BizLink Holding Inc

TWSE:3665

Earnings Call Transcript

[Mike Wang, executive]

Good afternoon, everyone. Welcome to BizLink's Fourth Quarter 2024 Earnings English Conference Call. This is Mike Wang, IR Manager. I am joined by Roger Liang, our Chairman; Felix Teng, our CEO;  Florian Hettich, our COO; and Charles Tsai, our CFO.



Our results were just released and are available on our IR website where you can download the latest earnings release materials as well as access them from MOPS. This 1-hour call will begin with Charles to highlight our financials before we switch to Florian to highlight our operations and then end with Felix to highlight corporate-wide items. We will then move to Q&A before concluding this call. You may type in your questions now, and we will answer as many of them as possible. We will not provide any quantitative forward-looking comments. 



Before we continue, please kindly be reminded that today's discussions may contain qualitative forward-looking statements based on our current expectations, which are subject to significant risks and uncertainties and may cause actual results to differ materially from those contained in these qualitative forward-looking statements. We are not obligated to update these statements, which are to be used for information purposes only. Please refer to the safe harbor notice in our earnings deck for more details.



I would like to remind everyone that today's call is being recorded. This recording and these prepared remarks will be uploaded onto our IR website within 24 hours after the conclusion of this call. We sincerely appreciate Yuanta Securities for hosting today's call.



With that, I will turn the call over to our CFO, Charles.

[Tse-Shen Tsai, executive]

Thank you, Mike. Let me begin by talking a little bit about our product sales.



DataComm sales rose 35% year-on-year last year as high-performance computing sales rose 48% year-on-year, while peripheral sales continue to fall, dropping 18% year-on-year. Electrical appliance sales rose 18% year-on-year, given new product launches, some of which are continuing to be rolled out this year. Industrial sales rose 4% year-on-year as capital equipment sales rose 44% year-on-year. Health care sales rose 8% year-on-year. Factory automation sales fell 31% year-on-year and energy sales rose 63% year-on-year. We are delivering on our various project wins with more incoming this year and next year. 



Looking at HPC first. Our data solutions sales grew 20% year-on-year last year as shipment of our high-speed external data cable products begin to visibly grow in the second half of the year, while our power solutions sales nearly doubled as shipment of our high-power cable and connector products grew throughout the year. Data centers are very hungry. Power is evolving at a much faster rate than data, overcompensating today's HPC construction. Data solutions accounted for 52% of total HPC sales versus a peak of 74% 2 years ago. Our power business, [indiscernible] which stretch into other segments, has grown and has definitely outgrown our data business. 



Looking at capital equipment. We continue to benefit from the outsourcing trend of semiconductor production equipment toolmakers, electrical distribution subsystems, including control buses, power distribution unit, and system enclosures. Our box build and system integration activity surged last year, given multiple IP-intensive technology transition at our SPE customer as we highlighted last quarter. The E-System cable connection deal that closed late last year marking efforts. And while our activity are currently focused within capital equipment, we're seeing similar projects emerging in health care, electric vehicles and even in general industrial areas. 



We continued our growth momentum, achieving sequential sales growth for the fourth consecutive period, while gross margin still a slight quarter-on-quarter dip due to typical year-end seasonality. Our product mix stayed favorable and cost control remained firm. OpEx averaged TWD 2.0 billion for the 12th straight quarter with OpEx to sales dropping below 15%, reflecting improved scale and potential for further operating margin expansion.



Nonoperating income was positive, driven by foreign exchange gains. Our effective tax rate declined due to increased tax shield on financing optimization, a greater profit share in low tax jurisdiction and a successful turnaround of previously loss-making entities. This structural enhancement will continue to drive long-term tax efficiency. 



Earnings per share EPS reached TWD 8.28, marking a new record despite the ongoing conversion of outstanding ECBs, which are now nearly fully converted. Our strategic initiatives remain on track to support both sustainable profitability and operational efficiency.



On balance sheet and cash flow. BizLink's focus has always been on the long-term and is less on specific near-term numbers. We seek to support growth alongside our established brand name customers, many of whom are leaders in their respective industries, and to realize the position of high start-up and industry newcomers. We're leveraging key megatrends such as HPC and capital equipment, which accounted for nearly 29% of total sales last year. 



Financially, our goal is to ensure sufficient talent and capital resources to enable this growth aspirations. This includes building and acquiring this capability and capacity needed to serve customers effectively while aiming for optimal cash flow efficacy. We continue to generate cash and have existing unused debt facilities. Our 2025 cash needs are well accounted for, but we will be on the lookout for strategic opportunities to accelerate our development.



As we expand our offering and become an instrumental part of our customers' road map, we aim to grow our balance sheet sensible, maintaining the right capital structure to support sustainable and profitable growth. Future-facing customers seek financially sound partners like BizLink. 



We will continue to be a successful incubator of newcomers and new applications, utilizing our growing presence in key parts of the world where everything is happening. Our Silicon Valley Fremont headquarters continue to be a strategic location in our global footprint. Speed and agility are key, and we're showing to customers what it means to be closer to them, to service them faster and better to gain long-term market share. Some opportunities take time, and we are glad that we're starting to be recognized for it.



In the face of macroeconomic and geopolitical uncertainty, especially with the challenges and opportunity of [indiscernible] 2.0 for the next 4 years, sustaining financial flexibility and resilience is vital. We're better positioned than we used to be via our substantial diversification efforts, including strengthening our global footprint and customer mix to mitigate the impact of shifting trade dynamics.



We have enhanced operational efficiency to streamline working capital and operating cash flow. This enabled us to deleverage and reduce interest expenses. While we may need to fund future growth from external sources, given the promising growth opportunity in various markets, we will do so responsibly. We aim for our capital structure to stay consistent with historical debt ratios.



We maintain a cautious stance amid prolonged volatility with no clear mid- to long-term direction as various macroeconomic and geopolitical factors influence the landscape. We're also continuing to move towards having smaller open currency positions. We seek to use as much local financing as possible to rationalize and to add resiliency to our financial structure. This strategy allow us to mitigate risk effectively while supporting our global operations.



On a bigger picture, while we expect HPC and capital equipment remains strong throughout 2025 and potentially in 2026 as well we're starting to see green shoots appear in factory automation, such as the trial could be here. Auto remains challenging, but we're refocusing our resources toward autonomous driving so that we're prepared for this growth. Health care will likely continue to grow as world population further age.



Green shoots are also emerging from our exposure in Europe and for IMBG. IMBG strength in 2023 allow TDBG to continue to spend to prepare for the next up cycle which we saw last year and will continue to see this year. IMBG was very good about leaning down quickly to adjust to its down cycle. They continue to make progress in various product and market development efforts. IMBG look to bottoming out now and manufacturing PMI in Europe are promising as they point to a slow ongoing recovery.



IMBG's TMP business unit, which is where our customers focus to solve their difficult design challenges is quickly turning out to be a hidden gem. It has been selectively gaining market share and we're growing its global presence. Its capability are slowly expanding beyond capital equipment, health care, growing stock and industrial special and gradually making its way into more product areas. It has since become IMBG's largest business unit and is instrumental in some of our mega trends.



We just announced our latest tuck-in deal. We will be acquiring a 100% stake in ALPHA Elektrotechnik for an enterprise value of CHF 24.3 million. ALPHA offer high-voltage cable solution for high-speed trains, intercity trains, local trains and locomotives. ALPHA recorded review sales of CHF 11.1 million in its latest fiscal year and a rolling stock interconnect market from PFIFFNER Group in Switzerland. This acquisition is expected to close in the second quarter of 2025 and will be financed through an all-cash transaction.



The disconnector business under ALPHA is not part of the deal. We will leverage our collaboration with ALPHA to recognize and realize synergy in technology and new application development as well as in market access development. This deal is expected to be accretive from day 1. The attractiveness of the rolling stock interconnect market is underscored by its robust growth prospects, technological innovation and strategic consolidation with only a few known and reliable solution providers, including BizLink. We wholly welcome the ALPHA team as self BizLinkers and look forward to their contributions.



Our CapEx plan for this year marked a new high as we prepare for growth. We continue to rationalize our footprint in China, both in Changzhou and Xiamen and selectively expanded elsewhere, including in Southeast Asia. We look to spend on equipment, especially for HPC and capital equipment and we'll be updating our IT system with a particular focus on digital transformation effort.



Florian will now provide update on our latest quarterly operational takeaways.

[Florian Hettich, executive]

Thank you, Charles. So I will elaborate first on the industrial segment. So semiconductors are the core of HPC, humanoid robots and autonomous driving. As you can see from this chart, this is how we view our long-term AI opportunity. It is an ecosystem that is interconnected and will gradually develop and evolve, supported by semiconductors as the overall foundation over the next few years.



We are upgrading our existing capabilities, and we are actively searching externally to fill in any gaps. We have multiple business units collaborating on these megatrends, and we are well-positioned to benefit from their growth. The next 1 to 2 years, we will only see increasing complexity in terms of landscape, technology and solutions and business models requiring not just speed and agility, a global footprint and resilience, but customer relationships and foresight.



Our efforts in capital equipment were greatly boosted by our speedy deal back in the early 2020, resulting in sales more than tripling from 2020 to 2022 before encountering a brief down cycle in 2023. Our expertise in rapid prototyping, new product introduction, high-mix, low-volume manufacturing and engineering and supply chain speed and agility reduces risks and accelerates time to market for our SPE customers whom are in their race on their own.



Our acquisition of Easys marks a step-up in our efforts to build our box build and system integration capabilities and capacities. We see strong opportunities to expand this business in 2025 and while demand trends for the second half are still evolving, we remain optimistic about future growth. Control boxes, PDUs and system enclosures are critical components in SPE tools, and this house, protect and regulate electrical, mechanical and fluid control systems ensuring reliability, safety and efficiency in mission-critical environments.



Control boxes serve as the command center for mechanical and electrical processes, controlling wafer etching, deposition and metrology, while PDUs manage electrical power to multiple subsystems in high-power environments, including high-precision wafer processing machines. System enclosures protect and organize electrical, mechanical and control components from environmental hazards, physical damage and electromagnetic interference. They are typically found in clean room environments.



The bulk of our box build and system integration business up until late last year was mainly in electrical distribution systems or EDS. We are looking to shift from being a simple assembler to becoming a strategic partner by not only reinforcing our NPI capabilities to raise exposure to higher complexity projects and expanding our global low-grade Class 10000 clean rooms capacities, but we are also expanding our exposure to fluid distribution system or FDS on the back of our Easys M&A as we seek to differentiate from low-value commodity assemblers.



We seek to show the SPE toolmakers proof of quality control, contamination prevention and advanced assembly expertise and aim to secure multiyear supplier contracts. There are also industries outside of the semis that need such capability and capacities. The key benefits of having a stronger NPI for more complex SPE projects include early involvement in product design and development, reduced time to market, enhanced process and supply chain control, increased engineering and system design credibility and higher margins and long-term contracts.



The key benefit of having Class 10000 clean rooms include that it enables entry into FDS, enhances capabilities for box build and system integration and it strengthens competitive positioning. These lower-grade clean rooms allow for preassembly and initial leak testing to ensure airborne particulates are low enough to prevent initial particle contamination before final purification steps in higher-grade clean rooms.



They can serve as a bridge to enter higher-value markets by enabling precision assembly, contamination control and specialized testing in Class 1 to Class 100 clean rooms without major upfront CapEx by implementing progressive cleanliness controls. Finally, whereas EDS can be around 40% to 50% of total equipment build cost, FDS can be around 50% to 60%. FDS are much more complex due to precision contamination risks, dynamic control requirements and material compatibility issues.



Now coming to IT and DataComm. The HPC landscape is evolving rapidly, driven by massive CapEx, hardware innovation and power efficiency constraints. AI compute expansion is limited by energy supply rather than chip availability and bandwidth speeds, pushing alternative compute architectures.



Hyperscalers dictate AI infrastructure standards, which will have GPUs and ASICs coexisting. Those edge computing-driven applications with direct line of sight with their own computer will beat those that will be cloud-based. If you think of a computer as an engine, then you will not have the best car at the race if the car does not have the best parts. 



Our data and power solutions are platform agnostic and hyperscalers prefer financially solid suppliers with a full product portfolio and those with a long-term road map due to high switching costs. No single winner will dominate entirely, but direct Tier 1 relationships with hyperscalers will ensure our place within their growth plans. The AI boom is far from over. It is simply transitioning into a multifaceted market structure.



Our Tier 1 supplier relationship with leading hyperscalers is a key part of our strategy, giving us an early advantage as one of their partners. Our efforts in HPC were boosted by the launch of AACs from 2019 and by INBG data center business from 2022, with sales more than tripling from 2020 to 2022 before seeing a brief down cycle in 2023.



Data Solutions sales grew more than 4x while power solutions more than doubled during that time. Although Data Solutions sales in 2024 have not yet recovered from 2022 highs, the bias exiting 2024 is very strong, and we may bridge the remaining gap this year. Power Solutions sales grew from 2019 to 2024, more than doubling from 2022 to 2024.



Our first-mover advantage in AECs and power solutions positioning, agility in NPI and strategic industry positioning and market awareness are key competitive advantages. We expect to see high growth here from the 2023 lows and are working on next-generation platforms and designs with customers and supply chain partners, contribution for which will be for 2026 and beyond.



Our HPC solutions portfolio does not just stop at current generation product. In data, we will continue to develop faster high-speed AACs, DACs, AECs and seral cables all of which have mid- to high level of customization given the wide variety of rack specifications. We will also develop co-packaged copper and co-packaged optical for future high-speed connectivity as copper's favorable cost performance ratio versus optical will reverse at 448G per lane. 400G is the current mainstream bandwidth, and they are useful for switch to server, switch to switch and accelerator to accelerator interconnect. 



800G may start to see some volume by the end of this year, meaning 800G may be the mainstream speed for 2026 and 2027. Power consumption is still much lower than optical, continuing to favor AECs versus optical. The number of lanes will be aid at 112G per lane, showing a relatively slow progression in terms of data evolution. 800G can still be multiplexed to reach the 1.6T, which is more than enough for the majority of today's AI high-end demand.



In power, the requirements are moving much faster in order to support the latest and greatest computing platform. If you just look at the subsequent iterations of NVIDIA GPU platforms, the anticipated AI GPU peak rack density increases from 130 to 250 kilowatt for the Blackwell, 250 to 900 kilowatts for Blackwell Ultra and Rubin and then 900 to over 1,000 kilowatts for the Rubin Ultra. The average rack density used to be only 8.2 kilowatts back in 2020. NVIDIA's global data centers were consuming power equivalent to that of individual nations in mid-2024. 



Supplying enough power to our customers' rack is a challenge. Standard power distribution architectures are struggling to keep up with the rising demand of AI accelerators. Traditional AC power distribution introduces conversion losses. As a result, we are developing high-voltage DC to reduce conversion steps and minimize transmission losses, leading to efficiency improvement, including moving to 48-volt DC architectures or even 400-volt DC for AI workloads.



Busbar power distribution provides high current, low loss power delivery. Liquid cooled busbars would further reduce resistive heating and improve power efficiency. Energy constraints could slow AI infrastructure expansion if power generation and distribution fail to keep up, but this is not the case with bandwidth speed. We will probably see more AI data centers being co-located with power plants, including LNG or nuclear powered ones and a shift towards self-sustaining AI energy ecosystems in the coming years, which is what one of our major customer is doing right now in the U.S.



Felix will now provide updates on our latest quarterly corporate takeaways.

[Chien-Hua Teng, executive]

Thank you, Florian. Yes, I will [indiscernible] quarter highlight here and also the business outlook. So SPE, semiconductor production equipment toolmakers are outsourcing noncritical tools to external vendors due to several reasons. Leading SPE companies are focusing on in-house R&D and manufacturing on their most advanced high-value tools. Less complex and lower margin subcomponents are outsourced to optimize capital efficiency and it enables them to scale manufacturing capacity without increasing internal headcount or CapEx investments.



Geopolitical uncertainties have driven SPE toolmakers to build more resilient regionally distributed supply chains. They are outsourcing noncritical subsystems to trusted manufacturing partners, especially to global vendors with footprint in Southeast Asia, Europe and North America to mitigate the risk of logistics disruption tariffs and export restrictions. 



They are under pressure to accelerate deliveries for advanced EUV, metrology and deposition tools and the outsourcing of non-differentiated subsystems allows their internal teams to focus on high precision high intensive innovations. Finally, SPE toolmakers are seeing higher materials and labor costs due to inflation and supply chain disruptions and engaging in outsourcing lowers their overhead costs, improved cost [indiscernible] and allows for more flexible cost structures in SPE tool product.



It's a win-win scenario for BizLink and our customers. The content and value upside in moving from more traditional cable assemblies and wire harness projects is sizable. Our bigger picture strategy is to gradually increase exposure to SPE toolmakers by positioning ourselves as a reliable assembly and then later expanding into system integrations and co-design. Our near-term strategy includes establishing and SPE and positive business for SPE tools, strengthen cash conversion and profitability controls and initially expanding into higher value-added system integration.



I would say we are moving further into this space right now. Our midterm strategy includes transitioning from assembly to partial design and integration, enhancing cash flow optimization while scaling growth and expanding our partnership for advanced SPE positive solutions. Our long-term strategy includes becoming a full-fledged strategic partner for SPE toolmakers establishing financial disciplines for sustain growth and achieving different through innovation and market position.



We have identified and are benefiting from what we have identified to be the low-hanging fruit within our general strategy. This involves low complexity BizLink, power and distributions and control panel opportunities within standard cleanroom environment. While we will continue to benefit from this in the near-term, we are progressing into what we deem to be more mid-tier opportunities, which involve medium complexity tools and chemical handling opportunities within past 10000 clean room environment.



We may eventually grab some high-end tools and this involves high complexity system integration and R&D co-design opportunities in plus 100 clean room. We'll also look at what our other business units can offer to our SPE toolmaker customers, including Cobot. This opportunity -- this outsourcing trend will likely accelerate over the next few years given the semiconductor equipment demand boom starting with the growth of HPC and then leading to growth in various edge computing-driven applications such as humanoid robotics and autonomous driving.



Global semiconductor manufacturing expansion driven by government-led initiatives and subsidies to build local production and supply chains and industry consolidation and efficiency optimization. We do not expect to see a reversal of this trend given leading-edge tool demand will likely stay robust for foreseeable future.



Export restrictions which are widely anticipated to escalate typically do not target noncritical subsystems. For buyers less natively sensitive countries and third-party suppliers are not in at hurting Western SPE toolmakers business and are not meant to be overly complex so to be easier to reinforce.



On the IT DataComm hub, AI infrastructure spending is currently being driven by economic, technological and geopolitical incentives starting or reversing this to mid, large disruptions or priority shifts periodic slowdowns and regulatory adjustments are still possible. With humanoid robotics and autonomous driving on the horizon, the chances for sustained high-level of investment in 2026 are high.



Eight lanes, 20G per lane currently support up to 5 meter, while 6 lanes, 224G is viable up to 2 meter, with cost reductions still possible. The outlook of for 3.2T in copper versus optical remains uncertain. Advances in compute cost efficiency could drive early adoption of CPO from 224G rather than waiting for 448G, especially in specialized high performance developments. However, widespread adoption is unlikely due to cost and serviceability challenges as CPO is better suited for specific use case with higher infrastructure demands.



The bulk of hyperscale environments may see a limited need for CPO and enterprise reduction of higher bandwidth beyond 400G, LNG appears minimal. AEC could stay the dominant solution longer than expected with ongoing advancements in copper-based, high speed data cables, pushing 800G capabilities to 7 meter. That said, AECs are not the sole viable approach.



As AI models scale, their power demands are rising at an accelerated rate, creating challenges for data centers and power infrastructure. High power interconnect solutions are vital for improving power efficiency and enabling the next generations of HPC platforms. We are working with industry partners on off rack solutions to address thermal constraints and efficiency concerns. Thus in rack approaches become increasingly difficult to sustain with power, with growing power requirements.



Moving power conversion and distribution outside compute racks may reduce the immediate need for certain components, but will drive demand for higher specification solutions. The expansion of data centers is expected to continue, presenting long-term growth opportunities for off rank our solutions.



We look to leverage existing tier one relationship with hyperscalers, existing strengths in high power and high speed intercoms and diversifying capabilities to hedge against industry shifts. This approach ensures gains across multiple industry trajectories. By instituting a multi scenario strategy, we ensure possibilities and minimal market presence regardless of how the AI compute landscape evolves.



The key to long-term success is not backing up a single AI chip vendor, but instead to supply the essential infrastructure that all AI players need, power and data connectivity. Only those with long-term staying power can offer and achieve this.



Now let me turn the call over to Mike.

[Mike Wang, executive]

Thank you, Felix, Charles and Florian. This concludes our prepared statement section. Now let us begin the Q&A section. Please type in your questions if you haven't already. I've received, some in chat and also some in the open chat as well as the direct chat, and, we'll answer as many of them as possible in the time remaining in the this is a 1-hour call. And for the first question, just let me read it in the interest of time.



It's coming from KGI, Tai Lee. Basically delivered strong HPC revenue growth in 2024 even without meaningful contribution from GB200 and with only limited contribution from ADC. Please kindly add more color on how the firm how we achieved such a goal. Was it mainly from market share win, new client penetration or content win? And for this question, I'd like to hand it over to Florian.

[Florian Hettich, executive]

All right. Thanks, Mike. Thanks, Tai Lee, for the question. So our HPC business has indeed done quite well as well as also the capital equipment business. If we just look at HPC, our computer platform, agnostic high-power and high-speed solutions both grew last year. And I think we shared a lot of color on them earlier in this call.



However, if you want a summary, I would say that this growth was a result of all 3 aspects: market share on the one hand side, new client penetration also, but also content win, which is probably kind of the same thing as the first one. However, this would not have been possible without a very, very close collaboration with our customers, providing them solutions through our high agility in development as well as in deliveries.



But also, we realize that our HPC exposure may be fairly one-sided right now in both terms like exposure in terms of computing platform, but also exposure in terms of customers' exposures. But we fully expect that we will be able, and we have our strong track record in being able to diversify over the time to even things out in that respect. So we are already seeing today fruits from our efforts in the current quarter. And hopefully, we can also share some of those details in the next call in 2 months' time.



Back to you, Mike.

[Mike Wang, executive]

Thank you, Florian, for the insight as well as from KGI Tai Lee for that question. Now for the next question, trying to take care of all the ones to talk about AI.



From Nomura's Kenny and Daiwa's Helen, I'm asking this question every quarter, I guess, which is fair given all the market news and rumors as of late. What changes does management team see the order receiving sales momentum for AI server products currently versus a quarter ago? Are they stronger, flat or weaker? And then the second question is, what's the implication of things like DeepSeek?



So for this particular questions, I'd like to hand it over to Felix.

[Chien-Hua Teng, executive]

In general, we haven't seen the momentum change much. Yes, some customers raised their near-term outlook while others are just lower. So the total spend is still there. And we see many power data platforms incoming and actually many I would say [indiscernible] we need to provide, and we need to develop with our customers. So overall, we see momentum still there.



And so DeepSeek OEM business actually see that -- we believe this consultation OEM model could indicate that lower training and may in fact contribute to increased demand of AI compute in the coming years. So OEM is like a high power [indiscernible] just continue to boom. People may think that we only rely on a few IC suppliers actually, we look at the whole AI industry, and we think that this actually is a good thing, more diversified EPS solutions and also increase the total volume. 



So AI [indiscernible] computer scale, the need for high-speed networking power and compute is likely to remain strong and advancing computing system through various stages from pre-training scaling to post-training scaling, and [indiscernible] scaling will likely require more computing power than less. So actually DeepSeek exemplify the approach to scaling. So in general, we think that actually that's a good thing to have more players into DeepSeek.

[Mike Wang, executive]

Thank you, Felix. And thank you to Nomura's Kenny and Daiwa's Helen for those questions. I'd like to address one final question from the direct chat on HPC. This one coming from CL's Shu-Yu. Many smaller cable connector suppliers have claimed that they're capable of manufacturing similar products for GB200/GB300 with likely lower cost. What's the competitive advantage of BizLink now as a supplier?



For this one, I'd like to hand it back to Florian.

[Florian Hettich, executive]

Thanks, Mike, and thanks for the question. I think we actually touched on this topic quite extensively during our last quarterly earnings call, both in the prepared remarks as well as in the Q&A section. But let me give you a brief summary. Many of those smaller competitors claim this, and they may eventually gain some market share at a much lower price because of their lower cost, but they work with the ODMs in a very limited product area. They do just not have the balance sheet to work on larger projects from the beginning as many do not launch their products until everything is specified. 



And also hyperscalers prefer solution providers rather than only product suppliers, especially those with a comprehensive portfolio and the road map. This is necessary to get into the hyperscalers and to be known as a partner for the hyperscalers. Many of these small competitors are not able to quickly service such high-caliber customers on a global scale as they have just limited production and service capabilities. So they oftentimes will win content in situations where the design has already been done and the specification is easy and just to copy and make, but there's less value add there.



Being a development partner, as I said earlier, this ensures and supports a fast time to market for our customers. This is highly valuable. Achieving this requires a very close collaboration, as already said, with the customers and very important is high agility and high speed in both areas, development as well as in delivery. So in my view, these are the key strengths and bring value to the table, and this is one of the success factors of our business at the moment. I hope that answers the questions.



Back to you, Mike.

[Mike Wang, executive]

Thank you Florian for the color as well as CL's Shu-Yu. There's 2 more questions from the direct chat, and then I'll hand over to the open chat area. For this next second to the last one, [indiscernible], any sign of recovery for industrial segment and non-semi equipment segment and auto segment.



For this one, I'd like to hand it over to Felix.

[Chien-Hua Teng, executive]

All right. So we have several categories within industrial. Capital equipment, which has now become the biggest category will continue to grow, and health care will slowly expand, and energy, even though right now it's a much smaller scale, we also see large scale. So factory and this is the largest category and we feel that there are signs that this business model sustainable recovery may take some time. Overall, our industrial sales have increased quarter-on-quarter for the first straight time in total sales and all time high is more outsize to come. The way that you find industrial business maybe different than ours. As for auto, automotive we stay more [indiscernible]



Back to you Mike.

[Mike Wang, executive]

Thank you, Felix, for the feedback on that one and [indiscernible] for that question. The last group of questions before we go into the open chat area. Actually, they also talk about, in general, what we're working on next. This is going to be from Nomura's Kenny, KGI's Tai Lee, JPMorgan's Bill, UBS's Ally and of course SinoPac's [indiscernible].



So the question, new end applications. Could you elaborate more on opportunities on humanoid robots and autonomous driving, which shall be the major products and content value in competitive landscape? Which application does the firm identify that could be the next big theme? After HPC and humanoid robots, what's your expectation on cable shipment in the next 5 years? What's your strength in gaining shares?



And this is the last one that's in English. What's your strategy to penetrate this market? Any difference between the U.S. and Chinese markets? And for this one, I'd like to hand it over to Roger.

[Roger Liang, executive]

We have another question here. Okay. So let us focus on the humanoid robot here since it's quite new here. So we have multiple areas that our 2 business groups could work on when it comes to humanoid robots. But some of you participating know that meaningful sales contributions will not occur this year, as in our opinion. And for the integration of electronic mechanical and power components into the functional subsystem may be needed. 



Certain components may need clean rooms, possibly 10000 or 100 during the production or assembly such as rosette, in my precision, they are truly uptight and high-performance-actuated. This humanoid robot will need to be charged to provide power, so meaning it will be stationary and docked at one point and it may use battery technology such as lithium-ion or solid-state battery or LFP, meaning the battery management system will be used. 



PCIe and low-speed Ethernet could be used for data communication. Miniaturization and the highly flexible cable are in our field house for high torsion, durability, and bendability. Silicon jack high-flex cable could be in the joint. High torsion of the durability and the bending cable will be needed in a wrist. Less so in the feet unless you need the robot to break dance. 



Finally existent industrial [indiscernible] will be instrumental. And we have all this in-house, and our strategic advantage, just like in HPC and in capital equipment, is that we can become the one-stop shop for humanoid robots. We will be a high-value partner, and we are working with some of the customers in this area on some of the early-stage projects, okay?



Now, back to the Mike.

[Mike Wang, executive]

Thank you, Roger, and thank you for those questions from that group of analysts. Now for the next question, I'd like to address the JPMorgan's Bill. Revenue exposure to IT and DataComm went up 20% in the fourth quarter '24 versus 26% in the third quarter '24, but gross margins dropped quarter-on-quarter. What factors pressured gross margin quarter-on-quarter decline?



For this one, I'd like to hand it over to our CFO, Charles.

[Tse-Shen Tsai, executive]

Okay. Great. Thank you, Mike, and thank you, Bill, for this question. Actually, our sales more than are usually [indiscernible] our holiday season. So our costs tend to be higher for the fourth quarter if you look through our past several years, you see this pattern also there are always some end-of-year adjustment accrual reversals during the end of the year.



And actually, we also have some customers that will be very usual end-of-year adjustment for that. So if you look at our fourth quarter, you will see this pattern. So that is more or less why we see some a little bit quarter-on-quarter drop. But we continue to see a favorable product mix in those areas is even growing. So yes, I think that will more or less answer the gross margin question.

[Mike Wang, executive]

Thank you, Charles, and thank you, Bill, for that question. Now for the next question.



[Audio Gap]



Thank you, Philip, for your 2 questions. I'd like to read this real quick for everyone. What's your view on the adoption and technical development of AC versus AEC versus DC in the next few years? The second question is, how would these 3 compete if more GPUs are installed in the rack, higher compute density? Can you talk about the pros and cons of using copper and the blade service structure?



For this one, I'd like to hand it over to Felix. And please go ahead.

[Chien-Hua Teng, executive]

Yeah, for us, we see that actually with some more computing power required and also higher speeds definitely we see that AEC will continue to grow as we mentioned earlier and also above the advance. I think, right now we're stretching to about seven years maybe even more. So of course it's like the balance between speed is immense but we do see that more room to grow for the AEC and DC is of course for the very short cables within the rack or you know it's definitely there are still markets and it's considered cheaper compared So I think that's a balance. 



On the second question, how would this compete with GPU on? So in a rack -- I think it's a -- I mean, even if it's more computer power, I mean, we see that, you know, you will have, you need higher bandwidth and you need more ports. So I still think that you know, again, AEC will continue to, how do you say that, to overtake the AEC. We're not even talking about AEC here. Yes, so that's our viewpoint.

[Mike Wang, executive]

Thank you, Felix, and thank you, let me see, Philip, for that question. Let me see for the next one.



[Audio Gap]



Thank you, Brian, for this question, I think it's probably the last one. How diversified is AEC revenue across customers and projects within individual customers? Beyond Amazon, how do you see demand trends for other customers for the remainder of the year?



For this one, I'd like to hand it over to Charles.

[Tse-Shen Tsai, executive]

Okay. Thank you, Mike. And also thank you, Brian, for this question. I think when we're talking about AEC, we need to bear in mind that we have I would say, mutually exclusivity with Credo partnership with them on this AEC product. And also Credo actually is, I would say, new customer and new in the market and it's very nature of that their pattern they tend to grow like, I would say, they're still in the young period and their business pattern and the way they act customers tend to be, I would say, a little bit more [indiscernible]



So yes, they talk about their large exposure to Amazon, but along the way, we work with them. We also see they work with different customers. And going forward, we cannot speak for them. But we believe that going forward, they will also diversify their customer among those hyperscalers. So we're confident that they will gradually have a healthier diversification and exposure to all those big customers that you see.

[Mike Wang, executive]

Thank you, Charles, for that. And Brian, for that question. I do see you have 2 more. We can address that separately as it's now 8:30 for this 1-hour call. Thank you, Roger, Felix, Florian, and Charles. This concludes our Q&A section. A replay of the conference call today will be available on our IR website within 24 hours from now. If you have any further questions, please feel free to reach out to the BizLink Investor Relations team. We thank you very much for joining today's call. And once again, thank you to Yuanta. You may now disconnect.