Q2 2026 FIT Hon Teng Ltd Earnings Call
Speaker #1: Good morning, everyone. welcome to the live audio webcast of FIT Hometones, FY2026 interim results presentation. Today we're honored to have Mr. Chris Liu, Chief Operating Officer, and Chief Financial Officer for FIT Hometones joining us today.
Speaker #1: During the presentation, Chris will provide a summary of the group's performance, for the interim period ended 30 June 2026, and an outlook for the second half of 2026.
Speaker #1: You can download our PowerPoint from the Resources box below the webcast window. Kindly note that the language used for this audio webcast is English.
Speaker #1: If you have any questions for management, you can kindly submit your questions in English anytime through the Q&A panel. Before I turn the call over to Chris, I'd like to first remind you that while FIT has taken every reasonable care in preparing today's presentation, the information and materials contained in it and discussed in the following Q&A session are all provided on an as-is basis and do not constitute investment advice.
Speaker #1: Management on today's call may also make forward-looking statements based on current expectations and assumptions, and those statements are subject to certain risks and uncertainties that could cause the actual results to differ materially.
Speaker #1: FIT will not be held liable for any damages arising from reliance, placed on the information, and forward-looking statements contained in the presentation, and discussed during the Q&A session.
Speaker #1: For the full details of a disclaimer for this call, please refer to slide 2 of our PowerPoint. Slide 3 contains a brief agenda for today's call.
Speaker #1: Now, I'll hand it over to Chris. Thank you.
Speaker #2: Thank you, Ray. Good morning, good afternoon, good evening to those joining us today. Following the AI momentum in Q1, the AI demand remains strong, supported by stable customer orders and continuous investments in AI infrastructure.
Speaker #2: During the second quarter, revenue increased by 8% year over year to nearly US$1.3 billion, driven by the continual expansions of our next-generation AI product portfolio.
Speaker #2: Growth profit increased 9.6% year over year, with gross margin improving 26 basis points to 18%. Growth margin came in below our original expectation, mainly due to temporary cost headwinds.
Speaker #2: These were primarily driven by higher raw material prices and the learning curve associated with the ramp-up of our next-generation AI product on new manufacturing lines.
Speaker #2: The manufacturing processes for our next-generation AI products grew more challenging than initially expected. We have already overcome several critical bottlenecks with encouraging improvements in product efficiency.
Speaker #2: We expect the learning costs to continue to progress and ramp up costs to gradually optimize normalized over the second half of the year. Our operating expenses, we maintain disciplined cost management, although R&D investment increased to support new AI products during their initial production stage, our operating expenses ratio remained at 15.05%, within our guidance range and slightly lower than last year.
Speaker #2: As a result, operating profit increased 40.7% year over year, while net income increased 15.7%. For the first 6 months of the year, revenue reached US$2.5 billion and net profit total US$38 million.
Speaker #2: Looking ahead, our full-year outlook remains unchanged. Based on current visibility, customer demand and AI project pipelines remaining intact, and our long-term growth drivers are unchanged.
Speaker #2: Turning to slide 6, let's look at the comparative breakdown for Q2. Sustained AI infrastructure remained the key catalyst behind the cloud data center segment and for overall revenue growth during the quarter.
Speaker #2: As the automobility system came in below prior guidance, shipment for the smartphone segment have stabilized and remained a positive cash-generating business, with reasonable near-term prospects.
Speaker #2: Q2 revenue was flat, as per prior guidance. As mentioned, driven by continual AI momentum, contribution from cloud segments grew by strong 54% during the second quarter.
Speaker #2: AI infrastructure investment continued to drive demand for higher-speed connectivity solutions, UQD solutions for cooling distribution units, backbone connectors, and other external cables and power modules.
Speaker #2: Ongoing disruptions and upstream supply constraints in memory chips led to a 28% decline in the consumer interconnect market during the quarter. We believe this reflects shipment timing rather than a change in underlying demand.
Speaker #2: The automobility segment was impacted by soft and market demand in the automotive industry. This has led to a lower-than-anticipated decrease in segment sales. We continue to optimize the portfolio to award higher-value modules and integrated software-defined vehicle solutions during our One Mobility brand.
Speaker #2: As production volumes continue to ramp up, combined with the low-base incorresponding period last year, the system product segments increases contribution and delivered double-digit revenue growth during the quarter.
Speaker #2: Turning to slide 8, we maintained our positive full-year outlook with high single-digit revenue growth supported by a healthy order backlog, continued AI demand, and gradual capacity ramp-up in the second half.
Speaker #2: Customer project pipeline remained intact. We also maintained our full-year gross margin guidance of 20%. As our next-generation AI products and new manufacturing lines continue to progress through the learning curve and move from qualification to volume production, we expect higher-value products to contribute to a larger shares of revenue supporting further improvement in gross margin.
Speaker #2: As our next-generation AI products continue to transition into mass production, we expect production efficiency to improve, supporting our cost objectives. Accordingly, we continue to expect operating profit to increase by approximately 70% for the full year.
Speaker #2: Meanwhile, we will continue to closely monitor raw material price fluctuations and optimize our pricing strategy to support our full-year objectives. Next, we turn to slide 9.
Speaker #2: We expect enduring industry dynamics to determine how we allocate capacity. Our product portfolio will continue leaning toward AI to capture emerging demand opportunities. For the smartphone segment, recurring business has stabilized and continues to provide healthy cash flow as discussed earlier.
Speaker #2: So we expect to maintain consistent orders for the coming quarter and project and project a similar annual sales contribution as last year. Ongoing AI infrastructure investment generates more pipeline opportunities from the AI server and shipment for the cloud data center segment.
Speaker #2: We continue to see strong customer engagement for our next-generation AI connectivity solutions, including high-speed connectivity, optical interconnect, power delivery, and liquid cooling. We are maintaining a high double-digit outlook in Q3, a full-year projection of up to 70%.
Speaker #2: For consumer interconnect, the persistent uncertain supplies of constraint for memory chips will continue to affect near-term order volume. As such, we lower our guidance from flat growth to a double-digit decline for Q3, which translates into a low-team decrease for the full year.
Speaker #2: For automobility, the sector continued to face near-term pressure from subdued end-market demand. Nevertheless, we remain focused on strengthening the business by optimizing its portfolio toward higher-value automotive solutions positioning the segment for improved long-term growth and profitability.
Speaker #2: Prioritize outlook remained unchanged. We expect system products to post strong year-over-year growth reflecting the low-base in the prior year period and continue production ramp-up this year.
Speaker #2: We expect relatively flat shipment volume in Q3 reflecting a more normalized quarterly pattern after a strong first half. The underlying business remains healthy. Turning to slide 10, we maintained our goal to sustain gross momentum by seizing opportunity arising from multi-year AI investment.
Speaker #2: The efforts our team put into customer evaluations certifications and pilot deliveries for next-rack architectures are helping to increase our cloud data center revenue mix from mid-20% this year to around 30% by 2028.
Speaker #2: At the same time, capacity at our new facility is being rolled out in phases. As production yields and scale in economies improve, we expect returns becoming increasingly visible by the first half of next year.
Speaker #2: In addition, the continual expansion of our overseas manufacturing footprint will strengthen our ability to support and secure business from global cloud and server customers.
Speaker #2: Slide 11, news updates. Moving to slide 12 for recent updates. FIT Market presence and co-development expertise are growing as we broaden our suite of end-to-end AI infrastructure solutions.
Speaker #2: During Computex 2026, our team showcased innovative solutions and capaciting compute, connectivity, power, and networking. In particular, our XPO technology for pluggable optics for AI networking and integrated liquid cooling attracted a strong industry response, reinforcing FIT's role as the main developers of a leading and emerging cloud connectivity solutions.
Speaker #2: Turning to slide 13, we're pleased to announce FIT Tech Day 2026, which will be held on September 16 in Taipei. Last year, we successfully unveiled one mobility and highlighted the latest development across our automotive portfolio.
Speaker #2: This year, the spotlight shift to AI optic networking. Together with leading partners across the optical communication ecosystem, we will showcase FIT's strategic positioning and our close alignment with customers' multi-year product roadmaps.
Speaker #2: As AI infrastructure enters its next phase of growth, driven by scaled-up connectivities and co-packaging optics, industry leaders project an addressable market could expand to US 90 billion to US 95 billion by 2030.
Speaker #2: The upgrade cycles in optical connectivity is gaining momentum. And revenue contributions from our 800G solutions are expected to ramp up progressively during the second half of the year.
Speaker #2: We look forward to shaping more detailed, sharing more details, at FIT Tech Day, and welcome investors, customers, and industry partners to join us as we showcase the next phase of FIT's growth strategies and innovation roadmap.
Speaker #2: This concludes our presentation today. Thank you.
Speaker #1: Thank you, Chris. We're now ready to take some questions from the audience. As a reminder, you may submit a question by text, by clicking the Q&A box in the webcast panel.
Speaker #1: You can currently submit all questions in English. For those joining via audio line, please press star 1 on your keypad to join a Q&A queue.
Speaker #1: There are some webcast questions on the line. Our first few questions are coming from Mr. Anthony, from JP Morgan. The first question is, "Are Q2 operating profit missed the full-year trajectory by about a third, and you're still maintaining the mid-70% OP growth target?" Why not revise guidance?
Speaker #2: Thank you, Anthony. For the miss is mainly driven by cost. Our AI order book customer pipelines and market share momentums are all unchanged. The process design and ramp-up are next-generation AI products presented with greater technical complexity than previously anticipated.
Speaker #2: Resulting in additional learning costs. During the second quarter, we made good progress in improving production readiness and manufacturing efficiency. As production volumes continue to scale in the second half, we expect the related cost pressure to gradually come under better control.
Speaker #1: Thank you, Chris. The second question from Anthony is, "In accordance with the second quarter 26 performance that implies a very steep ramp in second half, what specifically needs to go right for you to hit 70% OP growth for the full year?"
Speaker #2: Well, there are three key factors. First, we expect AI product shipments to continue ramping in the second half, supported by a healthy order pipeline.
Speaker #2: Second, we expect yields and production efficiency at our new next-generation manufacturing lines to continue improving as planned. Third, we will monitor raw material costs.
Speaker #2: While execution remains important, we are seeing steady progress across these areas. Which supports our confidence in achieving our full-year operating profit target.
Speaker #1: Thank you, Chris. And our next couple of questions are coming from Karen Huang from Citi. The first question is, "A recent market reports suggest that Kyber's rollout could be delayed.
Speaker #1: A recent concerns about the deployment timeline for the next generation AI platforms." Could investors expect any impact on FIT's AI business or product roadmap if such delays materialize?
Speaker #2: Well, thank you, Karen. Now, while we don't comment on any specific customer product or platform roadmap, you know, from a FIT's perspective, regardless of which AI architecture customers ultimately adopt, the long-term demand for higher bandwidth, power density, and thermal efficiency continues to increase.
Speaker #2: This supports sustained demand for our AI connectivity portfolio and reinforces our long-term growth outlook.
Speaker #1: Thank you. The next question from Karen is, "Could you provide an update on your cable cartridge products? When do you expect them to begin contributing to the revenue?
Speaker #1: And how should investors think about the pace of the ramp?"
Speaker #2: Well, Karen, we're not able to comment on single products. Our more broadly, though, we continue to see encouraging progress across our next-generation AI product portfolio.
Speaker #2: We expect new AI products to begin contributing to world the end of this year. With broader contributions as customers deployments continue to ramp up.
Speaker #2: The timing will depend on customer qualification and deployment schedule. But we believe these products will support our long-term growth.
Speaker #1: Thank you, Chris. Our next couple of questions are coming from Wang Jie from 中信建投. The first question is, "How important will optical products become within FIT's portfolio?
Speaker #1: Could you update us on your progress in XPO and CPO technologies?" And when should investors expect optical revenue to become meaningful?
Speaker #2: Well, thank you, Wang Jie. Optical technology represents one of the key pillars of FIT's long-term AI strategy. Our 800G optical products are progressing into volume production while 1.6G transceivers continue customer qualification.
Speaker #2: As a contributing member of the XPO MSA ecosystem, we have successfully demonstrated 224G VPS per length transmission integrated with liquid cooling. Bridging near-term near package copper connectivity with high-density external optical interfaces.
Speaker #2: We expect optical revenue to increase progressively beginning in the second half as 800G and 1.6G product ramped into production. As XPO and CPO architectures achieve broader commercial adoption over the coming years, optical product will become one of the strongest growth drivers within our cloud database center business.
Speaker #1: Thank you, Chris. Our next question is, "When does 800G optical revenue start contributing? And how material will it be in second half?"
Speaker #2: Well, we expect initial revenue contribution from 800G products in the second half, and we'll share more updates in our optical roadmap at FIT Tech Day in September.
Speaker #2: While the near-term contribution will be gradual, we see 800G as an important long-term growth driver for our AI business.
Speaker #1: Thank you, Chris. Our next couple of questions are coming from Kate from UOB. The first question is, "What should investors expect from FIT Tech Day on September 16th?"
Speaker #2: Well, the thank you. Thank you, Kate. You know, at our upcoming FIT Tech Day on September 26th, September 16th, we will bring together the world's leading experts across the AI optical ecosystem.
Speaker #2: It will convene globally recognized technology leaders, distinguished researchers, and key innovators from across the AI optical ecosystem to explore how next-generation AI infrastructure is being built.
Speaker #2: From light generation to photonic integration to AI networking and red-scale connectivity. Together, they will share perspectives on the technology shaping the future of AI data centers.
Speaker #2: The event will provide investors with a clear view of FIT's technology roadmap, ecosystem strategies, and long-term growth opportunities. We welcome everyone to join us online.
Speaker #1: Thank you, Chris. The next question is, "The optical markets is getting crowded. How does FIT's approach differ from pure-play optical companies?"
Speaker #2: Well, we really we're not a pure-play optical company. We leverage the first-come group resources, global manufacturing footprint, and ecosystem to deliver integrated AI connectivity solutions.
Speaker #2: This positions us as a platform partner rather than a component supplier. Also, our strength is integrating copper optics power and thermal solutions into a common AI connectivity platform.
Speaker #2: As cloud customers increasingly look for system-level optimization, our broad portfolio and close collaboration with ecosystem partners position us as a platform partner rather than a component supplier.
Speaker #1: Thank you, Chris. Our next couple of questions are coming from Irene Yen from Morgan Stanley. The first question is, "What are the top risks to your full-year guidance?
Speaker #1: And how are you mitigating them?"
Speaker #2: Well, thank you, Irene. Well, there are really three areas we continue to monitor. First, commodity material prices. Second, the ramp-up of our new manufacturing facilities, where we remain focused on improving production efficiency and yields.
Speaker #2: Third, macroeconomic and foreign exchange volatility. While these factors are largely outside our control, we continue to work closely with our customers and manage our operations proactively.
Speaker #2: Overall, these are manageable risks, and we remain confident in our full-year guidance.
Speaker #1: Thank you, Chris. The next question is, "As you continue expanding AI capacity, and investing in a next-generation AI product, how should investors think about your capital expenditure plans?
Speaker #1: Do you foresee any need for external financing?"
Speaker #2: Our capital expenditure remains focused on AI capacity expansion and next-generation AI product deployment. And development also. We also leverage the first-come group's global manufacturing footprint and production resources to optimize capital efficiency.
Speaker #2: As for financing, we remain disciplined in our capital allocations while maintaining flexibility.
Speaker #1: Thank you, Chris. Our next couple of questions are from Alicia from Guanghua The first question is, "Are you've indicated that the cloud data center could account for around 30% of total revenue by 2028?
Speaker #1: As investors look at your long-term roadmap, what are the key milestones or indicators that they should monitor over the next few years to assess whether you are on track to achieve that target?"
Speaker #2: Well, thank you, Alicia. We remain confident in our long-term cloud data center growth trajectory. Key milestones include a ramp-up of backplan connectors, 800G optical solutions, and other next-generation AI products.
Speaker #2: Improving factory utilization and expanding engagement with hyperscalers and AI server customers.
Speaker #1: Thank you, Chris. The next question is, "A recent geopolitical development and ongoing supply chain realignment are reshaping the AI infrastructure industry. How do you see these changes affecting FIT's competitive position and long-term growth opportunities?"
Speaker #2: Any industry transition or supply chain realignment reinforces the values of agile, globally diversified manufacturing footprint and multi-domain engineering capabilities. Areas where FIT and first-come group are exceptionally well-positioned to support our global customers.
Speaker #1: Thank you, Chris. So once again, as a reminder, ladies and by text, by clicking the Q&A box in the webcast panel. For those joining via audio line, please press star 1 on your keypad.
Speaker #1: To join the Q&A queue. Our next few questions are coming from Tony Chen from Huatai Securities. The first question is, "A tariff refund and FX, did you see any tariff-related tax refund this quarter?
Speaker #1: And how should we think about the FX impact? What is your outlook on both for the next six months?"
Speaker #2: Well, well, yes, we did receive the tax refunds, and as for the forex policy, we're adopting a neutral hedging policy instead of speculation. And our next question
Speaker #1: Sorry, Chris.
Speaker #2: Yeah. No, no, no. Go ahead, Ray.
Speaker #1: Thank you. The next question is from Tony. "So cloud networking and CPO, the rapid growth of cloud networking this half was meaning copper-based. FIT had a lot of AI-related products shown on the Computex.
Speaker #1: Which is very impressive. With CPO ramping industry widening second half, does FIT have any optical CPO opportunity or is the growth still copper-driven for now?" Thank you.
Speaker #2: Yeah, Tony, you know, the growth was still copper-driven. But the optical-related product is our future growth driver. We had already demonstrated some of the CDO XPO products in our OFC Computex.
Speaker #2: We will focus on this topic and not detect day in September.
Speaker #1: Thank you, Chris. The next question is from Tony is about Apple supply tightness. So Apple's earnings call mentioned supply tightness on iPhone, iPad, and Mac for the next quarter.
Speaker #1: And this year, lineup of the new products is cycled maybe will change seasonality. Will this affect your performance?
Speaker #2: Well, we're unable to comment on a single product or a single client. But all the segment is in line with our expectations.
Speaker #1: Thank you, Chris. So ladies and gentlemen, as a reminder, you may submit your questions by text, by clicking the Q&A box in the webcast panel.
Speaker #1: And for those joining via audio line, please press star 1 on your keypad to join the Q&A queue. Our next question is from Howard Tao from Morgan Stanley.
Speaker #1: The question is, "Next-generation AI server PS2 use more optical interconnect to scale up. How does this trend benefit FIT?"
Speaker #2: Thank you, Howard. No, absolutely. I mean, we will work closely with customers in the optical market. This should benefit FIT in financial and customer relationships.
Speaker #2: Now, you still relatively early to comment on the detailed numbers. But we're very confident that we're in a position to really seize these opportunities.
Speaker #1: Thank you, Chris. Our next question is still from Howard. The question is for CY28 Cloud Mix target of low 30%. This implies more than $2 billion revenue.
Speaker #1: At that point, what does this lit split look like between Nvidia and ASIC programs?
Speaker #2: We believe AI infrastructure will continue to evolve across multiple computing architectures. Regardless of the underlying platform, higher AI computing performance will continue to drive demand for high-speed connectivity.
Speaker #2: Our delivery optical interconnect and also liquid cooling in these trends expand our content product and also support our medium to long-term growth. And we, because closely work with multiple ecosystem partners, and therefore so we're not really pinning to one versus the other.
Speaker #2: We participated in all these platforms.
Speaker #1: Thank you, Chris. So the next question is from Bing Wei. From Taitung Securities, the question is, "Could management break down how much of this growth came from volume, new customer wins, and new product lines versus pricing ASP improvement?
Speaker #1: And what is the H2 sequential trend looking like?"
Speaker #2: Well, you know, both in volume and ASP improvement recorded in low double-digit growth.
Speaker #1: Thank you, Chris. Our next question is from Howard Tao from Morgan Stanley. The question is with first half results now out. Would you view your OP guidance for the year as achievable or more of a target to hit?
Speaker #2: Well, we believe performance will be in line with our previous guidance. During the second quarter, we made good progress in improving production readiness and manufacturing efficiency.
Speaker #2: As production volume continued to scale in the second half, we expect the related cost pressure to gradually come under better control.
Speaker #1: Thank you, Chris. Our next question is from Bing Wei. From Taitung Securities, the question is, "R&D expenses increased 28.7% year on year, to US $190 million in H1.
Speaker #1: I note what it outpacing revenue growth. So what are the incremental R&D dollars primarily going forward, and new product development for the AI server connectors or upgrades to the legacy product portfolio?
Speaker #1: Do we expect R&D expanding to continue growing in absolute terms in H2? And what's the full-year R&D to revenue ratio target?"
Speaker #2: Well, mostly our product developments are focused on AI server connectors. And then we'll continue allocating resources on R&D activities.
Speaker #1: Thank you, is from Howard Tao from Morgan Stanley. The question is, "Are there any plans to dispose any lower margin consumer-related businesses?"
Speaker #2: No, we will continue monitoring our portfolio mix and platforms. And we will balance on profitability and growth, and also long-term growth strategy.
Speaker #1: Thank you, Chris. The next question is from Bing Wei from Taitung Securities. The question is, "The fact of tax rate dropped significantly from 62.4% in H1 2025 to 37.3% H1 2026.
Speaker #1: Contributing roughly US 36 million to network profit. If this decline driven by one-off items, for example, a reversal of prior year tax provisions, or structural changes, can we expect a similar rate in second half, or should we model something different?"
Speaker #2: Well, yes. You know, the high rates in the first half of 2025 is attributed from a one-off event. Primarily, dividend tax paid on repatriations of profits from mainland China.
Speaker #2: And going forward, we'll continue to optimize our tax rates and make efficient use of it. Thank you.
Speaker #1: Thank you, Chris. So our next question is from Alex Wang from Guangzhou Zhengquan. The question is, "Can you explain why Q2 gross profit margin fell quarter on quarter and whether it will pick up in the second half?"
Speaker #2: Yeah, thank you. Well, as I shared earlier on, as our next-generation AI product and new manufacturing, lines continue to progress through the learning curve and move on qualification volume production.
Speaker #2: So we expect higher value products to contribute a larger share of revenue supporting further improvement in gross margin.
Speaker #1: Thank you, Chris. Are there appears to be no more questions. This marks the end of today's presentation. Now to the conference over to Chris for closing remarks.
Speaker #2: Well, thank you, everyone, for your participation. And also for the robust questions. FIT continues to benefit from a longer-term AI infrastructure buildout. We're expanding our next-generation AI connectivity portfolio, improving manufacturing efficiency, as new products and production lines mature, and also deepening our collaboration with global customers.
Speaker #2: We remain confident in our long-term strategy and believe these initiatives will continue to support sustainable growth and create long-term value for our shareholders. I look forward to welcoming everybody to the FIT Tech Day in September in Taipei.
Speaker #2: Thank you, and goodbye.
