Earnings Call: Q3 2026

Oct 28, 2026

Summary

Q3 revenue rose 31% YoY to TWD 5,859 million, with infrastructure-led mix lifting consolidated gross margin to 37.4% and EPS to TWD 4.55. Q4 revenue is expected to grow low single digits QoQ, with gross margin in the high 30s.

Good morning and good evening, ladies and gentlemen, no matter where you are. Welcome to WIN Semi's result conference for the third quarter of 2026. My name is Avon Hsu, the Spokesman and Director of Finance of WIN Semi. Joining me on today's call is Steve Chen, General Manager of Corporate Administration. Today's call is organized into three sections. First of all, our General Manager, Steve, will comment on the company's results and provide brief guidance for the fourth quarter 2026. Secondly, I will go through the financials in details. After that, we will open to the floor for Q&A. Please freely submit your question in the input box on the webcast window throughout the conference. Before we begin, I would like to draw your attention to the safe harbor notice on page two of the presentation slides. Please note that this presentation contains forward-looking statements. These statements are based on our current expectations. Actual results may differ materially from our expectations, and the company undertakes no obligation to update these forward-looking statements going forward. Now, let me hand over the call to Mr. Steve Chen. He will deliver an overall review of company's third quarter results and provide brief guidance for the fourth quarter 2026. Thank you, Avon, and welcome everyone. Let's talk about our third quarter results. For the third quarter of 2026, WIN Semi reported consolidated revenue of TWD 5,859 million, up 11% quarter-over-quarter and 31% year-over-year, in line with our previous expectations. In addition to seasonal demand strength, the quarter also benefited from a more favorable product mix, particularly driven by growing contributions from aerospace and satellite applications, as well as optical applications. Individual gross margin reached 40.7%, up 8.1 percentage points from the previous quarter, while consolidated gross margin reached 37.4%, improving by 9.2 percentage points sequentially and exceeding our previous expectations. Consolidated operating margin increased from 14.1% in the previous quarter to 24.2%. Together with a significant increase in equity method investment income, net income attributable to the parent company amounted to TWD 1,930 million, with EPS of TWD 4.55 for the quarter. Looking at our product mix in the third quarter of 2026, order momentum for high-end iOS devices continued as expected. However, memory shortages began to affect mid-end smartphone sales, resulting in flat sequential revenue for our cellular PA business. Our Wi-Fi PA business posted double-digit sequential growth, supported by a relatively low base in the previous quarter and the return of certain router-related orders. In optical, the gradual ramp-up of new capacity for data center optical receiver components drove higher production volumes and shipments, supporting sequential revenue growth. Meanwhile, infrastructure recorded the strongest sequential growth among our four major product categories, as progress in our customers' LEO satellite launch programs drove demand for more frequency bands and spec upgrades. Unlike previous years, when our third quarter peak season was largely driven by smartphone demand, infrastructure and optical together accounted for more than half of our total revenue this quarter. As a leading compound semiconductor foundry, we have continued to focus our resources on key growth areas. This strategy is gradually delivering results, with an improving product mix and stronger profitability. In recent years, rising geopolitical tensions have accelerated the localization of cellular PA supply chains for China's low- to mid-end smartphone market. This year, memory shortages have further pushed up smartphone prices, shifting demand in favor of high-end smartphones over mid- to low-end models. Against this backdrop, our focus on the mid- to high-end Android and iOS markets puts us in a relatively favorable competitive position. Beyond smartphones, our broad technology capabilities in wireless microwave communications and optoelectronic semiconductors, established mass production capabilities, and longstanding partnerships with leading international IDMs provide a strong foundation for our business transformation. As AI applications see wider deployment and launches of next-generation LEO satellites accelerate, we are well-positioned to capture these emerging opportunities. Since the second half of last year, we have undertaken project-specific CapEx to address production bottlenecks and increase output per wafer. On the technology front, we have developed a comprehensive portfolio of optical communication solutions for AI data centers, covering short, medium, and long-reach applications, including VCSEL, CW lasers, EMLs, and indium phosphide PICs. We are also advancing the development of high-power lasers ranging from 200 milliwatts to 400 milliwatts. In addition, we have successfully advanced our gallium nitride HEMT process technology to 0.1 micrometer, moving beyond the industry's prevailing 0.25 micrometer and 0.15 micrometer processes to capture opportunities in next-generation satellite communications. Looking ahead to the fourth quarter of 2026, we expect smartphone-related orders to gradually slow as we move into the seasonally slower period, while memory shortages and higher end market prices may create additional uncertainty. Nevertheless, supported by the adoption of new specifications in aerospace and satellite applications and the continued ramp-up of capacity for optical projects, we expect consolidated revenue to grow by low single digit QoQ, with consolidated gross margin of approximately high 30s. I'll turn the call back over to Avon. Thank you, Steve, and welcome, everyone. It is my pleasure to present the financial results for the third quarter of 2026. Slide two contains our safe harbor notice. Please note that this presentation may contain forward-looking statements, and actual results may differ materially from those expressed. Slide three highlights WIN's recognitions in ESG. We have been recognized in the Dow Jones Sustainability World Index, DJSI World, for the sixth consecutive year, and ranked among the top 5% in the TPEx Corporate Governance Evaluation for 11 consecutive years. In addition, in the third quarter, we received a Prime rating from ISS ESG for the third consecutive year. Next, I will go through our Q3 operational results. Slide five shows our revenue and gross margin trends. Driven mainly by peak season seasonality and an improved product mix, overall consolidated revenue for Q3 2026 totaled TWD 5,859 million, representing an 11% QoQ growth and a 31% YoY growth, which in line with expectations. With capacity utilization rising from 65% in Q2 to 75% in Q3, alongside favorable product mix where combined revenue from infrastructure and optical exceeded half of total revenue, WIN Semi's individual gross margin rose to 40.7% this quarter. Consolidated gross margin reached 37.4%, and consolidated operating margin was 24.2%. Consolidated gross margin and consolidated operating margin increased by 9.2 percentage points and 10.1 percentage points QoQ respectively. Notably, after 18 quarters, WIN Semi's individual gross margin surpassed 40% again, and consolidated gross margin reached a new high in 18 quarters. In other words, Q3 gross margins have essentially returned to levels seen prior to the smartphone market inventory adjustment a few years ago. As shown in the lower two charts on this slide, WIN Semi has delivered YoY revenue growth for five consecutive quarters. Furthermore, as shown in the lower right table, consolidated gross profit, consolidated operating income, and consolidated net income after tax all achieved expansion across all three margins, reaching 37.4%, 24.2%, and 31.2% respectively. Moving on to slide six, overall Q3 profitability trends. Overall, Q3 consolidated operating gross margin significantly exceeded expectations. While consolidated operating expenses increased slightly, the consolidated operating expense ratio remained flat, staying around 13%-14% for two consecutive quarters. Non-operating income will be explained item by item shortly, but was mainly driven by a significant increase in equity method investment gains. Total Q3 net income attributable to the parent company was TWD 1,930 million, compared to TWD 977 million in Q2, resulting in a Q3 EPS of TWD 4.55, compared to TWD 2.30 in Q2. Looking at the charts at the bottom of the slide, the lower left chart shows three consecutive quarters of growth in consolidated operating profit and consolidated profit attributable to the parent company. EPS followed the same trajectory, reaching TWD 4.55 this quarter, nearly doubling from Q2's TWD 2.30. Next, slide seven shows product mix. Starting this year, we have reported optical separately for better clarity and investor analysis. Looking at this quarter's product mix, cellular remained flat QoQ, while all other segments grew, led by infrastructure. Cellular stayed flat this quarter, primarily due to price hikes in mid-end smartphones caused by rising memory costs, which created market headwinds. However, overall iOS demand unfolded as expected, keeping cellular's revenue share roughly flat QoQ at around 25%-30%. A notable highlight in our product mix is infrastructure, which rose to 35%-40% of total revenue this quarter, driven primarily by satellite and aerospace-related applications. As for Wi-Fi, growth was driven by the return of certain router orders combined with a low base in the previous quarter, delivering double-digit QoQ growth. Wi-Fi accounted for 15%-20% of revenue this quarter. Meanwhile, optical benefited from the start of PD mass production and ongoing capacity expansion, contributing 10%-15% of total revenue. Moving to slide eight for our Q4 outlook, we expect Q4 consolidated revenue to grow low single digits QoQ. The main drivers are, one, year-end routine facility maintenance, which is an annual scheduled process, and two, cellular entering its slower season alongside memory shortages causing end device price increases. However, performance across other product segments will remain roughly similar to Q3. Therefore, overall Q4 consolidated gross margin is expected to be in the high 30s. Next, a brief summary of our unaudited Q3 financial performance. Slide 10 shows the Q3 consolidated income statement. Q3 consolidated revenue was TWD 5,859 million, up 11% QoQ and up 31% YoY. Consolidated gross profit was TWD 2,191 million, up 48% QoQ and up 82% YoY, with consolidated gross margin rising to 37.4%. Consolidated operating expenses increased slightly, but the operating expense ratio remained steady QoQ at around 13%-14%. Consolidated operating profit reached TWD 1,416 million, up 91% QoQ and up 267% YoY. Consolidated non-operating income was TWD 698 million, mainly driven by increased earnings from our 23% stake in ITEQ, resulting in growth across both core operations and non-operating income. Pre-tax net profit reached TWD 2,114 million, up 78% QoQ and up 136% YoY. Q3 consolidated net income was TWD 1,826 million, up 102% QoQ and up 167% YoY. Consolidated profit attributable to the parent company was TWD 1,930 million, up 98% QoQ and up 80% YoY. EPS was TWD 4.55, up 98% QoQ and up 81% YoY. Q3 depreciation expense was TWD 706 million, declined slightly QoQ. Q3 CapEx was TWD 445 million. Next is the consolidated income statement for the first three quarters. Accumulated consolidated revenue for the first three quarters reached TWD 15,706 million, up 33% YoY. Consolidated gross profit was TWD 4,885 million, up 95% YoY, with a consolidated gross margin of 31.1%, up 10 percentage points compared to 21.1% in the same period last year. Operating expenses were TWD 2,296 million, down 6% YoY. Consolidated operating profit reached TWD 2,589 million, representing a nearly 5,000% increase compared to TWD 50 million last year. Consolidated non-operating net income was TWD 1,246 million compared to TWD 235 million in the same period last year. Despite line item variations, the increase was mainly attributable to higher equity method investment gains from ITEQ and increased foreign exchange gains compared to last year. Accumulated consolidated pre-tax net profit reached TWD 3,834 million, a 12-fold increase YoY. Accumulated consolidated operating profit reached TWD 3,180 million, up 23 times YoY. Accumulated consolidated net income attributable to the parent company reached TWD 3,440 million, up 417% YoY compared to TWD 665 million last year. Cumulative EPS for the first three quarters was TWD 8.12, up 417% from TWD 1.57 in the same period last year. Accumulated depreciation expense for the first three quarters was TWD 2,237 million, down 27% YoY. Accumulated CapEx was TWD 1,458 million, up roughly 10% YoY. Next, slide 12 details non-operating income and expenses. Q3 non-operating income was primarily derived from equity method investment gains contributed by our 23% holding in ITEQ. Other line items showed minimal changes. Foreign exchange gains decreased slightly, mainly due to significant NT dollar appreciation in September. Gain or losses on financial asset or liabilities at fair value through profit or loss were minus TWD 16 million, primarily reflecting minor Q3 share price declines in Taiwan stock holdings linked to our limited partnership investments. Financial expenses were approximately TWD 150 million, bringing total Q3 non-operating income to roughly TWD 698 million. Slide 13 presents the consolidated balance sheet. As of Q3, total assets stood at approximately TWD 65,201 million, relatively flat compared to Q2's TWD 63,490 million, with the primary increase occurring in inventory. Q3 inventory reached TWD 8,162 million, up from TWD 7,584 million in Q2, driven by higher finished goods and work in progress as we entered the peak sales season. Total liabilities were approximately TWD 19,554 million, remaining consistent with Q2's TWD 19,243 million. The debt ratio remained stable at around 30% across both quarters. Total equity reached TWD 45,647 million, up from TWD 44,247 million in Q2, primarily driven by retained earnings growth. Book value per share at Q3 end was TWD 106.87, comparable to Q2. While the debt ratio remained unchanged, the current ratio improved QoQ. That concludes my presentation. We now begin the Q&A section. Please submit your question in the input box on the webcast window. Okay, let me address the first question regarding our Q4 outlook. We expect Q4 revenue to grow slightly QoQ, performing somewhat better than historical seasonality. For cellular, as the peak occurred in Q3, Q4 will see a slight sequential decline. The other three product segments are expected to remain flat to slightly growing QoQ. That summarizes our Q4 outlook. In addition, several investors have asked about our growth in LEO satellites. Let me address this. We cannot separately disclose its exact revenue share because it is part of our broader infrastructure technology applications. Satellite technology significantly overlaps with long-distance point-to-point communications technology, making precise revenue breakdown difficult. Therefore, I cannot provide a standalone percentage for LEO. However, looking at total infrastructure revenue, aerospace combined with long-distance point-to-point applications has surpassed base stations in revenue share, now representing around 40% of infrastructure revenue. Regarding LEO outlook for next year, with V3 deployments underway, we hold a relatively optimistic view on next year's demand. Thank you. Moving to the next question. Many investors inquired about our optical development. As shared in previous investor conferences this year, 3D sensing's share within optical is gradually declining. As PD entered mass production between Q2 and Q3, shipment volumes have been ramping sequentially, and we expect healthy growth in Q4 compared to Q3. By next year, we expect to bring most capacity online, making next year a harvest period for PD. Meanwhile, for CW lasers, product reliability and technical testing with customers remain ongoing. As previously mentioned, this will require another year to mature because each reliability test cycle takes six months or more, meaning significant revenue contribution will likely occur the year after next. Regarding EML, the situation is similar to CW lasers. Most product development with customers is complete, but extensive reliability testing is required due to end customer requirements. Therefore, both laser product lines are expected to contribute significantly in the year after next, though next year may see some early, small-scale pre-mass production revenue contributions. Regarding gallium nitride, current capacity is on 4-inch wafers. We continue expanding capacity and plan to formally introduce our 6-inch gallium nitride process technology to customers next year as an additional option for future capacity expansion. On optical communications, another common inquiry concerns the indium phosphide substrate supply chain. As we have addressed before, WIN Semi is a pure-play foundry. Not all customers order epi wafers directly through us. For customers placing high-volume wafer processing orders, substrate availability is not an issue for us because they supply pre-grown epi wafers. For large-volume customers requiring epi wafers, most major clients can secure their own indium phosphide substrate supplies. Therefore, we do not foresee any significant impact on revenue from this matter. To clarify, as there might be misunderstandings, when I mentioned that our combined satellite, aerospace, and long-distance point-to-point applications reached over 40%, I meant 40% of infrastructure revenue, not total company revenue. Hello, everyone. An investor asked whether ITEQ's contribution to profitability stems from stock price fluctuations or other factors. Let me explain briefly. We hold roughly 23% of ITEQ and account for it under the equity method. Under equity method accounting, we recognize 23% of ITEQ's net income for the quarter as non-operating equity method investment income. Thus, recognition is strictly proportional to ITEQ's net earnings and is completely unrelated to its share price movements. I would also like to clarify a potential misunderstanding regarding gross margin. Our guidance always refers to consolidated gross margin, not individual gross margin. Our Q3 consolidated gross margin of 37.4% and our Q4 guidance of high 30s are on the same level, indicating no margin decline. Investors may be comparing our guidance against our individual gross margin of 40%, but they represent two different metrics. Guidance reflects consolidated gross margin, whereas individual gross margin is calculated and reported after quarter-end settlement. Thank you. Regarding utilization rates, since revenue remains at a solid level, we expect utilization rates in Q4 to remain similar to Q3, staying above 70%. Thank you. As mentioned, we began certain CapEx last year. Full-year CapEx for this year will remain within our guided range of TWD 2 billion-TWD 3 billion, roughly TWD 2 billion, plus or minus. For next year's CapEx, budget planning is still underway. We will provide detailed updates during our investor conference in Q1, covering Q4 and full-year 2026 results. Thank you. Regarding our gains in infrastructure, particularly aerospace, as noted, investors are very interested in this area. However, because many questions pertain to a specific end customer, I apologize that NDA obligations prevent us from disclosing individual customer details or discussing their operational plans. An investor inquired about our CapEx and depreciation. This year's CapEx is estimated at around TWD 2 billion, primarily allocated toward equipment purchases. As seen in Q3, we issued material disclosures for major equipment orders, including purchases from ASML. Indeed, this year's TWD 2 billion CapEx was primarily utilized for equipment procurements. Regarding the depreciation outlook, Q4 depreciation is expected to remain comparable to Q3. Although down payments have been made for equipment orders, they have not yet been capitalized as fixed assets. Therefore, Q4 depreciation will stay roughly flat with Q3. For 2027 depreciation, we will provide estimates after completing budget planning and establishing capitalization timelines. Let me clarify overall gross margin dynamics. In Q3, the largest revenue contributor was infrastructure. Within infrastructure, as mentioned, aerospace-related and point-to-point applications showed strong growth. Therefore, infrastructure was undoubtedly the primary driver of Q3 gross margin expansion. While optical contributed, it remains in early-stage mass production. Significant revenue contribution will occur next year, with this year reflecting smaller initial volumes. Nonetheless, optical has meaningfully improved our product mix. Regarding the 2027 picture, share allocation for next year's smartphone are not yet finalized. We will share a clearer outlook during our Q1 earnings call after collecting, consolidating, and analyzing customers' input. Addressing ongoing investor questions on Q3 margin expansion, infrastructure is a high-margin product segment. A significant increase in its share fundamentally transforms our overall product mix. Infrastructure's revenue share grew over 5 percentage points QoQ, driving substantial margin improvement. We will provide a comprehensive report on next year's outlook in Q1. Thank you. An analyst asked for clarification regarding infrastructure's Q3 performance. To clarify my earlier presentation for product mix, that infrastructure grew nearly 40% this quarter. While it was the fastest-growing segment QoQ, the nearly 40% figure refers to its Q3 revenue share, not the growth rate. This share increase was driven by satellite, aerospace, and broader aerospace-related demand. Regarding Q4 margins, since reporting both individual and consolidated margins may have caused some confusion, I would like to clarify that our guidance is calculated strictly on a consolidated basis. Both Q3 actual and Q4 guidance remain in the high 30s, showing no signs of margin contraction. Thank you. Regarding Q3's gross margin expansion, the contribution from increase of utilization rate was limited, moving only from 65% to 75%. Long-term observers of WIN Semi know that as capacity utilization approaches 80% level, its marginal impact on gross margin diminishes. The primary margin drivers were overall revenue growth and favorable product mix optimization. Thank you. Regarding our optical communications roadmap, we are seeing tangible progress this year. To update on lasers across EML, VCSEL, and CW lasers, we have customers' product developments underway with steady progress. However, due to lengthy reliability qualification cycles across all laser technologies, we estimate mass production remains over a year away. We will share updates as milestones are reached. Additionally, I apologize that we cannot address questions regarding individual customers due to NDA with customers. Thank you for your understanding. To summarize our final questions. Regarding inventory, as revenue grows, inventory naturally increases due to higher wafer volumes in fabs, especially with Q4 revenue continuing to grow slightly. Current inventory levels remain healthy and aligned with business expansion without anomalies. On satellite applications, we serve multiple satellite customers. WIN Semi has supplied traditional GEO satellites for over a decade. Across GEO, MEO, and LEO, we engage with multiple customers. Given LEO's higher volumes, most recent growth stems from LEO's development. For LEO, we work with several end customers directly and indirectly via long-distance point-to-point customers, making exact LEO market share of WIN Semi difficult to isolate. Looking ahead, with LEO specifications upgrading significantly starting this year and direct-to-cell implementations commencing, we remain optimistic about LEO market expansion. Finally, regarding PD, to clarify my earlier remarks, PD entered initial mass production this year and is sequentially ramping up. High-volume shipments will begin next year, supplying larger volumes full year. As for whether our capacity is fully loaded, I think everyone knows that our capacity is dedicated to all compound semiconductors. Our 4-inch capacity is not limited to manufacturing PD alone. Basically, we can switch production among PD, LD, and various other products as long as they are 4-inch indium phosphide products. Therefore, there is no situation where capacity is fully constrained and cannot be increased. We will flexibly adjust and plan based on the demand for various products and from different customers. Thank you, everyone. As there are no further questions, thank you for your participation in WIN Semi's conference. There will be a webcast replay within hours. Please visit www.winfoundry.com under the Investor Relations section. You may now disconnect. Goodbye.