Lite-On Technology Corporation (2301) Earnings Call Transcript

The conference is about to begin. The senior executives present today include President, Anson Chiu; CFO, K.T. Lim. Today's agenda consists of three parts. First, CFO K.T., will explain the financial and business performance of Q2 and H1 2026. Next, President Anson will explain the company's operational outlook and growth strategy. During the Q&A session, Anson and K.T. will provide further explanations. First, CFO K.T. will explain the financial results of Q2 and H1 2026.

Good afternoon, everyone. First, I will present to you our results for Q2 2026. LITEON Technologies Q2 revenue was TWD 52.7 billion. GP, TWD 14.3 billion, with a rate of 27.2%. OP, TWD 8.2 billion, with a rate of 15.6%. Net profit after tax, TWD 7.1 billion. EPS, TWD 3.14. Overall, Q2 revenue went up by 30% Y-o-Y, in which cloud and AIoT revenue grew by more than 70% Y-o-Y. Revenue went up by 21% Q-o-Q, with all three major segments showing double-digit Q-o-Q growth. GP went up by 60% Y-o-Y with a rate of 27.2%, up 5.1 percentage points Y-o-Y. OP went up by 120% Y-o-Y, with a rate of 15.6%, up 6.3 percentage points Y-o-Y. It mainly benefits from strong demand for next-generation AI DCs. In addition, shipments of high-end models were deferred from Q1 to Q2, thus increasing the share of high-value businesses. Meanwhile, global capacity expansion brings economies of scale, while smart manufacturing optimizes operational efficiency, driving overall profit growth. Net profit after tax, TWD 7.1 billion. EPS, TWD 3.14, up 1.26x Y-o-Y, a record high. Now results for the first half of 2026. H1 revenue was TWD 96.1 billion, up 25% Y-o-Y. GP, TWD 23.8 billion, with a rate of 24.7%. OP, TWD 12.3 billion, with a rate of 12.8%. Net profit after tax, TWD 10.9 billion. EPS, TWD 4.8, up 66% Y-o-Y. Compared with the same period last year, cloud and AIoT continued its strong growth. In H1, revenue grew by 60% Y-o-Y. GP went up by 38% Y-o-Y, up 2.4 percentage points Y-o-Y. OP went up by 66% Y-o-Y, up 3.2 percentage points Y-o-Y, showing the expansion of high-value businesses and the improvement in both operational efficiency and profitability. Net profit after tax in H1 was TWD 10.9 billion. EPS, TWD 4.8, up 66% Y-o-Y, a record high. Now very quickly, I'm going to talk with you about revenue and profit of the three major segments. Q2 revenue from the 3 major segments went up by 21% Q-o-Q. OP, TWD 8.2 billion, doubling from Q1, in which in cloud and AIoT, revenue was TWD 28.9 billion, up 26% Q-o-Q, accounting for 55% of total revenue. It benefits from the growing shipments of next-generation high-end cloud-powered products. OP, TWD 6.9 billion, doubling from Q1. In optoelectronics and also in ITC, revenue has also grown Q-o-Q and profit has also grown Q-o-Q. Overall, we continue to strengthen high-growth, high-value core businesses, increasing both the overall operating scale and profitability. Now let's look at our balance sheet. In Q2, accounts receivable went up by TWD 7.5 billion in current assets. Inventory went up by TWD 11.2 billion Q-o-Q to manage shortages and price increases of critical materials to meet safety stock requirements and to manage global operations, we initiated strategic procurement and material preparation to strengthen supply resilience and delivery capabilities. In current liabilities, short-term bank loans went up by TWD 17.9 billion Q-o-Q. Accounts payable went up by TWD 8.5 billion Q-o-Q. Q2 current assets went up by TWD 24.7 billion Q-o-Q. Current liabilities went up by TWD 20.6 billion. Quick ratio and current ratio, 0.94 and 1.39x, respectively. Net cash position, TWD 40.8 billion, down TWD 13.8 billion Q-o-Q. It was mainly used to pay cash dividends of TWD 6.8 billion and CapEx of TWD 4 billion in Q2. Starting in 2021, the enhancement of high-value businesses has driven high-quality revenue and profit growth. Since the rise of AI DCs in 2022, high-value cloud computing business has grown. The revenue share of cloud and AIoT went up to 54% in H1. It was only 32% back in H1 2022. Revenue scale has nearly doubled in size. H1 revenue went up by 25% Y-o-Y, and OP went up by 66% Y-o-Y. High-value businesses have continued to drive excellent annual growth in revenue and profit. Next, you can look at our ROIC enhancement. Behind long-term forward-looking investments, our management focus is on AI infrastructure to generate stable ROIC. ROIC performance continues to show the success of our strategic transformation and capital allocation. Between 2020 and 2023, by focusing on high-value businesses and optimizing our portfolio, ROIC went up from 28% to 55%. And our ROIC in the first half of the year reached 22%. And in the second half of this year, it's expected to be better than the historical average. It shows that while actively managing capital, improving efficiency and expanding AI infrastructure capacity, the growth of high-value businesses not only drives revenue and profit, but also creates long-term shareholder value. As for our strategic deployment, in addition to R&D investment, in response to the trend of globalized manufacturing, we have successfully completed our manufacturing deployment in Taiwan, Vietnam, Thailand and North America, in which Kaohsiung plant Phase 2 in Taiwan and Quang Ninh plant in Vietnam are expected to officially start mass production in Q3 and Q4 this year, respectively. With rapid business growth, CapEx for 2026 has been revised upward to TWD 18 billion from TWD 13 billion announced last quarter. These capacity deployments not only demonstrate our confidence in future growth, but will also significantly enhance LITEON's ability to secure orders from new customers and for new products. This is the overview for Q2 and H1. Revenue, TWD 52.7 billion, up 30% Y-o-Y and up 21% Q-o-Q, in which cloud and AIoT grew by more than 70% Y-o-Y. GP went up by 60% Y-o-Y with a rate of 27.2%, up 5.1 percentage points Y-o-Y. OP went up by 120% Y-o-Y, with a rate of 15.6%, up 6.3 percentage points Y-o-Y. These benefit from the growing demand for next-generation AI infrastructure. In addition, shipments of high-end models were deferred from Q1 to Q2. The growing share of high-value businesses, economies of scale from global capacity expansion and the optimized efficiency of smart manufacturing have improved overall profitability. Net profit after tax, TWD 7.12 billion. EPS, TWD 3.14, up 126% Y-o-Y, which is a new record for LITEON. As for H1, revenue TWD 96.1 billion, up 25% Y-o-Y. GP went up by 38% Y-o-Y, with a rate of 24.7%, up 2.4 percentage points Y-o-Y. OP went up by 66% Y-o-Y with a rate of 12.8%, up 3.2 percentage points Y-o-Y. Net profit after tax, TWD 10.9 billion. EPS, TWD 4.8, up 66% Y-o-Y, which is also a record high. Core businesses, thanks to smooth shipments of high-end AI server power, cloud computing products and power management systems, cloud and AIoT revenue doubled Y-o-Y. Next, BOD resolution from this morning, BOD approved a cash dividend payout of TWD 2.5 per share for Q2 2026. This concludes my presentation.

Thank you, K.T. Next, President Anson will explain the company's operational outlook and growth strategy.

All right. Thank you, Julia, and thank you to our investment partners and media friends. Good afternoon. So now that we've heard K.T.'s presentation, I'm sure you would all agree that LITEON today is very different from the LITEON of the past. This change is not just seen in those financial numbers that we talked about, but also in our role. LITEON is no longer a company that follows the ODM or OEM model. We have transformed into a solution provider, providing high-value solutions to the market and our customers. This transformation comes from one core idea, which is that only through technical innovation and playing a leadership role in the industry can we continue to guide the upgrade and development of our industry. LITEON's power supply products in the AI industry is the best example. It took a very long time, a lot of cooking from investment to actual results. But as you can see today, all of these investments were very worthwhile. So we will continue to follow this central idea, continue to invest in our products and technical innovations. With future trends in new energy structures, we will continue to strengthen our R&D deployment in North America and develop new products and new technologies where our customers are. This helps us provide maximum value and to maintain our leadership role in the industry. So I talked about new products, and I'm sure you've heard a lot about them. I think, as you know, we have been very focused on the AI sector, particularly when it comes to power management. Our new generation 110-kilowatt power shelf BBU and 800-volt HVDC power rack as well as our future high-end D2D bricks would all enter qualification and production in the second half of this year. In addition, when it comes to liquid cooling products, such as the 120-kilowatt CDU and the sidecar, all of these have entered mass production and shipment in the last quarter, and we anticipate stepping up the volume in the next half of the year. When it comes to physical products, our rack level products have received orders from cloud service provider customers in North America. So through this varied and diverse product portfolio, we can serve our customers' needs and drive further growth momentum for the company. We anticipate that this year, our share of AI products in our revenue will exceed 30%. At the same time, as we plan for the next-generation AI data center market and the optical communication market, our Board of Directors approved a strategic investment in DenseLight, a optical communication component company from Singapore. This will allow us to procure 21% of the company's shares and one chair -- and one seat on the Board. DenseLight has R&D and production in indium phosphide products, and their core products include CW DFB laser gain chips and SOAs. These are all key components in high-speed optical communications. Through this acquisition, we will use our existing advantages in advanced packaging, system integration and global manufacturing to broaden our strategic planning in the optical engines, optical modules and rack scale optical connection markets. This will help us seize the long-term growth opportunities in AI data centers and high-speed optical communications. So over the years, we have talked about our long-term strategy in AI infrastructure. And starting from this year, we're not just talking about the strategy anymore, we're seeing results from implementing these plans. The second quarter was an important milestone for LITEON. The revenue and profit that you saw comes not from short-term market opportunities, but from long-term investment into R&D, global production and talent development. So this has now borne actual fruit. And it has shown that our forward-looking investments have been transformed into tangible growth momentum. In the future, we will continue to deepen our strategic planning in power supply, storage and transformation, cooling and rack solutions. AI will continue to be our core growth engine as we work toward becoming an important collaboration partner for AI infrastructure around the world. That concludes my presentation. Thank you.

Thank you, Anson. Now is the Q&A session. We open the floor for questions. Anson and K.T. will provide further explanations.

I'm Doris from BofA. My first question is this, in Q2, in the gross margin -- well, I remember that in Q1, there was a 1 percentage point inventory write-up. So in Q2, was there a reversal of that? This is my first question. Do I continue with my questions? Okay. My second question is this. This is about CapEx. This time, it goes from TWD 13 billion to TWD 18 billion. Does it include the TWD 900 million investment in Texas? I remember that the TWD 13 billion didn't include that yet. What about the TWD 18 billion? Is it included? And do you also have some other expansions? And does the expansion include BBU expansion? Because the demand is also quite strong. Here's my last question. In the second half of this year, we see that some critical materials and parts and components are in shortage. So do you have some strategies to address these challenges? And when the cost goes up, will you be able to respond to customers? And as for CSPs, you have two big CSPs as your targets, right? Has there been any progress that you can share with us?

Let me answer your first question. Well, in Q2, when customers were pulling goods, there was some reversal, and it didn't affect Q2 that much. As for your second question related to CapEx, yes, when it went up to TWD 18 billion, it included the planned expansion in the United States, yes.

Let me answer your last question. As we told you previously, the North American market is an important one for LITEON. Our products don't just service one single customer. All the CSPs in North America are our targets, and we have made efforts in this direction for many years. This year, we can happily tell you that we already have -- we are already delivering products to those two CSPs, but the volume is not big yet. But in 1 year, we should be able to establish our credit in their records, and we should continue to increase our market share. Your third question is about our products. Well, we continue to invest in AI-related products with our customers. What I want to tell you is this. When it comes to R&D, we will continue to increase our R&D percentage, which is currently 5 to 5.5 percentage in the company. And in the future, we will be able to continue to increase our R&D so that our product mix in the company can continue to satisfy customer needs in the future. Well, when it comes to materials, as K.T. told you earlier, in Q2, our inventory went up. And I think -- well, to answer your question, there are risks of price increase and shortage of materials. So in Q1 and in Q2, we had strategic material stocking and our customers were informed, meaning that they were willing to provide concrete subsidy or guarantee for these material stocking. So in Q2, our inventory went up, but these materials are enough for our critical parts and components in the second half of this year. So when there is a price increase and shortage of materials from suppliers, I think we have good plans to manage the situation. So rest assured, in H2, these shouldn't be our -- the obstacles for our growth. But to add to what has been said, when it comes to materials, every month, we have business development projections. And we told you about our strategic procurement, which is done 6 months in advance. And when it comes to materials, there are three different management methods. For new products, we more actively procure in advance. For each product and its upstream and downstream, we have very stringent management.

I want to ask a bit more about the BOD investment resolution. You said that this company makes indium phosphide, right? Well, I'm not very familiar with this industry. So could you tell us more about DenseLight and their epitaxial design and wafer process, what's their market position? And if it's a startup, is it losing money? Or is it breaking even? What kind of a company is that?

I would like to invite the manager in charge to provide more detailed explanations.

Hello. This company has made indium phosphide for 20 years and also epitaxial and wafer process. It's an IDM doing high-end laser. Why do we do this? Well, because in the long-term growth of optic communications, technology iterations are important and solution integration is also key. LITEON has our long-term optic packaging and testing capabilities and assembly capabilities for a long time. And also, we have photocoupling in optic communications. So Indium phosphide now has some supply gap where we need some strategic cooperation and operation. This company is a robust company. We hope that -- well, this company has good technology. We want to develop with them for 1.6T and 3.2T light engine or CPO solutions, basically next-generation optic communications. We look forward to this.

Were you talking about 2025? So for 2025, I mean the company, what is the company's financial state right now? Can you discuss that?

Well, this company is currently a private company. It's a start-up private company, and we will own 21% of the shares of this company.

Well, I remember that Anson, you talked about some strategic planning surrounding CPOs. So is this investment part of that?

Yes, it's part of that. As I talked to you about, when it comes to the optical communication market, we will be focusing on optical engines and optical modules. So you can think of what this company produces as a chip. And LITEON's strength is in packaging. So it's also a vertical integration play. Through LITEON's strengths in packaging, we can help this company achieve higher competitiveness in production and in shipments. So in addition to their technology, we can provide synergy when it comes to production for this company.

So your investment into this company is to take their indium phosphide laser and make it into a component of the CPO. Is that the play?

Yes. So we're going to make their chip part of our module, part of -- to make it the light source for our optical communication product.

My first question is about the gross profit margin because it went up quite significantly this quarter. So can you talk a little bit about why? It seems that every business unit saw growth in the gross profit margin with the highest coming in the cloud business. So it seems that the growth of the cloud business has been in line with previous quarters. So why has the margin suddenly gone up?

Well, if you remember our investors conference last quarter, we talked about gross profit, GP, and we mentioned an inventory write-off. So that was why the GP was relatively low last quarter. In addition, one of our customers had a delay in their shipments. And because of this delay, the SKD expense did not come in until the second quarter. So if you balance these various factors in the first and second quarters, our overall gross profit margin for the first half of the year is about 24% to 25%. And I think that is a realistic target for the next coming quarters as well.

To add a little to that, the quarter-to-quarter volatility has various factors behind it because it might result from shipping delays and the shipping delays might result in changes in our product portfolio. So I think it would be better not to focus on quarter-to-quarter volatility. The overall 24.7% profit margin for the first half of the year is what should be focused on. We talked about a target 25% profit margin in the past. And I think that is the number to focus on when evaluating LITEON's long-term strategic planning.

Okay. So if we look ahead at the second half, 24% to 25% is a more reasonable target? Or will it be 27% again?

Well, we will always be working to improve our gross profit margin. But I think long term, with the uncertain factors ahead, including materials costs and product portfolios, there are some uncertainties. But I believe that our profit margin will be -- will hold steady at 25% in the future. I believe that is a realistic goal for us.

So for the second quarter, were price increases a factor? Because we know that there have been price increases for some consumer products. So has this benefited your profit margins? And will the price continue to go up in the second half?

Well, I think all of our cost increases so far have been passed on to our customers. But our customers are very willing to accept these increases to secure their materials. As I said, some of them even want us to strategically procure more materials because they might be worried about further price increases or even disruptions to the supply. So the material costs are going up, but our prices are also going up. So the margin will hold steady. It's holding steady at 25%, not 27%, correct.

Okay. So next, I would like to talk about the two new CSP customers that Anson discussed. You said that now they are receiving shipments. But what products are they receiving shipments of? Are they power supply or rack products or something else?

Well, mostly power supplies and racks. And for the power supply, a lot of it is BBUs. And for the racks, it's the power rack product.

Okay. Julia, can you go back to the slide about products? Okay. I remember that in the last conference, you talked about the 800-volt DC, and it was quite clear that it would ship in the third or fourth quarter. But this time, you said that it would complete qualification. So does this reflect a change in the time line or a change in the market?

Well, from our perspective, this isn't a change in the time line. Our current progress -- well, we can't comment on our customers' progress. But on our part, the 800-volt product will have some sample runs starting in August. So part of that will go to our customers, but part of them will be here. We will conduct a 13-week test on them. So that's the qualification process I'm talking about. And then after that, the power rack will be integrated with the IT system of our customers, and that's a second phase of the qualification. So after the -- that second phase, if that goes smoothly, we can start small-scale mass production in November. But for larger scale mass production, it would probably be the first quarter of next year.

Okay. So when it comes to the 800-volt DC product, it's a specification that your GPU customer has been promoting. But that GPU customer is not the ultimate buyer of this product. So once you enter large-scale mass production in the first quarter of next year, do you already have real buyers lined up to purchase it?

Well, the HVDC product is not just for our GPU customer. It's also for our ASIC customer. And the time line that I talked about is actually mostly for the ASIC customer. They have been making faster progress. As for our GPU customer, they're also working on it, but their time line would be a little bit later, probably the second or even third quarter of next year. We believe it's most likely going to be the second quarter.

Okay. I see. My last question is about DenseLight. Can you talk a little bit about their laser products, what milliwatt level are they working in now? And are there any exclusivity agreements between these two parties, whether it comes to production or procurement? And also, what is their production capacity currently? And at what time do you foresee this investment to start contributing to your revenues? And also, if it's successful, will this be reflected in your opto business? Or is it -- or are you just an OEM for DenseLight? Will the products be marketed under your branding or DenseLight?

Well, we are the module producer. We are not -- this is not an OEM agreement. Their product will be part of our module, but we will be separate companies. We're only owning about 21% of them. So their financials will not be part of ours.

I mean the module, will it be part of your model?

Yes. Their product will be part of our module. And as for the milliwatt question, I believe it's about 200 milliwatts. Is it 100 or 200?

Well, currently, their mass produced product is 100 milliwatts, but we know that in the future for the CPO and optical engines, 200 and 400 milliwatts will be the mainstream in the future. And we are on our way to those levels. But currently, their mass production is at 100 milliwatts. And we are focusing on the back-end optical engines and CPOs.

So what is the production capacity?

Well, their production capacity is ever expanding. So to answer two of your questions, the production capacity is ever expanding. There will be more machinery in the third quarter of this year and the first quarter of next year. So in the first half and the second half of next year, we will see significant production expansions for that company. You also asked -- sorry, what did you ask about? In the production capacity expansion, is there exclusivity? Well, there is not. But we do have many collaborations in terms of strategic products and production, and we want to bring together our strengths in the future products such as the optical engines, and we want to optimize all of them.

Do you already have any customers?

Yes, we have a few for design and development.

So when will LITEON see revenue?

Well, I think it depends on the whole supply chain. I think in '27 or '28, will there be clear numbers? Well, why does it take so long? I think 100 milliwatt is mainstream. So there should be many customers. Well, when it comes to LITEON CPO architecture, I think only in late '27 or early '28, will there be numbers. But for 100-milliwatt, they already have some business numbers, but that's their business, not LITEON's business. So you only do ELS, you don't do CW laser optic modules. Well, we are discussing that. Well, optic modules doesn't take that long. Yes, we are discussing it.

I have a few other questions that I want to follow up with the managers. You mentioned your AI percentage, which will surpass 30% this year. Can you also share with us the Q2 percentage? This is my first question.

For Q2, it already surpassed 25%.

Understood. You also mentioned the two new CSP customers, and there will be some products that will be shipped. So do you target the new generation from H2 this year? Or do you ship from the existing generation?

Well, we are already shipping, including power supplies and also racks. They are being shipped already. And for future customers, we will start from new models. So there are already some products, but not very comprehensive. For the new generation, we are already in their AVL. We are developing new generation things now.

Well, for new customers shipment ship or market share, do you have a target?

In the long run, we hope that for key accounts, in terms of their future revenue, we want to achieve USD 1 billion as our target.

Hello, managers.

Sorry, I meant U.S. dollar, not NT dollar.

Hello managers, I want to ask you about CapEx. Your revision up to TWD 18 billion and also you have continued investment in the U.S. So I want to know, will the number continue to go up next year? And what will be the pattern like? Well, and also TWD 18 billion is quite a big amount in relation to your profit. So will that affect your dividend payout? And do you need to raise capital?