Q2 2025 Tuya Inc Earnings Call
Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc.'s second quarter 2025 earnings conference call. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at any time. I will now like to turn the call over to Ms. Regina Wong, Investor Relations Senior Manager of Tunya. Regina, please go ahead.
Speaker #2: Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Tuya Inc.'s second quarter 2025 earnings conference call.
Speaker #2: Currently, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, we are recording today's call.
Speaker #2: If you have any objections, you may disconnect at any time. I would now like to turn the call over to Ms. Regina Wang, Investor Relations Senior Manager of Tuya.
Speaker #2: Regina, please go ahead.
Regina Wong: Thank you, operator. Hello, everyone. Welcome to our second Quarter 2025 earnings call. Joining us today are our founder and the CEO of Tuya, Mr. Jerry Wong, our co-founder and CFO, Mr. Alex Yang. The second Quarter 2025 financial results and webcasts of the conference call are available at ir.tuya.com. A replay of this call will also be available on our IR website in a few hours. Before we continue, I refer you to our stakeholder statements in our earnings press release, which applies to this call, as we will make forward-looking statements. With that, I will now turn the call to our founder and CEO, Mr. Jerry Wong. Jerry will deliver his remarks in Chinese, which will be followed by a corresponding English translation. Jerry, please.
Speaker #3: Thank you, operator. Hello everyone, welcome to our second quarter 2025 earnings call. Joining us today are the founder and CEO of Tuya, Mr. Jerry Wang, and our co-founder and CFO, Mr. Alex Yang.
Speaker #3: The second quarter 2025 financial results and webcast of the conference call are available at ir.tuya.com. A replay of this call will also be available on our IR website in a few hours.
Speaker #3: Before we continue, I refer you to our safe harbor statement in our earnings press release, which applies to this call. As we will make forward-looking statements, with that, I will now turn the call over to our founder and CEO, Mr. Jerry Wang.
Speaker #3: Jerry will deliver his remarks in Chinese, which will be followed by a corresponding English translation. Jerry, please.
Jerry Wang: 大家好, 感谢大家参加Tuya智能2025年第二季度及上半年的业绩电话会。
Speaker #4: 大家好, 感谢大家参加Tuya智能2025年第二季度及上半年的业绩电话会。
Regina Wong: Hello, everyone. Thank you for joining Tuya's earnings call for the second quarter of 2025.
Speaker #3: Hello everyone, thank you for joining Tuya's earnings call for the second quarter of 2025.
Jerry Wang: 首先, 我简要总结一下整体的表现。今年上半年公司实现了约1.55亿美金的收入, 同比增长约15%。其中第二季度收入约8010万美金, 同比增长9.3%。在第二季度, 全球贸易环境不确定大幅上升, 美国关税政策对全球可选消费电子行业造成了显著的干扰。下游零售渠道、品牌商、进口商以及出口企业的订单节奏和规划因此推迟或重新调整, 但整体而言, 公司保持了韧性。在包含收入增长、毛利率和利润率、AI产品和生态建设等多个方面展现了结构性的亮点。
Speaker #4: 首先, 我简要总结一下整体的表现。今年上半年公司实现了约1.55亿美金的收入, 同比增长约15%, 其中第二季度收入约8,010万美金。同比增长9.3%。在第二季度, 全球贸易环境不确定大幅上升, 美国关税政策对全球可选交易电子行业造成了显著的干扰。下游零售渠道品牌商进口商以及出口企业的订单节奏和规划因此推迟或重新调整。但整体而言, 公司保持韧性, 在包含收入增长、毛利率和利润率、AI产品和生态建设等多个方面展现了结构性的亮点。
Regina Wong: Let me start with a brief overview of our performance. In the first half of 2025, Tuya generated revenues of approximately $155 million, representing about 15% year-over-year growth. Revenue in the second quarter reached around $80.1 million, an increase of 9.3% year-over-year. During the quarter, global trade uncertainties intensified, with US tariff policies significantly disrupting the global discretionary consumer electronics industry. As a result, downstream retail channels, brands, importers, and exporters delayed or adjusted their order repeats and planning. Nevertheless, Tuya remains resilient, delivering positive outcomes across multiple fundamentals, including revenue growth, gross margin, and profitability, as well as AI products and ecosystem development.
Speaker #3: Let me start with a brief overview of our performance. In the first half of 2025, Tuya generated revenues of approximately $155 million USD, representing about 15% year-over-year growth.
Speaker #3: Revenue in the second quarter reached around $80.1 million USD, an increase of 9.3% year-over-year. During the quarter, global trade uncertainties intensified, with U.S. tariff policies significantly disrupting the global discretionary consumer electronics industry.
Speaker #3: As a result, downstream retail channels, brands, importers, and exporters delayed or adjusted their order pace and timing. Nevertheless, Tuya remains a resonant delivery, producing positive outcomes across multiple fundamentals, including revenue growth, gross margin, and profitability.
Speaker #3: As well as AI products and the ecosystem development.
Jerry Wang: 从盈利能力看, 第二季度及上半年的综合毛利率均保持在48%左右, 其中三个业务板块毛利率在环比同比维度的持续稳健。经营利润率测, 虽然上半年包含了传统战略及全球外部挑战等情形, 但我们依然做到了non-GAAP口径下10%的经营利润率和25%的净利润率。其中, 经营利润同比增长约127%, 展现了Tuya商业模式的经营的杠杆, 能够在复杂的环境中依然持续。
Speaker #4: 从盈利能力上, 第二季度及上半年的综合毛利率中, 均保持着48%左右。其中, 三个业务板块毛利率在环比、同比维度的持续稳健。经营利润率上, 虽然上半年包含了传统代理及全球外部挑战等情形, 但我们依然做到了 non-gap 口径下 10% 的经营利润率和 25% 的净利润率。其中, 经营利润同比增长约 127%, 展现了 Tuya 商业模式的经营的杠杆, 能够在复杂的环境中依然持续。
Regina Wong: In terms of profitability, we maintained a blended gross margin of around 48% for both the second quarter and the first half, with all three business segments achieving stable gross margins both discretionary and year-over-year. On the operating profit side, despite the seasonal softness in the first half and global external challenges, we still achieved a 10% non-GAAP operating margin and a 25% net margin. Notably, non-GAAP operating profits grew approximately 127% year-over-year, highlighting the operating leverage embedded in Tuya's business model, which remains sustainable even in a complex environment.
Speaker #3: In terms of profitability, we maintained a blended gross margin of around 48% for both the second quarter and the first half, with all three business segments achieving stable gross margins, both sequentially and year-over-year.
Speaker #3: On the operating profit side, despite the seasonal softness in the first half and global external challenges, we still achieved a 10% non-GAAP operating margin and a 25% net margin.
Speaker #3: Notably, non-GAAP operating profits grew approximately 127% year-over-year, highlighting the operating leverage embedded in Tuya's business model, which remains sustainable even in a complex environment.
Jerry Wang: AI机遇和宏观贸易环境带来的机遇和挑战正在推动市场更高的渗透率, 以及推动开发者平台开发更高价值和全新的AI体验的产品。截至二季度末, 我们平台上的全球开发者数已达到了151万以上。我们也会继续坚持长期主义, 我们会通过Tuya Open和AI Agent的开发等产品, 把AI开发者平台推向更广泛的开发者层次, 打造能够支持涂鸦和行业长期发展的业务生态。
Speaker #4: AI 机遇和宏观贸易环境带来的机遇和挑战, 正在推动市场更高的渗透率以及推动开发者平台开发更高价值和全新的 AI 体验的产品。截至二季度末, 我们平台上的全球开发者数已达到了 151 万以上。我们也会继续坚持长期主义, 我们会通过 Tu Open 和 AI Agent 的开发等产品, 把 AI 开发者平台推向更广泛的开发者层次, 打造能够支持 Tuya 和行业长期发展的业务生态。
Regina Wong: Opportunities and challenges from both AI adoption and the global trade environment are driving higher market penetration. We are also engaging our developer platform to deliver high-value and next-generation AI experiences. At the end of the second quarter, the number of global developers on our platform has reached over 1.51 million. We will remain committed to long-term teamism, leveraging initiatives such as Tuya Open and our AI Agent development platform to broaden access to AI developer tools and build business ecosystems that support Tuya and the industry's long-term growth.
Speaker #3: Opportunities and challenges from both AI adoption and the global trade environment are driving higher market penetration. We are also engaging our developer platform to deliver high-value and next-generation AI experiences.
Speaker #3: At the end of the second quarter, the number of global developers on our platform has reached over 1.51 million. We will remain committed to long-termism, leveraging initiatives such as Tuya Open and our AI Agent development platform to broaden access to AI developer tools and build a business existence that supports Tuya's and the industry's long-term growth.
Jerry Wang: 接下来, 请我们的CFO为大家带来更多的财务表现和经济进展。
Speaker #4: 接下来, 请我们的 CFO 为大家带来更多的财务表现和经营进展。
Regina Wong: Now, let me turn the call over to our co-founder and the CFO, Alex Yang, who will share more details about our financial performance and business progress.
Speaker #3: Now, let me turn the call over to our Co-founder and CFO, Alex Yang, who will share more details about our financial performance and business progress.
Alex Yang: Hello, everyone. This is Alex. I will now provide more details on our second quarter results. Please note that all figures are in US dollars, and all the comparisons are year-over-year based. Let's start with the financial performance. In the second quarter of 2025, Tuya delivered revenue of about US dollars 80 million US dollars, representing 9.3% year-over-year growth. By segment, PASS leveraged its diversified products ecosystem to capture essential consumption demand in home appliances, delivering year-over-year growth of 7%. The smart solutions supported by focused hardware offering and differentiated solutions tailored to various customer segments, withstood macro pressures and achieved year-over-year of 16.7%. The stock and others revenue was about US 11 million US dollars, up 15.6% year-over-year, driven by the continuing increase in recurring revenue, which exceeded 6% in Q2.
Speaker #5: Hello, everyone. This is Alex. I will now provide more details on our second quarter results. Please note that all figures are in U.S. dollars, and all the comparisons are year-over-year.
Speaker #5: Let's start with the financial performance. In the second quarter of 2025, Tuya delivered revenue of about $80 million, representing 9.3% year-over-year growth.
Speaker #5: That segment leveraged its diversified product ecosystem to capture essential consumption demand in home appliances, delivering year-over-year growth of 7%. The smart solutions were supported by a focused hardware offering and differentiated solutions tailored to various customer segments.
Speaker #5: With astute macro pressures, an achieved year-over-year growth of 16.7%. The SaaS and other revenue was about $11 million, up 15.6% year-over-year. This growth was driven by the continued increase in recurring revenue, which exceeded 6% in Q2.
Alex Yang: From a regional perspective, leading long-term customers in Europe achieved a double-digit growth in niche categories such as the ambient lighting and home appliances, including air conditioners and air fryers. New customers, including top Turkish solar storage companies and leading HVAC manufacturers in Austria and other regions too, who began cooperations on energy-saving production lines. In Asia-Pacific, various rollouts progressed as expected. Several Southeast Asian telecom customers, starting with the Cube platform deployment, entered the larger scale delivery phase, while smart home and realistic products in Singapore advanced into implementations, contributing meaningful revenue across both hardware and software in the future, in the now quarter and the futures. In North America, a flagship AI solution, the Smart Bird Feeder, saw strong momentum and demand, reflecting consumers' sustained willingness to pay for emotional-driven experiences by AI.
Speaker #5: From a regional perspective, leading long-term customers in Europe achieved a double-digit growth in niche categories such as ambient lighting and home appliances, including air conditioners and air fryers.
Speaker #5: New customers, including top Turkish solar storage companies and leading HVAC manufacturers in Austria and other regions, have begun cooperations on energy-saving production lines.
Speaker #5: In Asia Pacific, various rollouts progressed as expected. Several Southeast Asian telecom customers, starting with the Qube platform deployment, entered the larger-scale delivery phase.
Speaker #5: While smart home and realistic products in Singapore advanced into implementations, contributing meaningful revenue across both hardware and software in the future in now Q2 and futures.
Speaker #5: In North America, a flagship AI solution, the Smart Bird Feeder, saw strong momentum and demand, reflecting consumers' sustained willingness to pay for an emotional-driven experience.
Speaker #5: By AI, in China, AI toy solutions gained positive feedback in Q2, with plans to expand IP collaborations and target a diversified audience. Admittedly, even since shifting tariff policies introduced global trend uncertainty, stakeholders across the discretionary consumer electronics value chain have become active in their own interests, significantly pursuing an offline retail system overseas.
Alex Yang: In China, AI toy solutions gained positive feedback in Q2, with plans to expand IP collaborations and target diversified audiences. Admittedly, ever since shifting tariff policies, introducing global trend uncertainty, stakeholders across the discretional consumer's electronics value chain had become acting in their own interest, significantly pursuing offline retail systems overseas. In the afternoon, Tuya's diversified products ecosystem and software technology capability enabled us to take targeted approaches to withstand their pressures, demonstrating our structural resilience. Our largest Q2 blended gross margin was 48.4%. PASS gross margin reached a historical height of 48.7%, while smart solutions and SaaS and others delivered a gross margin of 22.5% and 72%. Considering that Tuya's gross margin reflects the outcome of a platform-based business model combined with a rich hardware ecosystem, Q2 margins were aligned with our management expectations, maintaining stable, robust margins in a foundation for achieving strong operating leverage.
Speaker #5: Nevertheless, Tuya's diversified products ecosystem and software technology capability enabled us to take targeted approaches to withstand their pressures, demonstrating our structured resilience. In March, Q2 blended gross margin was 48.4%, while past gross margin reached a historical height of 48.7%.
Speaker #5: While smart solutions, SaaS, and others deliver gross margins of 22.5% and 72%, considering that Tuya's gross margin reflects the outcome of a platform-based business model combined with a rich hardware ecosystem, Q2 margins were aligned with our management expectations.
Speaker #5: Maintaining stable, robust margins is a foundation for achieving strong operating leverage. On the expenses side, we maintained disciplined execution. Since early 2024, after resizing our team, we have managed to meet operational needs, including operating AI capability, increasing investment in R&D cloud on AI technology, building our AI developer community, and hosting creative events, while keeping non-GAAP net operating expenses stable.
Alex Yang: On the expensive side, we maintained disciplined execution since early 2024. After right-sizing our team, we have managed to meet operational needs, including upgrading AI capability, increasing investment in R&D cloud on AI technology, building our AI developer community, and hosting creative events, while keeping non-GAAP net operating expenses stable. So we have remained across 30 million US dollars per quarter for six consecutive quarters. Oh, additionally, in May, we achieved a dismissed victory in the Favorites to Class Actions lawsuit initiated in 2022, successfully defending the rights of Tuya stakeholders. This also marketed as a conclusion for the related expenses and emulates future risks for potential lawsuits. As a result, our operating leverage improved significantly, and we delivered nearly an 11% non-GAAP operating margin in Q2.
Speaker #5: We have maintained revenues of over $30 million per quarter for six consecutive quarters. Additionally, in May, we achieved a significant victory in the class action lawsuit initiated in 2022, successfully defending the rights of Tuya's stakeholders. This also marks the conclusion of the related expenses and mitigates future risks for potential lawsuits.
Speaker #5: As a result, our operating leverage improved significantly, and we delivered nearly an 11% non-GAAP operating margin in Q2. On the next profit, we achieved a 25.1% non-GAAP net margin and a 15.7% GAAP net margin in Q2, with GAAP margin expanding over 11 percentage points.
Alex Yang: On net profit, we achieved a 25.1% non-GAAP net margin and a 15.7% GAAP net margin in Q2, with GAAP margin expanding over 11% points, while interested rates cut a sorted part of the net margin increase. This was offset by a decline of over 50% in our accounting share-based compensation expenses, further unleashing accounting profitability. In terms of cash flow, we generated strong operating cash flow of over 18 million US dollars in Q2 and paid out our second cash dividends of about 37 million US dollars. Net cash balance stood at just above 1 billion at the quarter end. Looking ahead, we'll continue to explore ways to deploy excess capitals to support our business. Next, let me share the quarter's updates on our AI developer ecosystem.
Speaker #5: While intrinsic rate cuts absorbent parts of the net margin increase, this is offset by a decline of over 50% in our accounting share-based compensation expenses, further unleashing accounting profitability.
Speaker #5: In terms of cash flow, we generated strong operating cash flow of over $18 million in Q2, and paid out our second cash dividends of about $37 million.
Speaker #5: Net cash balance stood at just above $1 billion at the quarter end. Looking ahead, we'll continue to explore ways to deploy excess capital to support our business.
Speaker #5: Next, let me share the quarter's updates on our AI developer ecosystem. Tuya has always been at the forefront of the AI hardware and application deployment.
Alex Yang: So Tuya has always been at the forefront of the AI hardware and application deployment, and we remain fully committed to advancing the AI ecosystem. So our goal is to continually lower the development threshold of AI devices products and promote their broader AI innovations and adaptions. So first off that, let me highlight two data points. As of June 13, 2025, 93% of Tuya's shipped products categories were equipped with AI capabilities. Meanwhile, Tuya AI Developer Platform delivered AI agent services that supported 150 million AI interactions per day globally across scenarios such as AI Notes, AI Translate, AI Health, AI Energy, AI Pet Care, AI Trendy Play, AI Dinner, AI Safety Guard, and Robotics. So in the line of this, we also see strong altruism and rapid expansion across our developer ecosystem infrastructures.
Speaker #5: And we remain fully committed to advancing the AIoT ecosystem. Our goal is to continually lower the development threshold of AI device products and promote their broader AI innovations and adoption.
Speaker #5: So first off that, let me highlight two data points. As of June 13, 2025, 93% of Tuya's shipped product categories were equipped with AI capabilities.
Speaker #5: Meanwhile, the Tuya AI developer platform delivered AI agent services that supported 150 million AI interactions per day globally. This includes various scenarios such as AI notes, AI translation, AI health, AI energy, AI pet care, AI training play, AI deeming, AI safety guard, and robotics.
Speaker #5: So, in and out of this, we also see strong enthusiasm and rapid expansion across our developer ecosystem infrastructures. Over the past quarter, many AI developers activated Tuya Open Cloud services, and a commercial AI developer collectively created 9,300 and 372 AI agents across categories including toys, pets, appliances, electronic devices, and securities.
Alex Yang: Over the past quarter, many AI developers activated Tuya Open Cloud Services and commercial AI developers collectively created 9,372 AI agents across categories, including toys, pets, appliances, electronic devices, and securities. These numbers reflect the growing penetration of AI into households and industrial smart devices. The AI at the Tuya Open Open Sources community also gained strong tractions across Discord, Reddit, WeChat groups, and other platforms. Our global developer base surpasses 27,000 for the AI staff, with documentations reaching 55 countries and regions. Open source code contributions exceeded 2.3 million lines, and core contributors steadily emerging as the ecosystem scales. While driving developer engagement, we also emphasize co-creations within the ecosystem. Since Q2, we have partnered with ecosystem collaborators to host multiple hackathon events across online and offline channels, generating hundreds of markers, AI devices, prototypes, and with commercial potentials.
Speaker #5: These numbers reflect the growing penetration of AI into households and industrial smart devices. The Tuya Open open-source community also gained strong traction across Discord, Reddit, WeChat groups, and other platforms.
Speaker #5: Our global developer base supports 27,000 for the AI initiatives, with documentation reaching five countries and regions. Open source code contributions exceeded 2.3 million lines.
Speaker #5: And the core contributors are steadily emerging at the ecosystem scale. While driving developer engagement, we also emphasize co-creation within the ecosystem. Since Q2, we have partnered with ecosystem collaborators to host multiple hackathon events across online and offline channels, generating hundreds of market-ready AI device prototypes with commercial potential.
Alex Yang: Those events spanned universities, embedded engineering communities, makerspaces, incubators, cloud developer communities, and cultural IP developers groups, continually experimenting ways to bring AI into millions of households worldwide. For example, in Nature Night, we co-host a mega hackathon, Adventure X 2025, and attracted over 800 young developers and makers globally over five days. Participants created a range of original projects through our teamwork and collaborations, with the drew method feedbacks from developers and broad media coverage reaching over 10 million people who watched this hackathon. More importantly, we are exploring pathways for makers' projects to commercialization. For example, the community initiative OTA Robot Projects has entered commercialization with distribution partners fueling its marketing and promotion. It has also driven adoption of Tuya T5 developer boards across the developer ecosystem.
Speaker #5: Those events spanned universities, embedded engineering communities, makerspaces, incubators, cloud developer communities, and cultural IP developer groups. This continuous streaming is a way to bring AI into millions of households worldwide.
Speaker #5: For example, in late July, we co-host a mega hackathon adventure X 2025, attracting over 800 young developers and makers globally over five days.
Speaker #5: Participants created a range of original projects throughout team works and collaborations, with feedback from developers and broad media coverage, reaching over 10 million people who watched this hackathon.
Speaker #5: More importantly, we are exploring pathways for makers and projects to commercialization. For example, the community initiative OTAP robot projects has entered commercialization, with distribution partners fueling its marketing and promotion.
Speaker #5: It is also driving adoptions of the Tuya T5 developer board across the developer ecosystem. Another category of AI patent products, which won awards in the hackathon competition, attracts interest from the celebrity agency and the consumer market.
Alex Yang: Another category of AI patent products, which won awards in hackathon competitions, attracted interest from the celebrity agency and the consumer market, drawing incubation attention from multiple commercial partners. In addition, our collaborations with the Open Dev community are bringing AI hardware development into university and embedding developer circle and enable developers to practice AIoT applications during their study. So looking ahead, we'll continue our effort in two directions. The first one, future lower the threshold of AI developers, leveraging the Tuya's AI developer platform, AI agent platform, AI coding tools, and scenario-based teaching to help more developers get started quickly with AI hardware development. Secondly, accelerating the commercialization of more AI hardware innovations through collaborations within the developer community, co-creation mechanisms, and ecosystem partners to bring excellent products to market and create commercial opportunities.
Speaker #5: Drawing incubation attention from multiple commercial partners. In addition, our collaborations with the Open Dev community are bringing AI hardware development into universities and embedding developer circle rooms.
Speaker #5: Enable developers to practice AIoT applications during their study. Looking ahead, we'll continue our efforts in this direction. The first priority is to lower the threshold for AI developers by leveraging Tuya's AI developer platform, AI agent platform, AI coding tools, and scenario-based teaching to help more developers get started quickly with AI hardware development.
Speaker #5: Secondly, we are accelerating the commercialization of more AI hardware innovations through collaborations within the developer community, a co-creation mechanism, and ecosystem partners to bring excellent products to market and create commercial opportunities.
Alex Yang: So to conclude, while facing a macro challenge in Q2, the company maintains strong profitability in the first half of this year and made solid progress in smart solutions, AI devices, and developer ecosystem. Looking ahead, we remain focused on the long term, executing two major growth strategies, a three major growth strategy to offset near-term macro challenges while strengthening our foundation for sustainable growth. So the three major directions will be the first. We'll continue deepening relationships with core customers. We'll meet the different needs of both new and non-standing customers with differentiated approaches, providing tailored product solutions and technology support to help them to maintain competitiveness in their respective markets. Second, we'll boldly seize regional opportunities. In Europe, we'll focus on high demand categories such as AI-driven energy saving and air conditioners.
Speaker #5: So to conclude, while faced with macro challenges in Q2, the company maintains strong profitability in the first half of this year and made solid progress in smart solutions, AI devices, and the developer ecosystem.
Speaker #5: Looking ahead, we remain focused on the long-term, executing two major growth strategies and a three major growth strategy to offset near-term macro challenges while strengthening our foundation for sustainable growth.
Speaker #5: So the three major directions will be the first. We'll continue deepening relationships with core customers. We'll meet the different needs of both new and non-standing customers, with differentiated approaches providing tailored product solutions and technology support to help them maintain competitiveness in their respective markets.
Speaker #5: Second, we'll boldly seize regional opportunities. In Europe, we'll focus on high-demand categories such as AI-driven energy-saving solutions and air conditioners.
Alex Yang: In Asia-Pacific, we'll promote smart fixation of residents, buildings, and compacts through its integrated AIoT platform, combining hardware and software. In North America, we'll focus on the consumer scenarios, explaining strong willingness to pay, such as pet or ambient entertainment. And in China, we'll deepen partnerships with major companies, gradually building consumer awareness through e-commerce and pursue industry penetration via realistic growth channels. Third, we'll accelerate AI innovation among developers, covering new AI-driven hardware applications as well as agents, intelligence-building hardware, driving the industry-wide shift of the smart products towards the AI agent-enabled hardware. And finally, based on our current financial performance, our board has approved a cash dividend totaling about US $33,000,000,000, regularly dividend payments reflect Tuya's commitment to returning value to the capital market and our shareholders.
Speaker #5: In Asia Pacific, we'll promote the smart fixation of residents, buildings, and compacts through our integrated AIoT platform, combining hardware and software. In North America, we'll focus on consumer scenarios that expand a strong willingness to pay, such as pet or ambient entertainment. In China, we'll deepen our partnership with major companies, gradually building consumer awareness through e-commerce and pursuing industry penetration where realistic growth channels exist.
Speaker #5: Third, we'll accelerate AI innovation among developers, covering new AI-driven hardware applications as well as agent intelligence building hardware. This will drive the industry-wide shift of smart products towards AI agent-enabled hardware.
Speaker #5: And finally, based on our current financial performance, our board has approved a cash dividend totaling about $33 million. This regular dividend payment reflects Tuya's commitment to returning value to the capital market and our shareholders.
Alex Yang: They also underscore our enduring confidence in the company's industry perspective, product portfolio, competitive positions, and long-term growth potential, regardless of the market conditions on the market side. So thank you all, operators. I think that's all we'd like to present today. We can begin with the Q&A session.
Speaker #5: They also underscored our enduring confidence in the company's industry perspective. Products portfolio, competitive positions, and long-term growth potential regardless of the market conditions on the market side.
Speaker #5: So, thank you all, operators. I think that that's all we'd like to present today. We can begin with the Q&A session.
Operator: Thank you. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment while we compile our Q&A roster. Our first question is going to come from a line of Yang Lu with Morgan Stanley. You're in line at the opening. Please go ahead.
Speaker #2: Thank you. To ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again.
Speaker #2: One moment, while we compile our Q&A roster. Our first question is going to come from Yang Lu with Morgan Stanley. You're in line; you're open.
Speaker #2: Please go ahead.
Yang Liu: Thanks for the opportunity to ask a question. Two questions from my side. The first one is regarding the growth outlook. Given the changing global trade environment in the second quarter and the third quarter, what is the management expectation of the business growth going into the third quarter or the rest of the year? Should we see some acceleration in top line or the past shipment growth? The second question is regarding the FX impact. Could management update us what is the constant currency growth for top line in the second quarter? And yeah, to help us to understand what is the FX impact to the P&L. Thank you.
Speaker #5: Thanks for the opportunity to ask a question. Two questions from my side. The first one is regarding the growth outlook. Given the changing trade global trade environment in late second quarter and third quarter, what is the management expectation of the business growth going into the third quarter or the rest of the year?
Speaker #5: Should we see some acceleration in top-line or the path shipment growth? The second question is regarding the FX impact. Could management update us on what the constant currency growth for the top line is in the second quarter?
Speaker #5: And yeah, to help us understand what the FX impact is to the P&L. Thank you.
Jerry Wang: Yeah, sure. I'll answer the first one first. So yeah, for Q3 and the rest of this year, we'll see that the uncertainty on the tariff situations continues because till now we still don't have the conclusion or we don't have the agreement between countries. So the rest of this year, we'll see that the consumer electronics categories we're covering right now are still under pressure. And also, the first shipment for the Q2 for those products that have been tariffed, and we will have to meet the products trying to sell, but the retail products trying to impact it. So we will have to close the eye to witness what's going to be the end demand reflex looks like.
Speaker #4: Yeah, so I want to share the first one first there. So, for Q3 and the rest of this year, we'll see that the uncertainty on the tariff situations continues.
Speaker #4: Because, until now, we still don't have a conclusion or agreement between countries, the consumer electronics categories that are recovering right now are still under pressure for the rest of this year.
Speaker #4: And also, the first shipment for Q2 for those products that have been tariffed, and we will have to meet the product strength to sell. But to reach our product strength to impact it.
Speaker #4: So we will have to closely eye to witness what's going to be the end demand reflex looks like. And as far as we know, that right now for the major retailers for the North America, and the brands and the importers and the manufacturers, so they all have the concern that the demand was trying to have the risk of the decline after the price retail price raising.
Jerry Wang: And as far as we know, right now for the major retailers for North America and the brands and the importers and the manufacturers, so they all have the concern that the demand was trying to have the risk of the decline after the retail price raising. So for this year, we already see that for the promotion seasons like the Christmas, Black Friday, back to school, and so all the new product planning and the promotion forecast, so those buyers, they have the they will really show this kind of conservative mindset. So instead of too optimistic. And like so some of the orders, they will shift from the higher value of the smart one into some lower value and with entry-level one. And even including Europe, that they have the same type of uncertainty as well. So those kind of buyers, they're not too optimistic.
Speaker #4: So for this year, we already see that for the promotion seasons, like Christmas, Black Friday, Back to School, and so on, all the new product planning and the promotion forecast.
Speaker #4: So those buyers, they have the they will really show those kind of concerned mindset. So instead of too optimistic. And like so some of the orders, they would shift from the higher value of the smart one into some lower value and with the entry-level one.
Speaker #4: And even including Europe, they have the same type of uncertainty as well. So those kinds of buyers, they're not too optimistic. They will have a very conscious review of all the effects on the end users in a very short-term dynamic.
Jerry Wang: So they will have very they have very conscious to review all the reflex on the end users in a very short-term dynamically. And also, we are facing a very long supply chain. So from the core components into the manufacturings, into the logistics internationally, and into the retails. So we have more roles on the supply chains. We have more noises from the for the uncertainty. Typical stuff is that while the retail prices are facing pressure to raise, and then so from the retail side into the importer side, into the brands, into the manufacturers, every people are renegotiating how to absorb those kind of risk costs. And that kind of negotiation across multiple roles, multiple entities takes longer. So that's why we see that in the past couple of months, those kind of negotiations started to take place and didn't end.
Speaker #4: And also, we are facing a very long supply chain. So from the core components into the manufacturing, into the logistics internationally, and into the retails.
Speaker #4: So we have more roles on the supply chains; we have more noises from the for the uncertainty. A typical stuff is that while the retail price are facing a pressure to raise, and then so from the retailer size into the importer side, into the brands, into the manufacturers, every people are renegotiating how to observe those kind of raise cost.
Speaker #4: And that kind of negotiation across multiple roles and multiple entities takes longer. So that's why we see that in the past couple of months, those kinds of negotiations trying to take place didn't end.
Jerry Wang: A typical example, what I see is that on the offline retailers and the e-commerce, those price impacts and start to reflect very directly. Like some of the robotic vacuum we can see here is that some of the fast-growing robotic vacuum brands from China, their gross margin and profit declined so much. That's kind of because of the tariff and bargain impact. So for Tuya that what we see is that the tariff impact exists and also in the same time that last year we did quite good for the energy saving incentive program for France. And that incentive policy is trying to reduce a little bit. And so what we see is that for Q3, yeah, there's still pressure, but it should be getting better in Q4. So that's for the first question.
Speaker #4: A typical example, what we see is that is that on the offline retailers and the e-commerce, those price impact and trying to reflect very directly, like some of the robotic vacuum, we can see here, is that some of the fast-growing robotic vacuum brands from China their gross margin and profit declined so much.
Speaker #4: That's kind of because of the tariff and bargain impact. So for Tuya, what we see is that the tariff impacted exists, and also at the same time last year, we didn’t perform quite well for the energy-saving incentive program in France. That incentive policy is trying to reduce a little bit.
Speaker #4: And so what we see is that for Q3, yeah, there's still pressure, but it should be getting better in Q4. So that's for the first question.
Jerry Wang: And for the second question is that yes, there are some pressures on currency as well. But right now, what we see is kind of stable. So there's pressure, but it's under control. That's all.
Speaker #4: And for the second question, yes, there are some pressures on currency as well. But right now, what we see is kind of stable.
Speaker #4: So there's pressure, but it's under control. That's all.
Yang Liu: Thank you.
Speaker #5: Thank you.
Operator: Thank you. And one moment for our next question. Our next question will be from the line of Timothy Zhao with Goldman Sachs. Your line is open. Please go ahead.
Speaker #2: Thank you. And one moment for our next question. Our next question will be from the line of Timothy Zhao with Goldman Sachs. Your line is open.
Speaker #2: Please go ahead.
Jerry Wang: Great. Thank you, Manager, for taking my question and congrats on the very solid results. Also, two questions from my side. One is really on the competitive landscape in the AIoT path segment. Just wondering how management sees the competitive advantage when I think the whole industry is moving from the traditional, say, IoT path to IoT. And what are our ways to maintain such kind of competitive advantage globally? Secondly, it's on your shareholder return policy. I think it's very pleasing to see the dividend declaration announcement from this quarter. Just wondering if management can provide us more structural way in terms of understanding the shareholder return policy for the years ahead. Thank you.
Speaker #6: Great. Thank you, Megan, for taking my question, and congrats on the very solid results. Also, I have two questions from my side. One is really on the competitive landscape in the AIoT path segment.
Speaker #6: Just wondering how management sees the competitive advantage when I think the whole industry is moving from the traditional, say, IoT path to AIoT, and what are our ways to maintain such competitive advantage globally?
Speaker #6: Secondly, I'd like to address your shareholder return policy. I’m very pleased to see the dividend declaration announcement from this quarter. I’m just wondering if management can provide us with a more structured way of understanding the shareholder return policy for the years ahead.
Speaker #6: Thank you.
Alex Yang: Yes, thank you, Timothy. So for the first one, what we see is that we are doing a lot of things to push the, not to push it, to motivate those developers from the existing or from the historical IoT applications into the AI applications. So like I described that we're doing a lot of different webinars, trainings, and events to grab all those kind of ideas, innovative plans from the developer sides that they have anything that they can think on that how it can bring AI into the new user experience together. And the data I already shared is that so for the first half of this year, over 93% of the products that are building with the TUYA platform for the first half of this year already come with AI capability.
Speaker #4: Yeah, thank you, Timothy. So for the first one, what we see is that we are doing a lot since to push the not to push it to to motivate those developers from the existing or from the historical IoT applications into the AI applications.
Speaker #4: So, like I described, we're doing a lot of different webinars, trainings, and events to gather all those kinds of ideas and innovative plans from the developer side. They have anything they can think of on how it can bring AI into the new user experience together.
Speaker #4: And data I already shared is that for the first half of this year, over 93% of the products that are built with the Tuya platform for the first half of this year already come with AI capability.
Alex Yang: So we're really doing quite a good penetration of combining the new AI feature set into the existing TUYA developer ecosystem and the customer base as well. So that's the first one. But we continue to do more because a very exciting opportunity we see is that coming on through the AI stuff, we have more categories that this technology will be able to cover. And so like the toy, like those kind of emotional-driven entertainment. So without the large language models, those types of categories that exist, it doesn't seem the opportunity how you can turn that into smart things. But right now, it is. So we'll continue to do that. So have more of my existing developers to try out the AI feature set and understand those kind of AI technology and also to exchange the ideas of creativity. So that's one thing.
Speaker #4: So we're really doing quite well on the penetration of the combined new AI feature set into the existing Tuya developer ecosystem and customer base as well.
Speaker #4: So, that's a first one. But we continue to do more because a very exciting opportunity we see is that coming on through the AI stuff, we have more categories.
Speaker #4: That this technology will be able to cover. And so, like the toy, like those kinds of emotional-driven entertainment. So without the large language models, those types of categories that exist or don't seem to have the opportunity—how you can turn that into smart things.
Speaker #4: But right now, it is. So we'll continue to do that. So have more of my existing developers to trying to try out the AI feature set and the understand those kind of AI technology and also to exchanging the ideas of creativity.
Speaker #4: So that's one thing. And also, another thing is that while we find those kinds of great ideas or great prototypes, we are using our networks and our marketing resources to incubate and help our developers commercialize.
Alex Yang: And also, another thing is that whilst we find out those kind of great ideas or great prototypes, so we're using our networks, using our marketing resources to incubate and helping our developer to commercialize. So that's what we continue to do. And so we're looking forward to have more, I would say, AI essential applications be built out in the future for the long run. So that's one. And the second part for the dividend or for the shareholder return, so like we said for the two quarters before, so we will consider the dividend as a regular policy or two or solutions that we offer for the shareholders' return besides any other things. And the dividend is based on the stable profitability of the company, the stable business model, and the growth, and also a very healthy network operating cash flow.
Speaker #4: So that's what we continue to do. And so we're looking forward to having more, obviously, AI instantial applications being built out in the future for the long run.
Speaker #4: So that's one. And the second part for the dividend or for the shareholder return, so like we said for the two quarters before, we will consider the dividend as a regular policy or two solutions that we offer for the shareholders' return besides any other things.
Speaker #4: And the dividend is based on the stable profitability of the company, the stable business model, and the growth, along with a very healthy network operating cash flow.
Alex Yang: So our dividend will be based on that, and we're offering as a regular solution for the shareholders. That's all, Timothy.
Speaker #4: So, our dividend will be based on that. We’re offering it as a regular solution for the shareholders. That’s all, Timothy.
Jerry Wang: Great. Thank you.
Speaker #6: Great. Thank you.
Operator: Thank you. And as a reminder, if you would like to ask a question, please press star one one. Our next question comes from a line of Kai Zhao with CICC. Your line is open. Please go ahead.
Speaker #2: Thank you. And as a reminder, if you would like to ask a question, please press *11. Our next question comes from a line of Kai Zhao with CICC.
Speaker #2: Your line is open. Please go ahead.
Alex Yang: Okay. Thank you, management. And I have two questions as well. My first question is on your gross margins. So with this quarter, your gross margin has steadily expanded with margin, in particular, is rising fast. So my question is, what are the key drivers for the gross margin going forward? And in particular, how would the AI-related revenue affect your overall gross margin mix? So that's for the gross margin question. And my second question is on the SaaS and smart device solutions. So could you share the primary growth engines for the two sectors and what's your outlook going forward? Thank you.
Speaker #5: Okay. Thank you,agement.
Speaker #6: And I have two questions as well. My first question is on your growth margin. So we see this quarter, your growth margin has steadily expanded, with margin in particular rising fast.
Speaker #6: So my question is, what are the key drivers for the growth margin going forward? And in particular, how would the AI-related revenue affect your overall growth margin mix?
Speaker #6: So that's for the growth margin question. And my sixth question is on the SaaS and smart device solutions. So could you share the primary growth engines for the two sectors?
Speaker #6: And what's your outlook going forward? Thank you.
Jerry Wang: Okay. So the first one, I think that the gross margins represent, okay, the gross margin represents the, I think, the competitiveness of the technology to our provider and also the value propositions for us in the entire industry. So right now, all the customers will really see my gross margin. I think that will be as a public company. But they continue to satisfy with what we're offering, no matter it's on the technology, it's on the services, it's on what we can offer to help them to transit from a legacy device maker into a smart device maker, from a device reselling business model into more like the software services, AI services-based recurring model. So I think that will, the gross margins represent that. And for us, is that we manage the three business models separately.
Speaker #4: Okay. So the first one, I think that the gross margins represent, okay, the gross margin represents the, I think, the competitiveness of the technology to our provider and also the value propositions for us in the entire industry.
Speaker #4: So right now, all the customers will really see my growth margin. I think that will be as a public company. But they continue to be satisfied with what we're offering, no matter if it's on the technology, it's on the services, or what we can offer to help them transition from a legacy device maker into a smart device maker.
Speaker #4: From a device reselling business model into more like the software services, AI services-based recurring model. So, I think that will the gross margins represent that.
Speaker #4: And for us, we manage the three business models separately. So for the past, we're offering, and we're satisfied with the gross margin range so far.
Jerry Wang: So for the past, we're offering, so we're satisfied with the gross margin range so far. And for the SaaS, the key part is that it's a regular software-based. So the gross margin above 70% will be a regular base. So we're not looking forward to push that up like the into 80 or 90% because that's not the realistic. But we're looking forward to scale that faster. As you can see here, is that starting from Q2, we're really seeing the SaaS trend growing faster than the past. And because we're starting to acquire or transit more end users to those kind of SaaS offerings as a premium features, as a recurring model, and we have more stickiness on the recurring side. So that's for the SaaS.
Speaker #4: And for the SaaS, the key part is that it's a regular software-based. So the gross margin above 70% will be a regular base. We're not looking forward to push that up into 80% or 90% because that's not realistic.
Speaker #4: But we're looking forward to scaling that faster. As you can see, starting from Q2, we really see the SaaS trend growing faster than in the past.
Speaker #4: And because we're starting to acquire or transition more end users to those kinds of SaaS offerings as premium features, as a recurring model.
Speaker #4: And we have more thickness on the recurring side. So that's for the SaaS. And for the solutions, we're looking forward to the long run because it's a software and hardware combined, and essentially we have a more significant portion of the hardware side.
Jerry Wang: And for the solutions we're looking for for the long run, is that because it's a software and hardware combined, and essentially, we have more and more portion come from the hardware side. So for that part, is that above 20% of the gross margin for the solutions already represents that we're taking a higher value proposition for that part. And so that's, I think that's that's what we're looking forward to see that to maintain above 20% gross margin for the solutions is what we're looking forward to do, coming on with our scalability. And I think that's a key part. So we feel comfortable about the current position so far because we really take the higher values on the existing growth we have in the industry. So we continue to push more scalability. I think that's for that part. And the second part is about the solution, right?
Speaker #4: So for that part, is that above 20% of the gross margin for the solutions already represent that we're taking a higher value proposition for that part.
Speaker #4: And so that's I think that's that's what we're looking forward to see that to maintain above 20% above 20% gross margin for the solutions is what we're looking forward to do coming on with a scalability.
Speaker #4: And I think that's a key part. We feel comfortable about the current position so far because we're ready to take the higher values on the existing growth we have in the industry.
Speaker #4: So we continue to push a more scalability. I think that's for that part. And the second part is about the solution, right? And so let me start with so I think that for the solutions, for the solutions on the strategy side, is that the solutions are not open for everyone.
Jerry Wang: And so I think that's for the solutions. For the solutions on the strategy side, is that the solutions are not open for everyone, kind of. So the solution will more focus on the key customers or the top-tier customers in their own specific market, either in their own region or in their own vertical industry. So the solutions are providing differentiated offerings for those customers to help them to provide a higher value product to the market. So those key customers, either they have a better position that they can offer in a higher pricing product, or they have the better position to provide a differentiated product. So we will not face very brutal competitions on the commodities. So we don't offer the commodities. So I think that's the first one.
Speaker #4: Kind of really. So the solution will more focus on the key customers or the top-tier customers in their own perceptive market, either in their own region or in their own vertical industry.
Speaker #4: So the solution are providing a differentiated offerings for those customers to help them to provide a higher value products to the market. So those key customers, either they have a better position that they can offering a higher pricing products or they have the better position to provide a differentiated products.
Speaker #4: So we will not be facing very brutal competition in the commodities. So we don't offer the commodities. So I think that's the first one.
Jerry Wang: And then, so through that part, we're kind of working along with those key customers to making a product roadmap 6 to 12 months ahead. And then we kind of become their key suppliers for all their most advanced products or flagship products for the long run. So I think that will be our driving forces for the long term. So the more we start to deliver for those customers, the more opportunity we have to working along with those customers for the long run, and the more opportunity we can take in more portion of their business and for any type of smart devices for the long run. So I think that's a key part. And what we see a very good trend here is that starting with Q2, finally, we're starting to offer the AI solutions.
Speaker #4: And then through that part, we're kind of working along with those key customers to make a product roadmap 6 to 12 months ahead.
Speaker #4: And then we kind of become their key suppliers for all their most advanced products, or flagship products, for the long run. So I think that's what we are driving towards for the long term.
Speaker #4: So the more we start to deliver for those customers, the more opportunity we have to work alongside those customers for the long run.
Speaker #4: And the more opportunity we can take in more portions of their business for any type of smart devices for the long run. So I think that's a key part.
Speaker #4: And what we see as a very good trend here is that starting with Q2, we're finally starting to offer the AI solutions.
Jerry Wang: So not only the smart bird feeders, that's what we try out for last year, but also for this Q2, we're starting to deliver the AI toy and with the two significant leaders for the toy industry in China. So one is Heizu Ong, and the other one is an IP from NetEase. And so those feedbacks from the customer side and from the end user side become very positive. And then we're starting to scale that kind of new, totally new vertical categories that we don't have before. So while we have more and more AI-essential, AI-empowered solutions offering, we really see that, yeah, we're starting to open more doors. And for the second half of this year, our shipment for AI-based energy solutions, and we're starting to complete this. And we're looking to have that grab that opportunity as fast as we can as well.
Speaker #4: So, not only the smart bird feeders—that's what we tried out last year—but also for Q2, we're starting to deliver the AI toy in collaboration with two significant leaders in the toy industry in China.
Speaker #4: So one is Haizhuang, another one is IP from NetEase. And so those feedbacks from the customer side and from the end user side become very positive.
Speaker #4: And then we start to scale that kind of new, totally new vertical categories that we don't have before. So while we have more and more AI essential or AI empowered solutions offering, we really see that, yeah, we're starting to open more doors.
Speaker #4: And for the second half of this year, and our shipment for AI-based energy solution and we're starting to complete this. And we're looking to have that grab that opportunity as fast as we can as well.
Jerry Wang: So I think that's for the solution part.
Speaker #4: So, I think that's for the solution part.
Alex Yang: Thank you, Alex.
Speaker #5: Thank you, Alex.
Operator: Thank you. And one moment for our next question. Our next question comes from the line of Matt Ma with Jefferies. Your line is open. Please go ahead.
Speaker #2: Thank you. And one moment for our next question. Our next question comes from the line of Matt Ma with Jefferies. Your line is open.
Speaker #2: Please go ahead.
Alex Yang: Hello. Good morning, management. Thank you for taking my question. I have two questions. So the first one is also related to the US tariffs. Are we observing a shift of China-based supply chain to overseas for our brand customers? If so, what are the impacts on Tuya? And should we expect to see incremental costs, for example, in module logistics? And the second question is related to margins. We are seeing that for smart solutions, its gross margin is 22.5% in the second quarter, which is relatively lower than previous quarters. Just wondering, what is the reason behind that? And also, given our business model can enjoy a very strong operating leverage, over the next three to five years, what kind of margin profile do you expect to see the company to achieve? Thank you.
Speaker #6: Hello. Good morning, management. Thank you for taking my question. I have two questions. So the first one is also related to the U.S. tariffs.
Speaker #6: Are we observing a shift of China-based supply chains to overseas for our brand customers? If so, what are the impacts on Tuya, and should we expect to see incremental costs, for example, in module logistics?
Speaker #6: And the second question is related to margins. We are seeing that for smart solutions, its gross margin is 22.5%. The second quarter, which is relatively lower than previous quarters, just wondering what is the reason behind that.
Speaker #6: And also, given our business model, we can enjoy very strong operating leverage. Over the next three to five years, what kind of margin profile do we expect to see the company achieve?
Speaker #6: Thank you.
Jerry Wang: Okay. Yeah. So the first one is that, yes, after the tariff situation, every people are talking about the shift in the supply chains globally. But that kind of topic has not been discussed this year because the first tariff raise started taking place in 2018. So what we see here is that just for those products manufactured and sold to the United States, different categories react in different ways. So for those categories, we require a less component and less rely on a very diversified supply chain. So some simple stuff like the plugs, maybe LED bulbs. So those types of categories, not only this year, I think that four or five years ago, that many manufacturers started to relocate it in other countries like Mexico, like Vietnam, Thailand, including India. So those manufacturers already relocated somehow.
Speaker #4: Okay. Yeah. So the first one is that, yes, after the tariff situations, every people talking about the shift in the supply chains globally. And but that kind of topics is not being talking is not being discussed this year.
Speaker #4: Because the first tariff raise starting took place in 2018. So what we see here is that just for those products manufactured and sold to the United States, different categories react in different way.
Speaker #4: So for those categories, we acquire a fewer components and rely less on a very diversified supply chain. Some simple items like plugs and LED bulbs, for example, are categories where many manufacturers have been trying to relocate production to other countries, such as Mexico, Vietnam, Thailand, and India, not only this year but also four or five years ago.
Speaker #4: So those manufacturers have already relocated somehow. But some categories super rely on their key component supplying, like the air conditioner. So they have a way more complicated supply chain.
Jerry Wang: But some categories super rely on their key components supplying, like the air conditioner. So they have way more complicated supply chain. It's not easy to move that out entirely. So the major air conditioner manufacturers still have to produce in China. So different categories and right now being impacting in different levels. But those shifting supply chains already taking place for years. So for us, is that we just follow the flow. Is that wherever the customer wants to produce the finished products, we just deliver our modules to their location. So I think that's the first one. But the pressure comes from that, especially in Q2, as we can see that those tariff policies, I mean, challenge is that the United States, I mean, the United States or President Trump tried to raise the tariff for almost every other country, including Mexico, including Japan, including Vietnam, China.
Speaker #4: It's not easy to move that out entirely. So, the major air conditioner manufacturers still have to produce in China. So, different categories are right now impacting at different levels.
Speaker #4: But those shifting supply chains have already taken place for years. So for us, we just follow the flow. Wherever the customer wants to produce their finished products, we just deliver our modules to their location.
Speaker #4: So I think that's the first one. But the pressure comes from that, especially in Q2, as we can see that those tariff policies, I mean, the challenge is that the United States, I mean, President Trump, tried to raise the tariff on almost every other country.
Speaker #4: Including Mexico, including Japan, including Vietnam and Thailand, the short term presents a challenge as importers are uncertain about where the safest and most stable places to produce are.
Jerry Wang: So for the short term, that the importers don't know where is the safest place to produce or where is the stable place to do that. So I think that's where the shift comes from. But what we're seeing for the long term is that anyhow, this is a negotiation across multiple entities, across.Multiple
Speaker #4: So I think that's where the shift comes from. But what do we see for the long term? Anyhow, this is a negotiation.
Speaker #4: Across multiple entities, across multiple nations, the negotiation is going to work out with a deal. So once there is a deal, there's a price that people have to pay.
Jerry Wang: nations, the negotiation is going to work out with a deal. So once there is a deal, there's a price that how people have to pay that. And then there will come a conclusion. So all the merchants, they know that's how they can re-price that and trying to sell that on a steady level, even with a higher price. So that's what we're looking forward to, to wait and find out. So those negotiations seem to progress somehow and seem to have a conclusion maybe in the next couple of months, right? Where we see we extend it twice, but we're looking there should be a conclusion. So we're looking for have that. So that's our first one. So for the short term, there's no easy option for the manufacturing for the manufacturers because almost everyone will be tariffed at a different price.
Speaker #4: And then there will come a conclusion. So all the merchants, they know how they can reprice that. And they're trying to sell that at a steady level, even with a higher price.
Speaker #4: So that's what we're looking forward to wait and find out. Those negotiations seem to progress somehow and seem to have a conclusion maybe in the next couple of months, right?
Speaker #4: We're really seeing that we've extended it twice, but we believe there should be a conclusion. So we're looking to have that. So that's the first one.
Jerry Wang: But for the long run, that's as long as there is a price and then people will figure out how to continue to do the business because we're not cutting off. Yeah, I think that's about tariff. And the second one about the gross margin, I'm really sure part of the parts on the previous questions. So we'll review the gross margin split it in between, yeah, split it into three sections because either the PaaS or the SaaS or the solutions become in a totally different value proposition and facing different types of competitions. So we'll more review those gross margins to see that whether we take the higher value proposition. For the solutions, maybe we'll take a higher proposition versus their in-house design team versus any other solution providers.
Jerry Wang: And for the PaaS, we review as whether we can really offering as a PaaS company or as a platform company. And for the SaaS, it's whether we are really running a SaaS-based business. So for that part, the value propositions to show the competitiveness for us as a different role. So as I shared before, that the PaaS, the range was so far between 47 to 48 percent, we're satisfied with that. For the SaaS, above 70 percent as a regular SaaS company, we're good with that. And for the solutions, a higher proposition is above 20 percent. I think that it's good. So I think that's a key part we managed it. And one of the reasons for the solutions, as you can see, the solution margin declined, slightly declined in Q2. Reason being is that the solution is more a supply chain business, more supply chain related.
Jerry Wang: And in Q2, we started to offer some new solutions like the AI toys like an expand. So at the starting point of some new products or the new solutions, and we have the space to cost down, come along with the scalability. So we're offering at the lower margin, we think it's fine. But coming along with our scaled business, so we have more space that we can free the cost. So I think that's a key part. So the the most important thing for us is that to proven those solutions really worked out, coming along with the right end-user demand and to come with the competitiveness that we can help the customer to facing any falls. In the same time that's coming along with the scalability, we'll be able to, you know, increase the operating average and and and the margin performance for the long run.
Jerry Wang: I think that's that's how we run that. Thank you.
Operator: Thank you, Alex. That's very helpful.
Regina Wong: Thank you. Seeing no more questions in the queue, let me turn the conference back over to Regina Wong for closing remarks.
Jerry Wang: Thank you, appraiser, and thank you all once again for joining us today. If you have any further questions, please feel free to contact our team of Tuya. Goodbye and see you next quarter.
Regina Wong: This concludes today's conference call. Thank you for participating. You may now disconnect.