Lite-On Technology Corporation (2301) Earnings Call Transcript & Summary

Team, first, I would like to invite President Anson to explain the outlook and growth strategy of the company.

All right. Thank you, Julia, and thank you to all of our investment partners and friends from the media. Good afternoon. So first of all, I would like to wish you all a very happy New Year. So for this year of the horse, we hope you all good health success at work and, of course, good fortune in your investments. I would also like to thank you all for your long-standing support for LITEON. As you've seen, LITEON's cloud business has performed extremely well, returning LITEON to the path of growth in both revenues and profits. This year, as our customers increase their budgets and we launch more AI cloud computing products, we are very optimistic about our performance this year in the cloud business. In 2025, in response to demand from our cloud customers, we saw very rapid growth in shipments in our power management products, including the 33-kilowatt power shelf and the BBU, our high-performance backup battery system. We also gained a U.S. cloud service provider as a customer. So in response to this, we continued to expand our operational presence globally. Last year, in key regions such as Taiwan and Vietnam, we more than doubled our production capacity. This year, as our business grows, we will continue to invest more resources and funding in expanding our production capacity in Kaohsiung, in Vietnam and in North America to satisfy the demand of our worldwide customers in AI computing. In addition to cloud, our Opto-electronics and Semiconductors business has seen significant growth in high-end infrared light in the applications of sensors, industrial controls, AI power supply, energy storage and energy generation. We have long since exceeded 50% market share in power supplies for low earth orbit satellites, becoming a major strategic partner for our customers. To accelerate our technological development in the field of 5G+ and AI-RAN, we announced last month that we would acquire U-MEDIA Communications. The integration of our products and competencies in 5G+, AI-RAN and fixed wireless access or FWA will help us complete our ecosystem from communication to computing with the goal of providing our international telecom customers with a more comprehensive product lineup. In this March -- this March, at the Mobile World Congress, we will showcase our 5G and AI-RAN integration and demonstrate several private 5G network applications across Europe, Taiwan, Japan and Korea. Looking forward, to the first quarter of 2026, we remain optimistic about the momentum of our core business growth, and we expect to achieve both year-over-year and quarter-over-quarter growth. With the introduction of new generation platforms by major cloud providers, this will drive upgrades to power management systems. Our new generation 110-kilowatt power shelf will enter mass production in the second quarter. In addition, the HVDC power rack the high-voltage direct current power rack will become the next driver of our growth momentum. Our 50-volt DC power rack has entered mass production in the first quarter. The 800-volt DC power rack is currently undergoing prototype testing. At GTC this March, we will showcase our new generation solutions for system integration, an 800-volt DC megawatt-scale power supply racks and liquid cooling. We were also invited to give a keynote speech going in depth on the challenges and solutions facing megawatt scale AI power supply. This demonstrates LITEON's core competence in high-power AI infrastructure. As you can see, LITEON is now entering our next phase of growth, we will continue to build upon the foundation of our cloud computing infrastructure to develop more key products and technologies. We will focus on medium- and long-term strategic growth with the ambition of becoming the leader in AI computing solutions and achieving our goal of continued growth in both revenues and profits, as we continue in the journey of becoming a world-class sustainable business. And that is my presentation. So thank you again for attending and once again, happy New Year.

Thank you, Anson, for your explanation. Now I would like to invite CFO, K.T., who will explain the financial results of Q4 as well as 2025.

Good afternoon, everyone. Now I'm going to present to you LITEON's Q4 results. LITEON's Q4 revenue was TWD 44.4 billion. GP TWD 9.6 billion, with a rate of 21.7%. OP TWD 4.7 billion with a rate of 10.5%. Net profit after tax, TWD 3.86 billion, EPS, TWD 1.7. Overall, Q4 revenue went up 16% Y-o-Y, in which Cloud & AIoT revenue grew by nearly 70% Y-o-Y. It went down 1% Q-o-Q, due to tight memory supply, the pull-in momentum of noncloud sectors has slowed down. GP went up 18% Y-o-Y, and GPM went up 0.3 percentage points Y-o-Y. The reason for the Q-o-Q decrease was as explained in last time, last quarter, starting from Q4, tariffs have been collected and paid on behalf of other parties. Increased GP and effective cost control led to a 33% Y-o-Y increase in OP. OPM, 10.5%, up 1.4 percentage points Y-o-Y. OpEx went up 7% Y-o-Y, in which R&D accounted for 5.3% of revenue, up 20% Y-o-Y. The proportion of cloud computing, 5G, optoelectronics and new businesses is relatively high. Now let's look at 2025 full year results. Revenue, TWD 166.1 billion, GP TWD 38 billion with a rate of 22.9%, OP 16.7 billion with a rate of 10.1%. Net profit after tax, TWD 15.1 billion, EPS, TWD 6.64. This is a record high in recent years. In Y-o-Y terms, benefiting from growth of the 3 major segments and growing share of high-value businesses, GP went up 28% Y-o-Y and GPM went up 1.3 percentage points Y-o-Y. OP went up 29% Y-o-Y and OPM went up 0.7 percentage points Y-o-Y. This reflects the synergy of operational flexibility and resilience with high-quality growth in high-end businesses. OpEx went up by 28% Y-o-Y, in which, R&D accounted for 5.3% of revenue, up nearly 20% Y-o-Y as well, focusing on enhancing the value of core products and investment in new businesses. Now let's look at revenue and profit of the 3 major segments in Q4. In Q4, Cloud & AIoT and Opto-electronics segments accounted for 63% of revenue, up 4% Y-o-Y. OP went up 33% Y-o-Y. Cloud & AIoT revenue was TWD 21.3 billion, accounting for 48%, up 35% Y-o-Y, thanks to shipment growth of new generation high-end cloud power products, revenue went up by nearly 70% Y-o-Y. OP TWD 3.3 billion, up 86% Q-o-Q. Opto-electronics revenue was TWD 6.5 billion, accounting for 15% of revenue, down 3% Y-o-Y. This is mainly affected by the structural adjustment of the consumer electronics market, but visible light cloud computing and infrared light core applications in Opto-electronics Semiconductors continue to go up, OP was TWD 500 million, up 93% Y-o-Y. ITC revenue was TWD 16.5 billion, accounting for 37% of revenue, up 5% Y-o-Y, in which, shipments of high-end IT power supplies, low earth orbit satellites and smart input devices grew. OP was TWD 1.6 billion, up 3% Y-o-Y. Current assets in Q4 went down by TWD 5.1 billion Y-o-Y. Current liabilities went up by TWD 1.7 billion Y-o-Y. The quick ratio and current ratio were 1.15 and 1.5x, respectively, which are relatively stable. Net cash position, TWD 57.9 billion, down by about TWD 10 billion Y-o-Y. The main reasons were the repurchase of TWD 2.3 billion treasury shares, the cancellation of share capital and more importantly, capital expenditure of nearly TWD 7 billion this year. Now high-value businesses boost revenue and profit achieving high-quality annual growth starting from 2021. Let's look at this. In 2025, GPM reached 22.9% and OPM was 10.1%. Revenue went up 21 -- sorry, OP went up 29% Y-o-Y, reflecting high-quality double growth. High-value businesses, including Cloud & AIoT and Opto-electronics accounted for 62% of revenue in 2025. Back in 2021, it was 51% in which Cloud & AIoT revenue reached TWD 75.1 billion, up 60% compared to 2021. The growing share of high-end businesses has led to overall profit growth. Now let's look at Q4 and 2025 operation overview. In Q4, revenue, as I just presented to you a while ago, revenue in Q4 was TWD 44.4 billion, up 16% Y-o-Y, in which Cloud & AIoT grew by more than 30% Y-o-Y, GP went up by 18% Y-o-Y, GPM, 21.7%, up 0.4 percentage points Y-o-Y. OP went up 33% Y-o-Y, OPM 10.5%, up 1.4 percentage points Y-o-Y. This is benefiting from the growing share of high-value businesses, global optimization of operational efficiency and also close collaboration with the supply chain. Net profit after tax, TWD 3.86 billion. EPS TWD 1.7, up 27% Y-o-Y. In 2025, revenue TWD 166.1 billion, up 21% Y-o-Y, GP went up 28% Y-o-Y, GPM 22.9%, up 1.3 percentage points Y-o-Y. OP went up 29% Y-o-Y, OPM, 10.1%, up 0.7 percentage points Y-o-Y. Net profit after tax, TWD 15.1 billion, EPS TWD 6.64, up 27% Y-o-Y. Now core businesses in 2025, thanks to smooth shipments of new generation, AI server power, cloud computing products and power management systems. Cloud & AIoT revenue grew by more than 70% Y-o-Y, visible light, cloud computing and infrared light core applications in optoelectronic semiconductors continue to grow. In ITC, the share of high-end products went up and shipments of low orbit satellite power and smart input devices grew Y-o-Y. Next, I'd like to talk with you about the BOD resolution on dividend policy. This morning, the BOD just approved a cash dividend of TWD 3 per share for Q4 2025. Including the TWD 2 already paid out in the first half of 2025, the total cash dividend for 2025 reached TWD 5 per share. The dividend policy will be adjusted flexibly based on financial, business and operation factors. This concludes my presentation to you on Q4 and 2025. Thank you.

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

Happy New Year. I'm Sharon from Morgan Stanley, and I have 2 questions for you. First of all, I would like to ask about the financial numbers where we see that at the end of the last year, the inventory days went up from 58 the previous year to 69 days in 2025. So can I ask why there was this increase? Was it because of some preparation for anticipated material shortages? So that's my first question. My second question is that you mentioned that last year's capital expenditure was about TWD 7 billion. What will be the budget for this year? And what big ticket items will these expenditures concentrate on? And how much will production capacity go up? So that's my 2 questions.

All right. So Sharon had 2 questions. First of all, about the increase in the number of inventory days. Well, I think you all know that the supply chain, particularly in precious metals has seen some significant price volatility. So it's not just us who want us to have the materials on hand as soon as possible. Our customers also want us to deliver our product as soon as possible. So we have been doing some strategic stockpiling in anticipation of increases in material prices. And second, the fourth quarter of last year saw shortages in DRAM. So on the customer end, some customers delayed their deliveries to the first quarter of this year. So that also resulted in some growth in inventory. The second question about CapEx. As you said, last year, it was about TWD 7 billion. This year, it would probably increase to about TWD 11 billion. This comes from some items that you know about, for example, some expansions in Vietnam and in Kaohsiung, these production investments will come online in the third and fourth quarters this year. So there will be 2 major big budget items this year. First of all, the second phase expansions in Kaohsiung in Vietnam and also some minor expansions in North America. So that's one big ticket item, the production capacity expansion. The second big ticket item is R&D investment because in the coming 2 or 3 years, we will be developing new products that are not based on our existing products that we have at LITEON because there will be growing demand for higher power. So we will need to establish new labs for the new power rack and SST products. There will be new labs and R&D centers coming online. So R&D expenditures will be another major item for our CapEx.

Good afternoon, Anson. Last time on the investors conference, you mentioned that the 400-volt power rack has entered prototyping. So now what is the progress on mass production? And also, you mentioned that in addition to one CSP customer, there may be new customers. Can I ask about the progress made in acquiring new customers? Second, regarding the cooling project, what is the progress? Because last time you mentioned that there have been prototypes delivered and mass production will begin this quarter. So is that still on schedule? The third question is you mentioned that SSTs will play a very important role in the future for HVDC and that you've established an R&D center. So -- what has -- what progress has been made for the SST R&D center?

Okay. For the first question, as I said in my opening presentation, our 50-volt and 400-volt power racks have entered mass production in the first quarter. Of course, the precise amount produced will depend on customer demand, but I can tell you that mass production has started. Of course, currently, it's mostly provided for a single customer, but we also have been providing prototypes to other potential customers for qualifications. So will other cloud service providers end up using this? Well, I can't tell you right now, but looking at the current trends, I think that the CSPs might not be using the 50 or 500-volt solutions because currently, the trends are converging on NVIDIA's 800 VDC solution. So the second question about cooling. Well, the first -- in the first quarter, there was going to be a customer for -- that we were going to deliver to for CDU and RDHS. So at -- but at the time, we decided that this was going to be our first major cooling customer. So we were very cautious. We wanted to ensure that this project was very highly reliable. So we discussed with this customer to delay the time line slightly into the next quarter to ensure that the safety specifications and the performance can all be further optimized. So the time line was delayed by about a month. Originally, we were going to ship in the first quarter of this year. But currently, we're looking at mass production in March and hopefully delivery in the second quarter based on our customers' needs. The third question about SSTs. We have indeed established an R&D center. Unfortunately, I cannot divulge where exactly it is, but we are taking 2 paths forward. First of all, this R&D center of our own, which has already started operations. And second, we are identifying potential partners for collaboration externally to develop new generation SST products. I'm sure that in the very near future, we will be able to provide further updates. Thank you.

I'm Doris from BofA. I would like to ask Anson. In your slides, you mentioned that your projections for the share of AI in your revenues will reach 30% this year. I remember that in the last investors meeting, you told us that it would be over 20%. So what accounts for this difference? Was it because of optimism regarding the progress of the power shelf or optimism regarding BBUs, et cetera? Another question is, in 2025, what was the ultimate share of AI in revenues? Was it 20%? And are there any details that you can share regarding this?

Yes. So the projections in the last conference was that we would have -- the AI share would be 15% to 20%. I can tell you now that ultimately, the AI share was over 20%, not by too much over 20%. I think 20% is a good ballpark figure, but it did meet our initial projections, our initial goals. At the time when we looked at the share of AI for 2026, we calculated it based on the situation in 2025. So our projection at the time was about 25%. But now we believe that it could reach 30%. And actually, looking at it now, personally, I'm even more optimistic. I think the share has a chance to go even higher than 30%. Of course, there would be some differences in the product mix. In addition to the PSU, the power shelf, this year, we will be part of NVIDIA's next-generation solution. The 110 KV power shelf will enter mass production and the higher voltage power rack would also enter mass production. And these are all higher-priced products than our original 33-kilovolt power products. So this will drive revenue growth. And of course, these were not there in 2025. So there will be some changes in the product mix. Also, there will be the addition of the liquid cooling products. That's also part of the AI product mix. And also, of course, LITEON, in addition to power supply products, we also have photooptonic products and network products. And in the future, these will also be important products for AI applications. So they are connected to AI as well. So if we count those as well, I think 30% would be a conservative estimate. It could be even higher. So in the past, we talked about how a lot of LITEON's revenue came from PC. So we really focused on the PC share of our revenue. In the future, I think we'll be focusing on the AI share. And in the past, we were looking to lower our PC share, but now we're looking to increase our AI share. So these are the shifts we've been undergoing. And I'm sure that in the coming years, AI could -- we account for over half of our revenue. I think that would happen in the future. So I hope that answers your question. As I just mentioned, we still focus on power supply. This is our most important product. As for our other products, I believe such as our AI-RAN and also VRU products used in it, and also our cooperation with U-MEDIA, which will be used in AI-RAN in the future. So these products in the future will be counted as part of the AI percentage.

Hello, Anson. I want to ask a follow-up question, which is about this year's operational growth potential. Well, the shortage of DRAM will affect IT and consumer products. But AI is growing rapidly. So with this kind of trade up, how are our GP and OPM be affected this year? Could you give us a broad picture?