably increase, which should be in a certain range, but we can say that the number is TWD 230 million. If this is the case next year, the maximum is about TWD 230 million. If there are other factors to be in consideration, this depreciation will be moderately reduced. For the tax rate, I think we have been in this general situation in the past few years because our cost control rate, FCMU, are basically consistent throughout the world. We don't expand or limit the profit in the places because of the region has a higher or a lower tax rate.
It has been from 19.5%-21%. From the current point of view, of course, we have to be thankful because we have strong R&D team. That is every year, whether at home or abroad, our investment in R&D, the amount is actually not small, which also helps our performance after tax. The general tax rate is like this. The fourth question is about tariff and exchange rates, one of which is the impact of the appreciation of the NTD by 1% on gross margin and the impact on profit and loss of non-operating foreign exchange gains. As I just shared, in the Q2 , we are basically for non-operating parts. The foreign exchange rates and interest each accounted for 50% of our total revenue. What the CFO meant is that non-operating foreign exchange gain and loss, I can further elaborate.
In our budget structure, we use the USD, and the revenue is mainly in USD. Around 60%-65% of our costs are denominated in USD. 30%-35% are denominated in RMB, and about 5% are in Thai baht. In fact, our gross margin is affected more by the exchange rate of RMB, which will have a greater impact on our gross margin because 60%-65% of our procurement is in USD. We will also increase the positioning in USD in the future to increase the offset of our natural hedging. In terms of gross margin, if it is in USD, the impact is relatively limited. The impact will be greater when facing appreciation of RMB.
If there is no hedging, every appreciation by 1%, the possible impact is more than 0.3 percentage points, which is in the absence of any hedging mechanism. The impact of the appreciation of the NTD on gross margin is actually small. Usually, there will be more impact on operating margin for every appreciation by 1%. If our operating expenses have not been adjusted and controlled, the impact will probably be 0.05 percentage points. I want to emphasize that this refers to the situation where there is no control or adjustment mechanism. That's the first part of the question. Another question is that the appreciation of the NTD in the Q2 of this year has led to the industry generally facing margin pressure. How do we effectively control? Our CFO also just explained a lot.
I think our gross margin has not been affected by the appreciation of the NTD because our overall product structure continued to be optimized. We have just mentioned that the positioning of our USD procurement and material is also continuing to increase. Let our natural hedging position increase. I will have our CFO to share the hedging strategy and the future exchange rate trend. Because this topic is very sensitive, I still want to say that we will do what we need to do every month, and that should be good, and there will not be too much external risks. I believe that for investors, they also don't want to see a situation that damage occurs when there is a fluctuation. For me personally, what I said above is that the risks should be minimized, the profit should be maximized.
I am holding this philosophy to carry out this hedging strategy. Thank you. The fifth question is about tariffs. The question is about who will bear the cost of tariffs, because some companies mentioned that their customers will want them to share the cost of tariffs. Is there a similar situation for us?
I think what we have just shared with you is that in the Information Products, in fact, it is in the exemption period. We don't know when it will end. So far it is exempt. However, everyone thinks that it will have an impact on lens or audio businesses. Frankly speaking, our customers have barely negotiated the price. I think the main thing is that because there are quite a lot of customers, we all play the role as their single source.
There is another thing, in fact, I also learned from our customers, because we have pretty large customers in the business. I remember in either 2017 or 2018, we really worked together with each other. We found an accounting firm at that time, and then it was yet to be the era of trading in hundreds of USD. However, we have already practiced a set of methods, and it has reached some kind of agreement with the United States Customs Service. That is, they place bids for government procurements, and the product did not fall in the scope. That's what I just shared with you. We also have this kind of customer in campus and public sector related businesses. We are not just providing camera modules, we also provide various system related products, which may be Compute Box or others. The camera modules is its accessory.
In the case of accessories, these will not be requested to pay tariffs because it is an accessory. As I have shared, and that's also what we learned from our customers, I think our customers have very smart minds because they know very well how to get the best price for themselves. Because our selling price is their cost, so if they can avoid to pay more tariffs, no matter how much it is, in fact, for them, it means the expansion or doubling of their profits. This is what I learned, so I would like to share it with you. Okay, the sixth question is about tariff. In response to the tariff policy, do we see early pull- in? Will it continue to the third quarter? Do we see orders being delayed or relaxed?
As I just shared, if our USD growth in the Q3 is mid to high, I think if our customers want to react to those, they will, since it is almost the end of July. I think these should not be the issues we are facing currently. Okay, let me add here. Our B2B related businesses take public safety strategy management, for example. Because of the increase in proportion, and it is affected by the fluctuations of the overall economy and the terminal market, its impact is relatively limited, and some customers have some additional orders in the H2 . Of course, in PC and consumer products, we have to observe the subsequent demand changes and inventory adjustments based on the Q3 , the current visibility. This is the outlook we can provide.
The seventh question regarding tariff, whether the phase II of our Thailand factory will be completed as scheduled by the end of the year. If the final tariff in Thailand is 36%, will we have some plans to adjust the distribution of the factory, such as finding other bases in Southeast Asia? Our general manager in Thailand has been continually reporting the situation in Thailand to me. Let me share my understandings. Basically, Thailand was originally directly open to 60%, but now more than 90% to satisfy the requirement for the United States. In this case, I think because the United States has also announced that the rest countries to send letters to, the tariff should be likely 15%-20%. We still don't make too much speculation. I think there are only a few days left. July 31st is on Thursday.
August 1st is on Friday. By that time, we will have better understanding, which is why we completed the phase II smoothly at the end of this year. This investment in this civil engineering, mechanical and electrical engineering, then our steel structure and all our piles have been laid, then if there is such a situation in the future. What I feel is, in fact, the current customers, they are not like when they were in April or May, requesting the products to transfer their manufacturing site. When in the Q2 , the number of our projects transferred was more than 100. We may have more than 100 projects to be transferred to Thailand. Currently, we have almost fully digested it. However, at present, we haven't seen such a trend. It means that between customers, our customers have almost found an optimal balance.
Also, as we have been sharing with you earlier, because in most deals, we are actually the single source. It means that in our current businesses, especially in Auto and AIoT, are not just one or two years or a few months. The product life cycle is not short. They are basically three-five years, and even up to five-seven years. It is not easy to transfer with a single source. We can see at present, that is, for us, the impact may be limited. After the mid and long term, we might have to observe this trend again. If it really has just appeared such a number, I think it should be a big surprise to Taiwan as it will be a big surprise to everyone.
We can only assume that it is within 15%-20% as the United States announced, which is reasonable. Whether or not it will fall in this range, I can't make an assumption. I don't dare to make this guess casually, I can only say that Taiwan is well prepared. As I just mentioned, Taiwan is also fully prepared. All the licenses that should be obtained have been obtained, we will carry out some small mass production of some sensitive products in mid-September to comply with the TAA. It seems that if the United States and China have to postpone it for another three months, the leaders will meet in October or November, I think there are actually many more to come. That is, the unforeseen factors are still growing. Due to the limited time, we are now open for live questions.
If you have any questions, please raise your hands. No need to write them down. I would like to ask, the public safety customer just mentioned, does that mean their products will be exempted from tariff sanction? Either the tariff rate on Thailand is 36% or 20%, it won't affect them?
For that particular customer, basically, they have been free from this issue since 2017 or 2018. How about now? Still free from this issue. Will we still be their single source in the future? We can't speak for them, but that is to say they have their product segmentation approach, and basically for those we take part in, so far we are the single source. Whether the customer is going to have other new and niche products, we don't know.
What we do know is that, of course, they may work with different vendors, but for those products we take part in, we are basically their single source. For this topic, they will surely want to muscle in some other segments. Their main products are for law enforcement sector. In the future, they also want to be in general commercial fields, they will launch more and more projects, but not necessarily all of them are the main focuses. For their major businesses, we are the major vendor, or we should say that we take part in current major projects. We can only put it this way. In the future, our customer will surely have more attempts, try various applications in different segments, and what we do is to take resources, the scope of the project in consideration, and allocate our resources.
Of course, our overall outlook remains very positive due to our customers. For now, we can't provide further information. It will be included in the entire AIoT sector. What we can demonstrate is that currently it includes Auto and AIoT and professional audio. If to remove audio from it, the proportion of AIoT in our overall revenue would increase a few percentage points each year. That is, its proportion continues to expand. Next year, if Auto AIoT has accounted for 20% or more, we will consider put AIoT in a single business group for easier follow-up. Because at the moment it is included in Auto AIoT sector, which includes professional audio, and that in the past might account for above 40%. If AIoT is to develop steadily, we will put it separately to facilitate follow-up. I have another question. You have mentioned TAA.
Is that for product in law enforcement sector?
It is also the same customer's product, and it's like this is more for defensive use. Basically, to manufacture in other places, it does not comply with the rules of the TAA. Taiwan can make it. We are already helping our customers with the overall planning. It is executed in Taiwan, not because of tariff policy. No, it's for the compliance with TAA. If there are new projects in the future regarding commercial products, it may be affected by tariff policy, and if it is a government procurement, say for law enforcement sector, we have less concerns for tariff. Can we put it this way? For customers in this sector, as a matter of fact, they handle customs clearance themselves, and we do not get involved.
Of course, because of the cost of tariffs is relatively high, and our customers are capable of absorbing it by themselves. If their customers are the government, their ability to pass down is relatively high, and if their target customers are consuming customers or they actually have the capabilities to pass it through and reflect on the price, they have segments for government procurement, and it could be passed down to their customers through the price. In the mid and long term, of course, because now everyone's assumption is that tariff rate on Thailand is set at 36%, as our CFO explained earlier, that before 01/08 , the Thai government has been consistently negotiating, and we will also make some adjustment in response to the final results. Maybe this will have to wait until it's finalized, and then we can share more.
Sorry, just to make sure. The customer can pass it on or so far they can. It can be passed on, so it is not because of the exemption of government procurement. I can look for the exempted products now. Currently, ours are exempted. Our PC-related products are in the exemption list. You can actually look it up in the exemption items of CBP, including PC, servers, mobile phones, and many others. This is about visual image and audio products. When it comes to reciprocal tariffs, there is currently no exemptions. That is 10% baseline tariff. In the future, if the reciprocal tariffs, let's say, is set at 36%, then it is 36%, but the probability doesn't seem high at the moment. We can only put it this way, and we will evaluate it in the future.
If it is concluded that the tariff rate on Thailand is relatively high, then we will have other alternatives, maybe find other sites. We will respond accordingly. Yes, we do. We cannot share detailed information yet, but we are working on other plans. If you told me that you don't have a backup plan, then I'm concerned. If you do, it's more reassuring. Yes, right. We don't have enough to share for now. What we can share is that the impact on tariff is very limited. Okay, thank you.
Hello, CFO and Ellen. I would like to ask two questions. The first question is that you mentioned additional orders being placed for Auto AIoT products. Could you elaborate on which type of products exactly?
I would also like to ask the current progress on fleet management, which type of customers that Primax has targeted, and how do you view the scope of this market, and whether you have any expected future goals for the contribution of fleet management.
In addition to the law enforcement sector that we are familiar with, we have seen our new customers enjoy better growth in the second half of this year. One is in the public safety sector, and it has broader applications, may be applied in the general community safety or other aspects. The other one is, of course, our customers in the fleet management, which as our CFO has mentioned, included the Compute Box, Gateway, Dashcam, and some other products for which the volume is increasing. The outlook from the second half of this year to next year is pretty positive.
Also the gross margin, they have the product line that enjoys a higher gross margin in our company. We also have invested in our H2 of the year. As for the Q3 , this overall Auto AIoT, we said, should be at high double digits growth, which may be the relatively high double digits.
I want to ask another question. The CFO mentioned that in interface sector, we have found some new business opportunities to be developed. If there are more details to share, and whether the interface business sector has a new mid and long-term development orientation in the future. Thank you.
It should be put this way. That is, some customers, due to the cost, they have moved to the red supply chain and eventually found that we are now in the blue supply chain.
Basically, the red supply chain may cause quite a few damages. They turned to us and placed orders at a higher price. They accepted the higher price. I think we, after all, are able to manufacture the products that are in line with their needs and market image. This is the situation with one of the enterprises. The other one we can't share yet. They are fairly large, and they are redesigning their products in Taiwan. Since they used to work with only one vendor, so they invited us to be the second. We were invited to be part of it. That is basically the situation that we want to share. I wonder if there is any other questions. If not, there is still a question here that has not been answered. However, it is a simple one.
Is there any chance to elevate the gross margin of Smart Lifestyle sector to the low teens this year? Our strategy in recent years is to reduce the shipment of products with low gross margin. Of course, this product line will go from high single digit to low teens this year. For future performance, because it depends on the changes of our customer structure and the proportion of products. This year we have seen such trend. We have answered all the question raised today, and if there's no further questions, we will wrap up our earnings call for today. Thank you for your participation. Thank you.