Chroma ATE Inc. (2360) Q4 FY2025 Earnings Call Transcript & Summary

Welcome, everyone, to Chroma's 2025 Fourth Quarter Earnings Conference Call. [Operator Instructions] For your information, a webcast replay will be available within an hour after the conference is finished. Please visit www.chroma.com.tw/investor/index under the Investor Relations section. Now I would like to introduce the CFO, Paul Ying. And Mr. Ying, please begin.

Thank you, Jason. Welcome, everyone. This is Paul Ying from Chroma ATE, and this is the fourth quarter of 2025 financial review. Well, I expect everyone, you see the presentation material at the website we have already posted. And on the Page #5, you can see that the bar chart on the right-hand side, you can see in 5 years span and for the past 3 years, starting from 2023, we grew the top line from TWD 18.6 billion all the way to TWD 28.3 billion for the consolidated sales. And for the 2025, the net income comes to the TWD 11.7 billion and grew from the 2023. And the total head count for Chroma globally is somewhere over 3,800 employees. And if we turn to the Slide #6, you can see the financial performance for the consolidated sales and gross margin. On this page, you also can see -- in 5 years span, you can see the growth of the gross margin from 58% (sic) [ 48% ] all the way to the 61% in 2025. And for the parent only, the sales and gross margin is similarly grew in the past 3 years from 54% to somewhere like 55% to 53%. And the top line, again, also grew from TWD 12.5 billion all the way to TWD 22 billion. With the investment in the R&D expense, the ratio is somewhere between 11% to 13%. But absolute numbers amount for the investment over the R&D expenses is already exceeding TWD 2.3 billion. And this is for the financial performance. And next page on the Slide #7, you also can see the return on equity. It's a double-digit, again, growth in the 3 years period from 18% to 29% at the -- 2025. As to the dividend, you also can see that our dividend policy, normally, we pay out like 70%. And for the earnings per share for the year of '25, it's reaching TWD 27.7. And our dividend for this year, just as approved by the Board members this morning, reached to TWD 19.5. It's 70% again. As to the condensed consolidated income statement for the fourth quarter of 2025, in this page, you also can see that we have made a record high on the fourth quarter of 2025 on the top line, which is approximately TWD 8.58 billion, and this is a 34% growth in a Q-over-Q basis and 42% growth on a year-over-year basis. And majorly, it's coming from the sales of the Testing Equipment business, which has occupied most of that 96%. As to the gross margin, again, the fourth quarter gross margin is 61% and reaching TWD 5.2 billion. And this is a 36% growth in a Q-over-Q basis and 45% growth on a year-over-year basis. As to the OpEx, I think the growth of the OpEx on a quarter-by-quarter basis, I think it's 17% on general and administration and another 3% on the R&D. So totally, you can see that the operating income reached somewhere approximately TWD 3 billion and reaching 35% of the top line, and this is a growth of 62% growth on Q-over-Q basis and another 92% growth on a year-over-year basis. As to the net income, we are reaching TWD 2.6 billion, occupied 31% of the top line. And on a Q-over-Q basis, it's a 48% decrease, simply because on the third quarter, we have the capital gain reaching somewhere approximately TWD 3.2 billion on the real estate. And if we compare to the fourth quarter of last year, it's a 72% growth on the net income. So here, we have enjoyed TWD 6.03 as the fourth quarter earnings per share. And for total, again, this is a drop compared to Q-over-Q, but 73% on a year-over-year basis. As to the annual numbers, you can see from this page, Slide #10, in '25, the net sales reaching TWD 28.3 billion. Compared to last year, this is a 31% growth, again, majorly contributed from the Testing Equipment business, which occupies like 96%. And for the gross margin, well, we are reaching 61%, which is pretty high. And compared to last year, it's a 37% growth. And for the operating income, we are reaching approximately TWD 9.2 billion, occupy like 32%. And compared to last year, this is a 68% growth. And for the nonoperating items, here, you also can see that we approximately nearly tripled the size of the year of '24 to TWD 4.7 billion. And for the net income, here, you can see that we are over TWD 10 billion, reaching nearly TWD 12 billion, occupy 42% of the top line and another 121% growth compared to last year. So this is a very good year for Chroma, and our earnings per share for 2025 reaching TWD 27.7. And again, this is a 122% growth compared to last year. And this is for the income statement. Then we turn to the balance sheet highlights. In this page, you also can see that -- well, due to the operation results, you can see that our cash growth like 65% and the inventory growth like 45%. And the major reason for the growth for the inventory is preparing for the shipment for the year end, also backlog orders for the year '26. And you also can see that our short-term debt is decreased and the long-term debt has increased due to our expansion for the second phase of our headquarters construction. So here, you also can see that we maintained pretty much the same inventory turnover and also accounts receivable turnovers. And for the return on equity and return on assets, also improved from the 22% last year to 29% for the return on equity. And for the 15% of the return on assets at '24, it grows to 20% at the year of '25. And for the cash position, you also can see that our free cash flow is nearly TWD 6.6 billion. Compared to last year, it's 131% growth. And this is for a very short briefing on the financial side. And next, Jennifer will give you the presentation for the product mix and also for the highlights for the '26.

Good afternoon, everyone. This is Jennifer. I will go through the product mix. Please refer to Slide 13. Let's start with the fourth quarter. In the fourth quarter, Chroma generated TWD 8.6 billion consolidated sales and the biggest growth was coming from Semiconductors and Photonics Testing Solutions, which has increased by 37% quarter-over-quarter and the same 37% year-on-year. This quarter was mainly due to the metrology delivered. The Test Instruments and ATS was lower than third quarter, but year-on-year still grew by 56%. In year 2025, the outstanding growth was coming from the power business, the Test Instruments and ATS present a strong growth of 55% compared to year 2024. And this year, we expect another year of growth for this sector, mainly coming from AI server power include HVDC adoptions and the demand from the ESS markets, which is battery cell, okay? The Semiconductor and Photonics sectors in year 2025 was growing by 40% compared to 2024, and it has consecutively grown for the second year and reached almost same point as the power business. In 2026, we expect another year of good growth from the Semiconductor sectors, mainly contribute from the 3 major drivers. First one, the system-level test, particularly the demand comes from AI, HPC and ASIC. And second, the Metrology for advanced package capacity ramp. And then third, Photonics from CPO adoption. And now we are open for the Q&A section.

[Operator Instructions] Now we'll have the first question, Kevin Wang, Mizuho.

Congratulations on your strong Q4 results. The first question is regarding your revenue growth this year. I think you should still deliver very strong growth this year, but do you have any quantified numbers for your revenue growth this year? And also, could you also share the growth outlook for Test Instruments and also Semiconductor, respectively, this year? As you mentioned a good growth, but if you can give any rough idea for the quantified number, that would be great.

Kevin, we couldn't provide any forecast based on the regulations in Taiwan. But basically, we do have very outstanding orders on hand. Let me give you some color regarding to our ATS, which is the power business. Well, as you know that last year, we were mainly [indiscernible] grew by this kind of AI power and not from HVDC. So if you look at our power sectors, I think roughly close to 50% actually come from those AI powers. And then we're expecting we will have another year of growth from these sectors due to HVDC adoptions. And plus, this year, we see the strong demand come from ESS markets. The best hint I could provide is you could refer to the good year we have for '22, '23, those battery cell booming.

Got it. Okay. So my follow-up question is for your gross margin. Q4 gross margin looks very good, and it keeps at 60% or higher for every quarter in 2025. So how should we think about -- and also expect the gross margin this year? In addition, I mean, the Q4, there is a very high revenue contribution from overseas subsidiaries. So what's the major reason for this kind of high revenue? And also, how should we think about the gross margin impact from overseas subsidiary?

As you know, as a practice, we don't discuss gross margins. But however, our target always try our best to maintain gross margins, okay? And overseas, sometimes -- I would say, every year, maybe between the quarter, there was some change. I think that's due to the shifting timing and also could be the customs issues. But however, I think the markup to overseas, I think, it's around 15% to 20%, but cannot be very precise, exactly markup percent for every quarter due to the factor which I just mentioned.

And next one, Alex Wang, Bernstein.

Congrats on the great results. You include some CPO testers in the presentation. I'm wondering, have you secured the order for these testers as well as, I think, you also have SAU assembly equipment that you showed last year? And when do you expect volume shipment will start for this CPO equipment?

You may refer to our slides regarding to the CPO. But basically, these slides actually show you the 4 major stages for making the so-called CPO. So I think we already have order and the customer planning [indiscernible] around this year for the -- we cover Stages 3 and 4, which we particularly blocked up. As you could see, Light Engine and CPO Automation Testing Solutions. And SAU, yes, we changed a little bit of our strategies. We are very much focused on this kind of manufacturing process instead of focus on SAU because SAU could come with several models.

I see. I see. And then maybe a broader question. In the beginning of last year, the surge of AI power demand was a pleasant surprise to the company. Now based on your observations of the market trends this year and your order book, anything that surprised the management so far this year?

You mean semiconductor sector?

Which have a segment that surprised the management team?

I would say every sector.

Okay. Okay. And then so for the power testers, may I know what's the order visibility looks like and your shipment lead time?

Say surprised. Yes. I already guide -- HVDC is like a -- this will be whole year. And then on top of that, you can consider, as I already give a very clear hint, which is please [indiscernible] what we had before regarding to the battery booming back to '22 and '23. I think that's the best, at least, I could give.

Next, we have Jerry Tsai, JPMorgan.

Congratulations on a very good quarter and also Happy New Year, of course. Yes, just a couple -- a quick confirmation. First one, on the ESS, what category is it placed under? Is it ATS? Or is it Turnkey? Or maybe overseas operations? Just want to get that.

The ESS market ramp is mostly contributed from -- I think you may refer to the reasons the Chinese government would like to -- the infrastructure is mostly focused on the power. So that's why it brought up this kind of, I would say, huge ESS batteries demand. And I think in order to generate more margins and the cost concerns, we will repeatedly, like last time, do those assembly in China.

Okay. So it could be recognized under overseas. And then would you say the margin will be comparable to the previous cycle back in 2022?

I would not go through the margin, but we always try our best to maintain the gross margin.

Sure, sure. I understand that. Just curious that for this particular project, would it be like 2-year, like multiyear type of duration or...

I don't give a time frame guidance in case of a speculation. However, if we [indiscernible] out these 2, that -- this is already order on hand. I'm not talking about expecting [indiscernible]. Now it's [indiscernible], we still continue to receive the order. We don't stop this today, right?

Okay. Okay. Okay. Just also, I was going through the slides. There are some interesting kind of products you're showing. First one naturally is that you actually show an FT handler. Just wondering, is this something new or something you previously had a capability of doing that? Or is this something you expect to generate a meaningful contribution in the coming year or so? Yes.

Everything we list here, of course, it's definitely something we already -- we're about to present or customers is trial at the moment. I think this is sort of the guidance I could provide. Like [indiscernible] before I ever mentioned, every product we list here is mostly in progress or we already have order. There's no point to present here without significant orders.

Okay. I see. But would you say how you maybe have some differentiation in terms of performance or that kind of like a targeted market for this type of FT handler?

We try to bring up the customer satisfaction. As we list here first, we're able to process due side, which is more better throughput, more efficient. Second, we're able to reach out to 3,000 watts, okay, which is very good at it and...

That makes a lot of sense. And also maybe quickly, another question -- another interesting tool I noticed is the 799X series, which is supposedly for the corporate side. Would you have some kind of timing and also your expected kind of market share in the main customers? Would you have some kind of comments about timing and all those stuff?

I think we all focus on one customer, right?

Yes. Sure. Sure.

Very big one.

Yes.

We already have a PO.

Okay. So timing of shipment will be...

This is confidential between Chroma and that big customer.

Okay. I see. I see. Okay. And also one last question, sorry, I'm asking quite a few. I'm just wondering about the -- because there's a lot of quite a few testers you list out for the CPO, some of them is going through the PIC, some of them is for the, I guess, the EIC parts. Just how do we think about the kind of like the CapEx intensity of this kind of testing tool, i.e., is it possible to kind of give us some idea like how big this kind of CapEx could be, I mean, in terms of testing investment, tester investment among the customers, how is it compared to like a traditional transceiver type of investment. Yes.

Okay. Customers are already structured out of the 4 major manufacturing process for this CPO. So I think you may refer to [indiscernible] indication is. The [indiscernible] indication is you may refer to NVIDIA's Spectrum-X switch. So that -- the first stage is scale up. In order to fulfill so-called scale up, which is the communication between rack to rack, then to make the CPO, they already list out the fourth major stage. We already have the Stage 3 and 4. Yes. So you see, we already -- yes. And then I think from the diagram, you already probably could figure out each process.

Okay. I see. Okay. Maybe just one real quick follow-up. In terms of this optical fiber or optical transceiver type of kind of business, in 2025, can you give us some idea of how big the growth was back in last year, roughly speaking?

Last year was increased by 26%, yes. And this year will be outstanding. So far, I can sort of hint is, okay, our Photonics business [indiscernible] order has already exceeds Metrology. So you can [indiscernible] our Metrology decline -- is actually continued to have a strong growth. But besides that, our CPO even -- today's overhead is more than Metrology.

So in a way, you can say this order could be shipped within the next 12 months.

Yes, because the customer is planning to [indiscernible] second half this year.

[Operator Instructions] Next one, Alex Wang, Bernstein.

I just have a follow-up question. I just want to confirm, did you just say this year, Photonics order has exceeded your order for Metrology this year or your Metrology revenue last year?

I think, current order on hands was for Photonics versus -- I think it's already -- we also have order on hand for Metrology, I mean, currently CPO -- sorry, Photonics more than Metrology.

I see. And I assume your Metrology this year will also expand quite significantly versus last year, right?

If you want to look for the -- really big volume should be next year. Yes.

Okay. Okay. So large volume of Metrology revenue coming from next year -- sorry, this Metrology is the foundry, the RDL [indiscernible] Metrology that we talk about...

Yes. I'm not saying it will be declined. I just say today's order on hand.

And ladies and gentlemen, we thank you all for your questions. There are currently no questions at the moment. We're going to close the meeting. Thank you. We thank you for your participation in Chroma's conference. There will be a webcast replay within an hour. Please visit www.chroma.com.tw/investor/index under the Investor Relations section, and you may now disconnect. Thank you, and goodbye.

Thank you.

Thank you.