Ally Chen: Welcome to join Airtac's Q3 earnings call hosted by UBS. I am Ally Chen, covering the industrial sector in Taiwan. It is our pleasure to host Airtac CFO, Ivan Tsao, today. Before we begin the call, I would like to ask for your support in the upcoming Extel survey next month. Please vote for UBS and myself in two categories, Taiwan and industrial. Now, let us begin the call today. We will have Ivan to do briefing on earnings results first and then open up for Q&A later. Now let me hand the call to Ivan, please.
Ivan Tsao: Okay. Thank you, Ally, and good day, everybody. This is Ivan Tsao speaking from Airtac, and welcome to join this conference call. Please let me brief our Q3 results and the current market situation. First of all, pneumatic demand have entered a recovery cycle, and we expect this upcycle to sustain longer than two to three years. Both shipment and order book amount have exceeded our expectation since the beginning of the year. Pneumatic components are replacing human beings' direction, and this industry can sustain single-digit growth annually once there is no too severe non-custom issue. By continuously developing new products and improving our brand image, we expect our annual revenue growth rate can be 10% higher than the industry growth.
Ivan Tsao: As pneumatic products support production lines rather than in end products of customer site, as long as customers launch more new models or engage in production activities, there will be a greater demand for pneumatics. In addition, recently, geopolitical issues or impact on raw material cost remain within our control. Through ongoing improvement in internal production efficiency and product sales mix, the operating profit margin this quarter still is better than our expectation. Next, let us announce the financial figures of the Q3 and first 3 quarters of the year. Unaudited consolidated revenue for the Q3 of 2026 was RMB 2.427 billion, a 23% growth year-on-year. Gross profit was RMB 1.198 billion, a 32% growth year-on-year. Gross margin was 49.4%. Operating income was RMB 823 million, a 40% growth year-on-year. Operating margin was 33.9%.
Ivan Tsao: Net non-operating income was RMB 11 million, including RMB 8 million subsidy from government, RMB 7 million of interest income, RMB 4 million loss on fixed asset disposal, and RMB 1 million of FX gain. Income before income tax was RMB 834 million, a 32% growth year-on-year. Pre-tax margin was 34.4%. Net profit was RMB 600 million, a 20% growth year-on-year. Net margin was 24.7%. EPS for the Q3 2026 was NT$14.23. Unaudited consolidated revenue for the first three quarters of 2026 was RMB 7.238 billion, a 23% growth year-on-year. Gross profit was RMB 3.52 billion, a 33% growth year-on-year. Gross margin was 49.1%. Operating income was RMB 2.469 billion, a 42% growth year-on-year. Operating margin was 34.1%. Net non-operating income was RMB 38 million. Income before income tax was RMB 2.497 billion, a 40% growth year-on-year.
Ivan Tsao: Pre-tax margin was 34.5%. Net profit was RMB 1.898 billion, a 35% growth year-on-year. Net margin was 26.2%. EPS for the first three quarters of 2026 was NT$44.14. Effective tax rate is around 24%. Revenue from top eight industries for the Q3 2026. The biggest one still was electronics, around 28% to consolidated revenue. It is around 33% growth year-on-year. Second one, battery, was around 14% to our revenue, 25% growth. Auto was around 10% to revenue, 16% growth. Packaging was around 8% to revenue, 15% growth. Machine tool was 8% to revenue, 35% growth. General machinery was around 5% to revenue, 20% growth. Textile was around 5% to revenue, 33% growth. Energy lighting was around 3% to revenue. It is around 23% growth year-on-year.
Ivan Tsao: For current market situation, China government continues to release many stimulus policies and attempt to restore the confidence of people or enterprising and try to improve their domestic economy, and let people enterprise to spend more money on end product consumption. In addition, the China government had proposed 15th Five-Year Plan, emphasizes intelligent manufacturing and industrial upgrading, both of which will drive demand in pneumatic market to be better and better. As for the demand of various industries for pneumatic, the revenue of the electronics industry growth by 33% in Q3 2026, which is better than our expectation. Airtac is not an AI player, but strong demand from AI-related devices needs more pneumatic to support their production activities. We expect we could have double-digit revenue growth from electronics revenue in 2026 and 2027.
Ivan Tsao: For battery demand, this industry has enjoyed high revenue growth rate for around two years. China government also has released some new policies in the Q3 2026 to prevent the industry from falling into overcapacity again. Only when specific conditioned permit can expand new capacity in domestic. We think this is good for battery development in mid to long term, even we have to suffer weaker demand from battery in short term. We think it is good for battery industry development, and usually in the early stage of the government-released new restriction policies, industry players used to reduce their capacity expansion in accordance with government policies. However, after a period of time, competitive players will still do what they need to do and expand their capacity again. In addition, more countries have relaxed their restriction policies on China players, and those players plan to expand their overseas capacity.
Ivan Tsao: The demand trend of the battery industry still need to be observed for next couple of months. Better revenue growth rate from automotive industry also could be expected in 2026 and 2027. We have improved our brand image on auto customers and enjoy better share gain. Even the overall auto industry has not recovered significantly, we have had double-digit revenue growth for a couple of years, and we still expect double-digit revenue growth in 2026 and 2027 from auto industry. Moreover, government stimulus policies for replacing old equipment to be new equipment can get subsidy is still in the market. Government stressing industrial upgrading in their proposed 15th Five-Year Plan. Those traditional demand like machine tools, general machinery, textile, and packaging still can enjoy double-digit revenue growth in 2026, even 2027. However, we still have some demand issues on solar or energy lighting in past two years.
Ivan Tsao: But after government intervened in the overcapacity issue at the beginning of the year, the month revenue growth rate has turned positive since this July. We expect solar energy lighting revenue can turn positive in 2026 and 2027. Selected items for selected customers have pricing competition in pneumatic market, but it is still regional, basically. We have increased our selling price in overseas market but maintain stable pricing in China market to sustain our customers' relationship and accelerate revenue from those various new product and new business from Airtac.
Ivan Tsao: The increased raw material cost can still be offset by our internal efficiency improvement, but GP margin and OP margin still have to depend on revenue scale and capacity utilization rate. Even we can improve our margins by launching more higher GP margin new items, improving our selling product mix, and continue to improve internal production efficiency to reduce our production cost.
Ivan Tsao: We define 100% capacity utilization rate based on 24 days a month and 21 hours a day with two shift operator working system. Current pneumatic capacity utilization rate is around 100%, and the inventory level still in low position, and inventory turnover days just around 110 days. We will increase our capacity utilization rate in Q4 of this year. For the development of linear guide, despite the overall weak demand and peers' aggressive pricing in 2025, our shipment volume still has more than 20% growth. We also have 27% revenue growth in Q3 of 2026. We have increased our capacity utilization rate from 20+% last year to 40+% currently, and expect to reach 50% by the end of 2026. When we have 20% utilization rate, GP margin is around 10%. 50% utilization rate GP margin is around 30%.
Ivan Tsao: Even 30% GP margin is lower than our existing pneumatic business, we use the same sales team to do cross-selling pneumatic and linear guide without too much additional OPEX. Linear guide business won't be a burden to our operation from 2027. Our product quality is superior to our Taiwanese competitors and our pricing is lower. But we missed the best timing entering linear guide market. We also missed cost localization in 2020. Our current sales strategy is to enhance our brand image and just compete with Taiwanese and Japanese peers. After achieving a certain brand image within one to two years later, we will design additional new specs to reduce our production cost and selling prices to compete with local China players, continuously improve our utilization rate, enjoy better fixed cost leverage, and implement another aggressive pricing to compete with all the peers.
Ivan Tsao: When we have 80% utilization rate, gross margin is around 40%. It can improve our consolidated OP margin. When the utilization rate is higher than 80%, we will consider changing the current two-shift operator working system to three shifts to increase equipment working hours and enjoy better fixed cost leverage. This will give us the opportunity to implement more aggressive pricing strategy, further to compete with all the peers and accelerate our market share in coming years. We expect we could have around RMB 3 billion revenue from linear guide in around 10 years. Furthermore, most of the linear guide peers also produces ball screw, and the pricing of ball screw has significantly increased in the past few months. As we know, although the linear guide peers have extended their delivery time, the price has only been raised for smaller customers and selected items for a few large customers.
Ivan Tsao: Pricing is still not been raised, obviously, in the past couple of months. Even we are happy to see peers raise their selling price and increase the pricing difference with Airtac, which we can convince more customers buy more linear guide product from Airtac. We have third business, electrical controller. It's a very good business for Airtac with low CapEx and higher gross margin of around 60%. We began to launch this product three to four years ago and have had RMB 400 million revenue in 2025, and higher than 20% revenue growth year to date. There are another three serious new products will be launched by end of this year to support higher revenue growth from 2027. Total market cap of electrical controller is around RMB 100 billion with many different kind of component in China.
Ivan Tsao: We will pick up more higher yield product to develop them and launch them gradually. We expect we could have another RMB 3 billion revenue from electrical controller in around 10 years. For the development of the supporting semiconductors business, based on our strategy, we have not developed product to meet semi customers' demand by end of 2024. Due to those products can enjoy higher gross margin, that's around 70%, and also caused by China government localization policies. We began to develop semi items from early of 2025 and scheduled to launch them gradually from 2027. The current development progress is a little faster than expected, and we can gradually launch some items from Q4 of 2026. But based on past experience, it used to take around one year for a new product launch and have a better revenue contribution.
Ivan Tsao: Currently, we can find some product which were developed for other sectors in past, but still can be shared by semi customers currently. Such revenue has increased from RMB 5 million monthly in around one year ago to current RMB 13 million per month. We expect we could have around RMB 1 billion revenue annually from semi customers in around 10 years. We expect pneumatic industry can return to mid-to high single-digit growth in 2026, and also caused by government policies and potential labor shortage issue. We also expect the pneumatic industry can sustain low to mid-single digit growth for the whole industry. In Airtac, we could have additional 10% revenue growth from pneumatic products, plus the revenue contribution of linear guide and electrical controller. The shipment in H1 of the year exceeded our expectation and maintained a stronger year-on-year growth.
Ivan Tsao: We also have increased our CapEx budget in this July to around TWD 3 billion for the whole year of 2026. Even we are optimistic about the market demand in 2026, due to the short lead time of the pneumatic industry, we still provide guidance for 2026 based on a conservative basis. We maintain our guidance for 2026 to achieve a revenue growth of over 20% in RMB terms. It will be higher revenue growth rate when based on TWD terms. If we had over 20% revenue growth, our OP margin guidance will be around 34%. We have generated free cash flow for years and also have increased our cash dividend payout ratio from 55% in 2025 to 65% in 2026. It still could be higher in coming years. It is my briefing. Should you have any further questions, we can discuss it. Thank you.
Ally Chen: Okay. Thank you, Ivan. I already see one hand raised. Iris, please go ahead.
[Analyst] (Deutsche Bank): Oh, hi. Thank you very much for taking my question. This is Iris from Deutsche Bank. I have got a few questions. First one is on the, I guess, the outlook. Thanks for somewhat guidance for 2026. Do we have a top-down guidance for 2027, if possible?
Ivan Tsao: Just late of the October currently, and lead time is short, so maybe we will give our 2027 guidance in later 2026 or early 2027. It is better for the market reference. Basically, what is based on our current expectation, we expect pneumatic industry still could be low to mid-single digit growth in 2027, and we could have additional 10% revenue growth. Higher than industry growth is the best case of our business.
[Analyst] (Deutsche Bank): Understand. Can Ivan give us a flavor on how October is looking like? No precise numbers is fine, just in general, the trend.
Ivan Tsao: Yeah. Basically, the average of the daily shipment in October monthly is higher than past 3 months, but the less working days in October caused by the national holidays. The monthly revenue numbers still will be lower than past 3 months.
[Analyst] (Deutsche Bank): Okay. But we don't have a somewhat insight into the year-over-year growth rate?
Ivan Tsao: Yeah. Basically, we have total market. The base of the monthly revenue in Q4 2025 is higher than regular seasonality. Our monthly revenue growth rate in this Q4 will be lower than first 3 quarters of the year.
[Analyst] (Deutsche Bank): Understand. Then maybe just on linear guide, because I think if I got it right, the revenue growth is 27% in Q3, and the shipment volume sounds like it is a bit lower at 25%. Does it mean that we have raised the price for linear guide?
Ivan Tsao: No. Basically, the shipping volumes were 25% in 2025, and revenue growth rate is 27% in Q3 or first three quarters of 2026. 25% is shipping volume growth in 2025. 27% is revenue growth in 2026.
[Analyst] (Deutsche Bank): Understand very clear. We basically have not raised the price either for the linear guide or for the ball screws, despite the price increases from the competitors?
Ivan Tsao: Yeah. To convince more customers buying Mega from Airtac, we still keep stable pricing to support our customers and potential customers.
[Analyst] (Deutsche Bank): Understand. The other question is on just electronics and outlook. Because I recall that 10 years ago when Apple had their 10th anniversary of the iPhone launch in 2017, we had very strong revenue growth from the electronics or electrical sector, in Q3, so around the launch of the iPhone X back then, I think. In general that year, delivered a very strong growth of over 40%, after already a very strong 30% growth in 2016. Now 10 years from that time, we are now going to have the 20th anniversary, and the industry is basically talking about some big spec upgrades. Just based on your experience, how long is the lead time for us to get, say, related orders and sales? Because I understand that our sales is more related to CapEx.
[Analyst] (Deutsche Bank): Is it right to presume that if, say, Apple launches a new product in September next year, then we will see some orders for the related capacity in maybe March, April time? Then maybe if the sales volume is good, then we will see a further boost in September or October time, if that's the timeframe generally we should think about. Feel free to correct me if I am wrong.
Ivan Tsao: That's basically smartphone customer demand used to be around three to six months previous to their launching dates. Your express is correct.
[Analyst] (Deutsche Bank): Okay. Understand. Within that double-digit growth targets for the electrical department, in 2027, then maybe how much is the growth for smartphones and the traditional electronics, and how much is more AI-driven, broader electronics? Do you have a rough kind of split? Also expectation in terms of the growth.
Ivan Tsao: Yeah. Basically, smartphone revenue is around 25% to 30% of our electronics revenue. It is difficult to quantify how much of the revenue growth contributed by smartphone related or AI related, because so many customers, they not just support AI or smartphone individually. Maybe they produce so many different kind of product in their operation. We expect we could have double-digit revenue growth from electronics in 2027, mostly caused by AI related devices demand still could be good in 2027. Just what you mentioned, 2027 could be 20 year anniversary for Apple, and so many customers say maybe they will launch some new spec in 2027, and it is good for new demand. So we expect we could have double-digit revenue growth from electronics in 2027. But it is a little difficult to quantify the contribution for AI smartphone or another electronic component individually.
Ally Chen: Okay. Iris, I think there are several participants raised their hands. Maybe we go to them first and then come back to you if you have more. Okay. Next we have Ming. Ming, please go ahead.
[Analyst 1]: Hi. Thank you, Ellie. Hi, Ivan. So I also have a few question. First of all, since you already see the battery orders slightly slowed down recently, in your guess, in Q4 and next year, do you think the battery sector's orders could decline on YY basis or it still grows, but just at a lower growth rate?
Ivan Tsao: Just what you mentioned, we still have to observe for next couple of months because the new policies just announced by government, and maybe players or customers still have to observe the following situation. Even our battery revenue was declined by 10% in this September, but it is around 20% growth in October. So it is still too early to tell the demand trend of battery in 2027 currently. Still have to observe.
[Analyst 1]: Got it. My second question is regarding on the margin trend. In Q3, your OP margin declined QOQ, that is mainly because you have the salary hike in Q3. In the past, usually you will spend a few quarters to absorb the salary hike and gradually to recover your margin trend. In your view, next year, what could be the more reasonable GP margin or OP margin level, if the demand continue to be strong in 2027?
Ivan Tsao: Yeah. Basically, once we have 10% or 15% revenue growth in 2027, and the raw material cost still in or lower than 5% raised year-on-year, maybe we still could sustain our gross margin to be around 50%, five zero percent, and OP margin still could be higher than 34%. We still have not given the guidance for 2027.
[Analyst 1]: Hmm. Thank you. My last question is related to semiconductor-related orders. Could you give some colors regarding the sales contribution from semi this year, and what is your expectation for its sales contribution in 2027?
Ivan Tsao: We will have more than 100 million RMB revenue from semi customers in 2026. It is still too early to tell the revenue number for 2027, because it depends on how fast of the customers give orders to Airtac and what is the volume orders volume for Airtac. Basically, it should be higher than 150 million RMB, but we have not given any exact number of forecast to the market.
[Analyst 1]: Okay. Just think.
Ivan Tsao: What I mentioned, we have had TWD 13 million monthly in 2026 year to date.
[Analyst 1]: Hmm. Okay. Thank you, Ivan. And thank you, Ellie. These are all my questions.
Ally Chen: Okay. Thank you. Next we have Kechi. You can ask questions.
[Analyst 2]: Hi, Ivan. Kechi here. I just want to understand the Q4 utilization. You said you increased the utilization in the Q4. Why do you do that? I just want to understand the logic behind it. Thank you.
Ivan Tsao: Okay. First one, the electricity expenses hourly rate is pretty high, even around additional 1.5 times higher than regular time. Basically, we just kept our shipment could be smoothly in Q3 and will not increase too much of our inventory level. But when the hourly rate, the electricity expenses hourly rate, turn to very regular from October of the year, we used to increase our utilization rate around 1 to 2 months earlier than our peak season. Basically, our Q4 utilization rate used to be higher than Q3. What we mentioned, our current inventory turnover days, just around 110 days. It is not healthy, it is too low. It is better to keep the turnover days to be around 130, 140 days. It is good for our production efficiency and support customers' demand smoothly.
[Analyst 2]: Okay. Thank you.
Ally Chen: Okay. Thank you. Next we have Jason. Jason, please.
Jason Lu: Good afternoon, Mr. Ivan and Ellie. This is Jason Luo from First Capital. The first question, I am curious about the Q3 effective tax rate. It looks like almost 29%. Is that because one-time effect and for the full year and the Q4, could we expect it back to maybe 21% or 22%?
Ivan Tsao: Basically, we increase our cash dividend payout ratio and most payout fund contribution from our China subsidiary. When we want to remit the profit out of China, we have to pay additional 10% withholding tax. Basically, we prepared to increase our payout ratio in 2027. We had to accrue a little higher withholding tax rate in H2 2026. We have a little higher effective tax rate in H2 2026.
Jason Lu: Okay. The second question is about the cost of goods sale. We see the material price, like aluminum drop down in Q3. Could we expect in Q4, we have product mix accelerate and utilization rate goes up and the lower material price, could we expect the GP margin in Q4, in 2027, it will be better and better?
Ivan Tsao: Basically, all of our aluminum cost, even raw material cost, was procured from local China, and the cost could be a little different from international pricing. As we know, the aluminum cost in China, in Q3, still have not declined. Basically, raw material cost is still in high level currently.
Jason Lu: Okay. Thank you. My last question is about the end user demand. In H2 2026, we see the textile machine and general machines, they have double-digit growth year-on-year. In 2027, in addition to the auto, energy, and electronics, could we see other end users keep the double digits year-on-year growth in 2027?
Ivan Tsao: Yeah. Basically, it still depends on China government subsidy policies, and also depends on different provinces have different fund situation, then also will affect their subsidy policies. Basically, we could base on the China government. They try to do more industry upgrading and intelligent manufacturing, and also good for those traditional demand from subsidies. In addition, in past, some traditional customers, they expand their overseas capacity because US government have some additional tariff policy for China players. But from Q2 2025, most global countries also have suffered tariff policy from government, and we have seen some customers, they back to China, expand their capacity again, especially for those traditional industry customers. Basically, we expect those traditional demand or revenue growth rates still could be double digit in 2027, including machine tool, general machinery, packaging, or textile.
Jason Lu: It is very helpful. Thanks for answer, Miss Ivan.
Ivan Tsao: My pleasure.
Ally Chen: Okay. I think there is no queue in the line, so maybe let me ask my questions. I want to come back to the iPhone, because iPhone will launch a non-foldable new model in H1 next year. Ivan, like you just mentioned, there might be a need for more machinery, like 3 to 6 months before the product launch. If we think about the timeline, how should we think about it to contribute to our orders? Would it be helpful for Q4 this year or Q1 next year?
Ivan Tsao: Yeah. Basically, our revenue from smartphone customers was declined by single digit in H1 2026, but it is around 26% growth year-on-year in Q3. Maybe some of those product scheduled to launch in H1 2027. Such capacity have began to deliver in Q3 already.
Ivan Tsao: How the demand in Q4 will be still depends.
Ally Chen: Mm-hmm. Okay. Maybe that is one of the cause for stronger daily shipment in October, or any other factors, because Q4 typically is a lower season, but daily shipment is still improving MOM. What are possible factors driving that?
Ivan Tsao: Basically, except auto was not very high growth rate in October, so many sectors demand still pretty good. Smartphone, excuse me. Smartphone demand or smartphone revenue in October was lower than Q3. It just flattish month-on-month year-on-year. So basically, maybe we have pretty good revenue growth from electronics, and mostly still contributed by other electronic sector.
Ally Chen: Mm-hmm. Understand. Okay. I see Jason raise hand. Jason, please go ahead.
Jason Lu: Hi, Ivan. Thank you for having my question again. I would like to know, some clients move their manufacturing bases or say, they build new manufacturing bases overseas, out of mainland China. In your own opinion, what do you think is a positive effect for Airtac itself or is a negative effect in the long term? Thank you.
Ivan Tsao: Yeah. Basically, once customers have existing capacity in China and expand additional capacity out of China, most of their equipment supply chain still comes from China, because maybe customers cannot find any countries with such high efficiency and low cost for the equipment supply chain. So from 2018 or 2019, the trade tension between US and China, so many customers, they set up new capacity in non-China areas. Most of the equipment supply chain still came from China, but pneumatic is a very upstream or front end of the equipment component. We just deliver our pneumatic product to the equipment maker customers who is located in China. And this equipment maker made a whole set of equipment and export to non-China countries to support such non-China expansion. And most such non-China expansion could be new equipment. So it is good for Airtac.
Ivan Tsao: So we say trade tension between US and China, maybe Airtac still could be a beneficiary of such overseas expansion.
Jason Lu: Thank you, Ivan. It is very helpful. Have a nice day.
Ivan Tsao: You too. Thank you.
Ally Chen: Okay. Thank you. Ivan, I have another question on linear guide. How should we think about, I know we do not give out linear guide guidance, but how should we think about this upcycle? Would you think the linear guide upcycle will continue into 2027, like the pneumatic? Also, how do you think we can grow? Just a very rough direction would be fine, for linear guide in 2027.
Ivan Tsao: Yes. As we know, even we just compete with Taiwanese and Japanese peers currently, we still will consider to compete with local China players in 2027. For Airtac linear guide revenue, we expect we could have more than 20% growth year-on-year in 2027, and it still could be better. Yeah.
Ally Chen: Okay. Keki, I see you raised your hand. Please go ahead.
[Analyst 2]: Hi, Ivan. Coming back to the question on competition, you earlier said that you see selective competition in the market. Can you elaborate more and share with us about competition? Thank you.
Ivan Tsao: Competition in pneumatic market still could be very limited because pneumatic still is considered a big player, always will be good. Competition environment in China pneumatic market still will be SMC, Airtac, and Festo. Festo is a private company. Maybe they are a little conservative. Pricing leaders or competition still will be SMC and Airtac, and maybe better for Airtac, SMC, both keep peace with each other. It is better for each other. Basically, competition in China pneumatic market still pretty rational or reasonable. What I mentioned, there still could be selective competition just in linear guide market, because demand is better, it is true, but still not strong enough to let all the peers or most of the peers raise their selling price currently. Even we have heard some pricing hike from some peers, but as we know, just selective pricing hike from linear guide market currently.
Ivan Tsao: We are also happy to see peers increase their selling price, it will make Airtac a little easier to convince more customers to linear guide business with Airtac.
[Analyst 2]: The other question is on auto. Because the Chinese auto is not doing well, right? Going into 2027, do you still expect growth in the auto segment, or the auto is going to turn flat or negative into 2027?
Ivan Tsao: Basically, most of our auto revenue growth rate could be coming from share gain. Even the overall demand is not good, but our market share in China auto demand just around 10%, much lower than our China pneumatic market share, 30%. So basically, we still can, through share gain, to sustain double-digit revenue growth from auto industry in 2027.
[Analyst 2]: Back to battery again. Sorry, I missed the part earlier. What is the new government restriction on battery?
Ivan Tsao: There are not some new regulations. Players have to achieve the basic capacity utilization rate, then can be allowed to expand new capacity in domestic market. Maybe government do not want battery industry suffer another overcapacity again, just like 2020-
[Analyst 2]: Yes
Ivan Tsao: till 2024.
[Analyst 2]: Yes.
Ivan Tsao: So we say it is good for the industry development in mid to long term, but-
[Analyst 2]: Okay
Ivan Tsao: we have to suffer a little lower growth rate, even flattish in short term.
[Analyst 2]: Okay. Have we finished suffering? Because the slowdown in the battery sector has started since May, right? It continued into September, and you say it bounced 10%. 10% October is year-on-year or month-on-month or QOQ?
Ivan Tsao: 10% decline in September is month revenue, year-on-year base.
[Analyst 2]: October is up 10% year-on-year.
Ivan Tsao: 10% decline year-on-year in September.
[Analyst 2]: October?
Ivan Tsao: October, high 15% growth currently. We say, normally lead time is short, so it needs to observe more than 2 to 3 months.
[Analyst 2]: Okay.
Ivan Tsao: Just predict the demand trend.
[Analyst 2]: Okay
Ivan Tsao: will be.
[Analyst 2]: In October and December, we see it back to growth or stabilization, at least we know that the whole sector is clean up, and then we are moving back to the normal trend again. Okay. Got it.
Ivan Tsao: Yeah. Maybe government do not want those smaller players or without too strong competitive players to partner this industry development.
[Analyst 2]: Yes. Do you see OEM buying directly from you now? Because some of the OEM, they are starting to make their own battery, right? Xiaomi, Li Auto, and a few others, they are all making their own battery. So you see them coming to buy from you as well?
Ivan Tsao: Yeah. Basically, we can say all the battery manufacturer, directly or indirectly, they are our customers.
[Analyst 2]: Okay. Got it. Okay. Yep. Thank you, Ivan.
Ivan Tsao: My pleasure. Thank you.
Ally Chen: Okay. Next, we have Kenny in the line. Kenny, please go ahead.
[Analyst 3]: Hello. Hi. Thanks, Ellie. Hi, Ivan. Thanks for taking my question. I have two now. First, I would like to ask if you can give us some color on the Q4 seasonality in terms of revenue, direction, and margin. I think in the past two years, you did quite well for quarter-on-quarter expansion, in terms of revenue and sustained margin or even better. So I would like to ask if you have any comment on the Q4 this year.
Ivan Tsao: Yeah. Basically, normally have seasonality. Q2 always is the peak season, then Q3 used to be around mid to high single digit decline quarter-on-quarter. Q4 also could be low to mid-single digit decline quarter-on-quarter again. But Q4 of 2025 is abnormal because US government announced tariff policy in Q2. Some customers, they postponed their demand and observed the development of the tariff policy. Then around four to five months later, starting from last September. So many customers, they began to pull in on their demand. So we have very strong revenue number from September to December of 2025, and also made the Q4 of 2025, enjoyed 5% revenue growth quarter-on-quarter. It is abnormal. And used to be low to single digit decline. It is just normal seasonality quarter-on-quarter in Q4.
Ivan Tsao: This Q4 2026, based on current customer's feedback, we expect it could be flattish quarter-on-quarter in Q4 2026, and better than normal seasonality in past.
[Analyst 3]: I see, very clear. Thanks, Ivan. By the way, because right now linear guide has become more and more important as percentage of your revenue, can you give us some color on Q4 if possible? Yep.
Ivan Tsao: Basically, we have not, maybe we don't want to give any linear guide guidance.
[Analyst 3]: Okay. Just for reference, correct me if I'm wrong, I heard that linear guide for some use cases such as high-end precision application has become tighter and tighter. Do you have any similar feeling about that?
Ivan Tsao: Still depends on different spec, have different situation. Basically, we said demand is better and better in past two to three quarters. It is true. Still not strong enough as previous to upcycle 2021 or 2017. Still not as strong as those two upcycle in past.
[Analyst 3]: I see. Thanks. Sorry, if I may squeeze one more last. Regarding the semiconductor, I would like to know if there are more customers you are verifying your products or you will stick with maybe one or two of the most important ones to develop your semiconductor first?
Ivan Tsao: We have so many local China semi company to be our customers because so many semi company have some pressure from government, local production, local procurement. Just what you mentioned, we just had around RMB 5 million revenue monthly in 2025. But the same product portfolio, the monthly revenue have increased to be around RMB 13 million in 2026. So, so many local China semi customers buying pneumatic from Airtac. The procurement percentage also have been increased from customer side.
[Analyst 3]: I see. Last time you were mentioning that major mainly for back-end first, but do you have any progress or see some development on the front-end side?
Ivan Tsao: Yes. Basically, we have had, yeah. Maybe it is better not to talk too much about this new business of Airtac. Yeah.
[Analyst 3]: Sure. Okay. Thank you so much, Ivan. Thank you, Ellie.
Ivan Tsao: My pleasure. Thank you.
Ally Chen: Okay. Thank you. Ivan, we are running out of time, but I see Iris still in the queue. Do we have more time to take one or two, maybe?
Ivan Tsao: Yes, no problem.
Ally Chen: Okay. Iris, please go ahead.
[Analyst] (Deutsche Bank): Thank you very much, Ellie, and thank you very much, Ivan. Just two very quick ones. The first one is the 27% year-to-date revenue growth for linear guide. Is that in TWD or in RMB terms?
Ivan Tsao: RMB terms. Once based in TWD terms, it could be much higher.
[Analyst] (Deutsche Bank): Understand. Secondly is just on the product availability, because I assume this is not a problem for you. Just for the overall market, not referring to any of the peers, just the market conditions. Across the, say, three products, meaning like pneumatics, linear guides, and ball screws. Maybe can you put it in order and which products are maybe relatively more of shortage in the market and which one is probably not suffering as much product availability issues?
Ivan Tsao: Basically, it is better not to comment other peers' operation situation. We can support our customers. Their demand for pneumatic could be supported by Airtac in three to five days, and linear guides be in a month. We also heard from market, some investors or customers said they buy linear from specific peers. The lead time have been increased. We are happy to see that because maybe peers will raise their price a little aggressive when they have stronger demand or longer lead time. It is good for Airtac, basically.
[Analyst] (Deutsche Bank): Very clear. Thank you.
Ivan Tsao: For you.
Ally Chen: Okay. I think we are approaching the end of the call. Ivan, do you have any closing remark?
Ivan Tsao: I am good. Thank you.
Ally Chen: Okay. All right. Okay. Thank you, Ivan. Thank you all for joining the call. Please vote UBS in the Extel survey. Thank you. Let us conclude the call here. Bye-bye.
Ivan Tsao: Thank you, Ellie, and thank you everybody. Goodbye. And take care.
Ally Chen: Goodbye
