Lite-On Technology Corp

TWSE:2301

Earnings Call Transcript 2022-Q3

[Julia Wang, executive]

Good afternoon, investors and media friends. Welcome to LITEON Technology 2022 Q3 Earnings Conference. Due to the pandemic, this meeting is still held online. Today's agenda has 3 parts. First, CFO Patricia Chou will explain 2022 Q3's financial report and Q4's outlook. Second, President Anson Chiu will explain the operation planning and growth strategies. Next, we will have a Q&A session. We will prioritize those who have provided their organization and name for questions. [Operator Instructions]

[Patricia Chou, executive]

Good afternoon, investors and media friends. Today is Q3 earnings conference. We have a new presentation design to explain the operation result -- operating results of Q3. We hope to show that LITEON has completed many operational adjustments and transformation this year, presenting a brand-new corporate image. Next, I will explain our Q3 2022 results and financial performance as well as our Q4 outlook. For first-time attendees at this conference, this page gives you an overview of the 3 major business segments, including Opto-electronics, Cloud & AIoT and ITCE segments.

LITEON's Q3 net sales was TWD 46.2 billion. Gross profit, TWD 9 billion, the rate was 19.5%. Operating expenses, TWD 4.6 billion, the rate was 10%. Operating profit, TWD 4.39 billion, the rate was 9.5%. The net sales were the highest in 3 years, and gross profit and operating profit were also at record highs.

Overall, Q3 net sales went up 10% Y-o-Y. Gross profit went up 11% Y-o-Y. Operating profit went up 25% Y-o-Y. These continue to reflect our quality growth. Net sales growth was driven by growth in cloud computing power, automotive electronics and high-end photocouplers, with all 3 business segments growing in tandem.

Gross profit in Q3 benefited from product mix optimization, ASP improvement, effective control of raw material prices and sources and continued optimization of capacity utilization. Gross profit grew by 0.2 percentage points Y-o-Y.

Growth in operating expenses not only reflects growth of net sales but also R&D increase, which is the gradual expansion of R&D mentioned before. In Q3, R&D accounted for the bulk of operating expenses, accounting for 4.1% of net sales, an annual growth of 22%. The cloud power business accounted for the highest percentage of R&D expenses.

Growth in operating profit was mainly due to the improvement in Y-o-Y operating profit of all 3 segments. Cloud & AIoT's operating profit went up by more than 50% Y-o-Y, while overall operating efficiency and revenue scale continue to improve. Operating profit went up by 1.1 percentage points Y-o-Y.

Other income was TWD 950 million, including the unrealized evaluation profit on VIZIO. Its impact on the overall profit and loss has been greatly reduced compared with H1. Profit before tax was TWD 5.35 billion. Profit attributable to parent was TWD 4.24 billion. EPS, TWD 1.86, an annual growth of about 40% and a record high for a single quarter. Both Q3 gross profit and operating profit were record highs.

Over the past 3 years, despite lockdowns, supply chain disruptions and fast changes in the political and economic environments, LITEON has continued to pursue its planned goals and strategies, actively implementing quality growth and gradually achieving the milestones of profitability improvement and digital transformation of operations. This year's net sales have begun to show quarterly growth momentum and are expected to continue to increase under the driving force of major new businesses.

In the first 3 quarters, LITEON's net sales scale continued to grow despite lockdowns and unstable supply chains, mainly thanks to the growth in the share of high-end products shipped by the 3 major segments. Net sales was TWD 130.4 billion. Gross profit, TWD 24.8 billion with a GP rate of 19.1%. Operating expense, TWD 13.1 billion, the rate was 10%. Operating profit, TWD 11.7 billion, the rate was 9%. Compared to last year, net sales went up 8%. Gross profit went up 9%, and operating profit went up 25% Y-o-Y. Gross profit and operating profit both reached record highs for the same period. This reflects our rapid flexible resilience and quality growth.

Operating expenses were all well controlled, down by 2% Y-o-Y. R&D accounted for 4% of net sales, up nearly 20% Y-o-Y. The big gap in other income expense compared to last year is due in large part to fluctuations in the recognition of profit and loss on the evaluation of VIZIO in 2 years. We expect that the impact of this nonstrategic shareholder evaluation fluctuation on the company's profit and loss has been gradually reduced. This has resulted in lower EPS in the first 3 quarters Y-o-Y. Profit attributable to parent was TWD 10.3 billion, and EPS was TWD 4.51.

Opto-electronics and Cloud & AIoT together account for more than half of net sales so far this year. LITEON's business model is actively shifting towards a 4-3-3 business, i.e., 40% of sales from ITCE, 30% from Opto-electronics and 30% from Cloud & AIoT. The Cloud & AIoT segment now accounts for 34% of net sales and is ahead of its target of 30%. ITCE has increased its share of high-end products and continue to grow net sales and profit this year -- this quarter.

In Q3, all 3 segments recorded Y-o-Y net sales growth. Cloud & AIoT has the highest annual growth rate of 17%. The high-end gross profit for Opto-electronics exceeded 30%. For Cloud & AIoT, it exceeded 25%. And for ITCE, it reached over 18%. As you can see on the left, Cloud & AIoT and Opto-electronics have shown a long-term growth trend in net sales since Q1 2020, excluding the impact of seasonal fluctuations. The CAGR of the 2 segments combined is 28%.

Core applications in Opto-electronics such as photocouplers grew 11% Y-o-Y. Automotive electronics grew 58% Y-o-Y. Cloud & AIoT products grew 11% Y-o-Y, while cloud computing power grew 41% Y-o-Y. With rapid growth of Cloud & AIoT, Q3 net sales grew 17% Y-o-Y, and operating profit grew more than 50% Y-o-Y. This is mainly due to the contribution from cloud computing power systems.

Their fast growth this year demonstrates the hard power accumulated from R&D of high-end technologies over the years, allowing LITEON to develop competitive new products, less time-to-market efficiency and establish a relatively high technological advantage. In addition, as our supply chain management has become a competitive edge, we can gain a dominant market share in new models and bids from key customers worldwide.

Moving forward, in addition to shipment of new-generation PSU plus BBU, we are seeing increasing demand for high-spec PSU from data center and enterprise server customers. LITEON's cloud computing power supply is expected to continue to grow significantly. The high growth of automotive electronics is not only due to the obvious demand in the EV and automotive electronics market but also due to smooth shipment of LITEON's high-end products such as DC charging piles, Level 2 high-end lighting with heat dissipation module and in-car video module for ADAS, all of which have performed well. In view of the rapid growth of the cloud computing power and automotive electronics businesses, we are accelerating our expansion in North America.

As for the balance sheet, we maintain a highly liquid, solid and lean operation with a strong net cash position. We kept a tight rein on inventory. Inventory days decreased by 4 days Q-o-Q, and cash flow days by improved by 11 days, reflecting improved working capital management. Net cash was TWD 36.6 billion, an increase of about TWD 4.5 billion Q-o-Q due to proactive working capital management and net free cash inflows from operations. BVPS increased by 13% Y-o-Y from 30 to 34.

To sum up Q3, net sales were TWD 46.2 billion, up 10% Y-o-Y, a single quarter high in 3 years, benefiting from growth in cloud computing, automotive electronics and high-end photocouplers. GP and OP for Q3 were both record highs. And EPS was TWD 1.86, an annual growth of 40%, also a single quarter high. The increased profitability came from product mix optimization, aggressive growth in production value and market share and improved operation through digital transformation.

In the first 3 quarters, despite lockdowns and supply chain instability, net sales reached TWD 130.4 billion, an annual increase of 8% and a 3-year high Y-o-Y. GP and OP went up 9% and 25%, respectively, continuing to show excellent growth. For the first 3 quarters, GPM, 19.1%; OPM, 9%, plus 1.2 percentage points Y-o-Y. EPS reached TWD 4.51. R&D expenses accounted for 4% of net sales, an increase of nearly 20% Y-o-Y, mainly in 3 growth areas for developing software, firmware and system integration solutions.

For Q4 outlook, we expect that revenue and profit will continue to improve as core businesses keep growing. Growth will be driven by high-end cloud computing power, 5G, AIoT, automotive electronics and photocouplers for green energy and industrial control applications. Despite market uncertainty, the ITCE segment continues to grow its high-end product shipments by optimizing its product mix. These are the financial highlights of the first 3 quarters and the outlook for Q4.

Next, I will leave it to President Anson to explain LITEON's participation in OCP as well as the company's business outlook and growth strategies. Thank you.

[Anson Chiu, executive]

Thank you, Patricia. Dear investors and friends from the media, good afternoon. LITEON's net sales increased 10% Y-o-Y with net sales and gross profit growing 10% and 25% Y-o-Y, respectively, and an EPS of TWD 1.86, increasing 40% Y-o-Y, fully reflecting the company's emphasis on quality growth.

As we know, this year's growth in ITCE products has been slowed by inflation, geopolitics and a slowdown of the pandemic. However, LITEON still maintain its growth trend, mainly due to cloud computing power, automotive electronics and photocouplers for Opto-electronics semiconductors, benefiting from the strong demand for high-end applications.

In addition, with the stabilization of raw material supply, LITEON has the opportunity to demonstrate high growth in the market in cloud computing power solutions and automotive electronics. For cloud computing power, regarding LITEON's new integrated PSU plus BBU power management system, highly customized new products have begun to be delivered.

Our global server power market share is now over 30%, benefiting from new customers and increasing new orders. The market will continue to move towards high-wattage, high-efficiency and high-density specifications, and LITEON's fast development and stable supply are highly recognized by customers. It is expected that new customers will join us in cloud computing power this year and next year, and the growth rate can reach over 20% in the next 2 years.

Recently, our new products were exhibited at the Open Compute Project in San Jose, United States. We showcased our Open Rack specification solution and the new generation of liquid-cooled power supply system proposed by LITEON. Let me explain to you a little bit about Open Compute.

Basically, we have 2 highlights. The first one is that it is the next-generation Open Rack, third-generation system architecture. This architecture integrates our existing rack and also PSU plus BBU and power cell. With a high integration of all of these, we propose to the market such an integrated system solution. Our second highlight is that we believe that in the future, cloud computing moves towards high efficiency such as AI computing, machine learning, et cetera. So the demand will continue to move towards high wattage in the future.

Heat dissipation is a thorny issue. So we expect to see that in such a high-heat environment, the traditional methods can no longer satisfy the future heat dissipation needs. As you know, in the system, in addition to CPU and GPU, power supply is also a major heat generation point. So from this perspective, we cooperate with heat dissipation related partners in order to develop a new generation cool -- liquid-cooled power supply system, and this is something that we propose as our solutions in the exhibition. So that's about cloud computing.

As for automotive electronics, in addition to our existing L2 AC car charger products, we continue to add new American car brands' certifications through new product design and development. We will also cooperate with charging station operators in Europe and the United States to launch 30kW DC charging piles in Q4 to enter the high-end commercial fleet market.

To meet the future business opportunities in cloud computing and automotive electronics, we have leased a factory in Dallas. And initially, we expect to invest TWD 2 billion to set up a new manufacturing base. Our goal is to start production in Q2 next year to exceed -- and exceed TWD 10 billion in revenue by 2025.

As for Q4 outlook, driven by the rapid growth of cloud power solutions, 30% Y-o-Y, 5G small base stations in IoT; automotive electronics, which is about 20% Y-o-Y; and Opto-electronics, semiconductors, photocouplers, which is more than 10% Y-o-Y. Q4 operations are expected to move towards continuous revenue and profit growth. The company will continue to pursue the 4-3-3 growth strategy and move forward to quality growth.

Thank you again for your participation today, and we wish you all good health and every success.

[Julia Wang, executive]

Thank you for your explanation. Now is the Q&A session. [Operator Instructions]

[Operator]

The first one is [ Oh Sowen ] from Commercial Times.

[Unknown Analyst]

Well, Mr. President talked about Dallas. I didn't quite understand. So I want to ask you. You leased a factory, aiming for mass production in Q2 next year. So by 2025, the output will achieve TWD 10 billion revenue or something else?

[Anson Chiu, executive]

Okay. Let me answer your question directly, [ Sowen ]. Because of time term, we first leased a factory in Dallas. There are currently 2 product lines. The first one is cloud power and PSU and BBU. This is the first. And the second is Level 2 AC charger. These 2 product lines, according to our current plan, by 2025, the production output in the U.S. will have a chance to exceed TWD 10 billion. In the long term, where will we invest to establish our own factory and manufacturing center? Well, that's for longer term, it is still being planned now. So this is to briefly answer your question.

[Unknown Analyst]

Okay. Here's my second question. You just talked about cloud power in Q4. The annual growth will be 30%, which will be roughly the same as Q1 to Q3. It doesn't mean that Q4's cloud power revenue will be better than in Q3.

[Anson Chiu, executive]

Yes. So Q4's total revenue will be better than in Q3. Yes, according to our current estimation.

[Operator]

The next one is [ Hank ] from China Life Insurance.

[Unknown Analyst]

I want to ask you briefly, Q3's gross profit declined Q-o-Q slightly. What would be the reasons? And also, the OPM from Opto-electronics and ITCE also went down. The revenue went up. So is it because of expenses or something else?

[Julia Wang, executive]

Thank you, [ Hank ], for your questions. There are 2 questions. The first one is that in Q3, the gross profit rate went down slightly from Q2. So what would be the reasons? Second, in terms of OPM in Opto-electronics, it went down slightly from the previous quarter. What would be the reasons?

[Patricia Chou, executive]

[ Hank ], let me answer your questions. You can see that in our 3 business segments, the distribution of revenue in Q3, Opto-electronics accounted for lower -- well, the percentage went down. And you are clear that in terms of consumer applications, it suffered more from unfavorable macroeconomic factors. So that is reflected in especially visible light product shipment. And this, in turn, is reflected in our overall gross profit. I think this answers both of your questions. The shipment was impacted. So the operating sum and its ratio were also affected.

[Unknown Analyst]

Understood. Well, I also want to ask you. I was asking also about ITCE. The revenue was higher in Q3 than in Q2, but the OPM also went down slightly. So is it because you started to lower prices? Or is it because of product mix changes?

[Julia Wang, executive]

Okay. The second question is about the ITCE segment. The OPM in Q3 compared to went down slightly. And is it because of market prices or product mix changes?

[Anson Chiu, executive]

Well, [ Hank ], I think it's mainly due to product mix changes. This year, so far, we haven't encountered pressure from clients in terms of lowering prices. Of course, the market situation in ITCE is not good in terms of volume. The volume has been going down. But as we said a while ago, in terms of power, we move towards higher end, higher wattage and workstations. So through such product mix improvements, our ASP continues to improve despite the volume going down. So this is why we don't see a going down of the revenue. The overall profit, well, the CFO has just said, Opto-electronics suffers from the impact of visible light products, and we know that Opto-electronics has a higher GP. And this is why in Q3, GP was impacted this way.

[Operator]

The next one comes from Kinvest Capital, [ Susanne ].

[Unknown Analyst]

My first question is this. You now have 2 BDU suppliers. How do you select BBU suppliers? And how much does BBU account for in your revenue? And what will be the price difference between the new and the old platforms? This is the first question. The second question is this. In terms of Opto-electronics and Cloud & AIoT, could you tell us the percentages in Q3 of photocouplers, automotive and Cloud & AIoT and also their outlook for next year and growth factors?

[Julia Wang, executive]

Thank you, [ Susanne ], for your questions. There are a couple of questions. First of all, our new generation BBU -- new generation BBU suppliers, how do we select our suppliers? And what is the current selection situation? And BBU accounts for how much of our revenue. This is the first question. She also mentioned our new cloud computing platform and the old platform. What is the price difference between them?

[Anson Chiu, executive]

Okay. Let me first answer the question on BBU suppliers. How do we select our suppliers? Well, we mainly need to consider the cooperation relationship between both sites. We have selected 2 Taiwanese suppliers so far. As for BBU's revenue percentage, the shipment is little. So it's still single digit. We expect to see that next year -- well, BBU's shipment takes time. And we believe that the revenue -- once the factory is set up and ready, the revenue scale will start to gradually increase in Q2 next year.

The third question is about automotive, but the percentages. Well, such percentages change from quarter-to-quarter on the market. So I can tell you that AIoT and also automotive, AIoT accounts for bigger share than automotive. Automotive now accounts for roughly 6% to 8% in the entire company. Next year, through its growth, we will have a chance to see more than 10% for automotive.

[Unknown Analyst]

Sorry, I think one of my questions was not answered. I was asking about the price difference between the old and the new platform.

[Anson Chiu, executive]

Okay. There won't be much difference because we only make minor adjustments in the power design. The BBU itself is not that different. So from ASP's perspective, the old and the new platforms are roughly similar.

[Julia Wang, executive]

There's a question from Infotimes. Today, we saw on the slides that automotive and cloud had 30% to 40% growth. So next year, what will be the growth for automotive and cloud?

[Anson Chiu, executive]

Well, for cloud, as I said at the very beginning, over the next 2 years, we aim to maintain 20% of growth. That's something for sure. As for automotive, there are 2 parts. If we look at the current car charger products, this year has a 3x growth compared to the same period last year. And next year, it will be at least doubling. As for camera modules and car lighting, I think the growth will be double digit roughly.

[Julia Wang, executive]

Okay. The second question from Infotimes is this. The first question is about automotive and cloud. And the second question is about the overall outlook for the company next year.

[Anson Chiu, executive]

Well, I think for this question, nobody would have an answer at this moment because according to our current thinking, most people are relatively conservative about the economic outlook next year. But regardless of the economic outlook for next year, we will continue to focus on the areas that will continue to grow on the market. For example, just as I said, cloud is a growing market. Automotive electronics is also one. High-end photocouplers is yet another one, industrial control, AIoT, 5G, et cetera. This is why we say that our growth has been focused on these areas, which can better resist macroeconomic volatilities. I am still optimistic about the overall revenue next year, which will still be better than this year.

[Operator]

The next question comes from [ Sowen ] of Commercial Times.

[Unknown Analyst]

I remember that in the last conference, Mr. President mentioned that the OPM in H2 would be better than in H1. Do you still maintain the same opinion?

[Anson Chiu, executive]

Well, if we look at H1 and H2, the OP in H2 is better than H1.

[Unknown Analyst]

So will Q4 be better than Q3?

[Anson Chiu, executive]

Well, Q3's revenue will be relatively higher, and OP and GP will remain roughly the same. But of course, there are still uncertainties. But basically, we are optimistic that this year -- well, this year is a bit special because we know that in the past, consumer products in Q4 were relatively weaker. But this year, we have automotive and cloud added. So this year, the situation we are seeing is that in Q4, we will still have a chance to be better than in Q3.

[Operator]

The next one is Anne from Nomura.

[Anne Lee, analyst]

Can you hear me?

[Anson Chiu, executive]

Yes, please go on.

[Anne Lee, analyst]

First of all, I just want to confirm what Mr. President said about PSU, the old and the new generations, the design change. So prices are similar. Do you mean to say that, for example, this year's mainstream is 3k to 3.5k, and next year it's 4k, and the prices are more or less the same?

[Julia Wang, executive]

Let me organize this question. This question is about the new and the old generations PSU and the price difference between them. So Mr. President?

[Anson Chiu, executive]

Well, I think maybe there was some misunderstanding. 3k watt and 5k watt have different prices. I want to clarify that the entire design change doesn't jump from 3k to 5k watt directly. The wattage usage and also design content are adjusted only slightly, not significantly. And the mainstream now is still 3k watts. So from ASP's perspective, there isn't that much change.

[Anne Lee, analyst]

Okay. Sorry. I want to follow up. Do you mean to say that if it's still 3k watt and the difference between the old and the new generations is only design change, so the prices are similar? If we move on to 3.5k and 4k watt, the ASP will go up a lot?

[Anson Chiu, executive]

Yes. Because by then, the ASP will become more expensive with higher wattage.

[Anne Lee, analyst]

Okay. It's clear now. My second question, we know that PCs, notebooks and consumer products, the market has been sluggish relatively. And in H1, there were some opportunities to reflect the increase in prices of raw materials. But now in H2, the demand has been dropping a lot. So do you worry about some price pressure?

[Anson Chiu, executive]

Well, I think it's not a question of worry. This is a market mechanism. There are normal adjustments, ups and downs. And prices go up and down depending on supply and demand balance. What we need to do is that when prices go -- when cost goes up, we need to renegotiate with clients because raw materials and components become more expensive, and our clients are also clear about the market situation. So we adapt accordingly. When the market is the other way around and raw materials become cheaper, and in that case, we are also willing to actively reflect that with our clients. We are long-term partners. So we have built trust with each other. So such price ups and downs are considered a normal mechanism.

[Operator]

The next one is [ Chu Nan ] from Hua Nan.

[Unknown Analyst]

I have one question. Mr. President, the video showed that new generation liquid cool power supply system. We are very interested in that. Well, this is something that many people have been working on. So I don't know -- in your company, what is the progress roughly? And who will be your future clients, for example, some cloud, white label server companies? Or who will be your targeted client? And also for such a product, how much will it contribute to future revenue and growth?

[Julia Wang, executive]

Okay. Let me first organize the questions. Thank you for your questions, [ Chu Nan ]. Today, we showed the new-gen liquid cool power supply system, the new cloud computing system. What is the progress? And also who will be our targeted clients? And when will it start to contribute to our revenue? So these are the 3 questions.

[Anson Chiu, executive]

Okay. To answer these questions, we need to return to the beginning. In the past, LITEON focused more on ODM and OBM businesses. Over the past 2 years, we have adopted a new strategy. And with a business transformation, we want to go from a component and module provider to a system -- a subsystem or a system solution provider or an optimization provider.

With this thinking in mind when we develop [ RB3 ] power supply system or what you just saw in the video, the new generation liquid cool power supply system, these are all based on this thinking. Our thinking is based on future market needs, we make design and R&D according to future market needs. So it's not something especially tailor-made for specific clients. When we have such a product designed, then we approach actively the clients who in the future, in terms of their product design and applications, may use such a solution. These clients basically are the ones we will have to approach. They could be white-label companies. They could be cloud companies. Or they could come from other areas as well.

Let me give you an example, a simple example. As I mentioned, power supply generates heat. And our thinking is simple. Heat gets generated on power supply. Then why don't we do something before heat is generated? Why do we have to wait for heat generation before we start heat dissipation? If before heat generation, we can already do something to dissipate heat, I'm sure that the effects will be better than waiting for heat generation.

So this is an example to explain to you that all of our future products and solutions aim to solve pain points on the market or on the client side. And when we launch only -- when we launch the products, where we start to see revenue gradually, it's not something that can be immediately delivered to clients and create revenue. Such a solution is proposed to clients with such pain points and demand, and then the revenue will gradually come. So [ RB3 ] is one example. And also the new gen liquid cool power supply system is another example. I think only by 2024 will we start to see they contribute to our revenue.

[Operator]

The next one is [ Hank ] from China Life Insurance.

[Unknown Analyst]

First of all, I want to ask you. In terms of cloud power clients, there are enterprise and higher scale clients. Is it true that hyperscaler clients are more willing to use high-wattage solutions? And also another question. It seems that not all the same big tech companies have been introduced into this project. So in terms of expanding revenue, do you plan to increase the number of hyperscalers year after year? Or do you not yet have a time line?

[Julia Wang, executive]

[ Hank ], thanks for your questions. There are 2 questions. First of all, in terms of cloud power supply clients, there are 2 categories: data centers and enterprise clients. So both of them, in terms of high-wattage solutions, will they be more willing to adopt such solutions in the future? Second, you talked about these hyperscalers. The number of such clients, what is our thinking about that?

[Anson Chiu, executive]

Okay. If we look at the end market needs, data centers need more wattage than hyperscalers. This trend hasn't changed so far. And I'm sure that in the future, it will continue to be the case, or the demand can be even higher. For example, our power shelf has gone from 15k to 27.5k watts. And this is why we have been triggered to develop heat dissipation solutions. That's why.

And as for increasing the number of hyperscalers year after year, well, in addition to super 4 clients, there are some other clients as well. They -- for example, this is something that is very popular right now, autonomous driving. These car OEM companies also want to establish their own cloud management systems. So they need such solutions and power. So this is an example to tell you that our clients are not limited to super 4 clients. In the future, the growth will also come from other clients joining us.

[Unknown Analyst]

Understood. It's very clear. I want to ask you another question. Now you have put in the new capacity from the U.S. So do you have a breakeven estimation for the revenue? Of course, that's only an estimation. But I want to understand, in order to build the capacity in Dallas in this leased factory, what is the scale for breakeven?

[Julia Wang, executive]

Okay. [ Hank's ], next question is about that in North America, we have new capacity. And what is the plan for breakeven?

[Anson Chiu, executive]

I think initially, because the scale is smaller. So at the beginning, because of smaller scale, there will be some cost pressure. But I think our products are transferred from Taipei. So as long as a certain economic scale can be achieved, we will be able to break even soon. Right now, the point is to build up this factory first. I think this is more important than whether or not we are making profit because, of course, manufacturing cost depends on capacity utilization and also is related to operation efficiency. Initially, within the first 2 years, we don't focus on profitability. We won this factory to first achieve a certain manufacturing level in the U.S. And with that, we can then consider profitability. I think this will be better.

[Operator]

The next one will be [ Aaron ] from [ Singchung Capital ].

[Unknown Analyst]

Can you hear me?

[Anson Chiu, executive]

Yes, very clearly.

[Unknown Analyst]

I want to ask you, management team. Every quarter, you disclose the cloud platform growth, and this growth is significantly higher than the market situation. So I want to know with such a high growth, and you will maintain this growth in Q4, from which region do you mainly have your growth momentum?

[Julia Wang, executive]

Okay. [ Aaron's ] first question is about cloud power computing segment. Well, the growth is significantly better than the market situation. So the growth momentum comes mainly from which clients?

[Anson Chiu, executive]

Well, in terms of cloud, we still focus on the America market. That's our focus. As for why, we have been able to grow this fast, well, because initially, our market share was only around 10%. And over the past 2 years, we have introduced new products and technologies to increase our market share. We said that this year, we will have a chance to achieve 30% of market share. And next year, we will have a chance to achieve 40%. This is one very important reason.

[Unknown Analyst]

Okay. Another question. When -- with such a fast growth in market share, from which competitors do you have overlap?

[Julia Wang, executive]

Your second question, [ Aaron ], with such a rapid increase of market share -- by overlap, do you mean competitors or clients?

[Unknown Analyst]

Competitors. So which are the overlapping competitors? Well, I'm sure that when you plan and when you quote, you face competitors, competition. So when your share grows this fast, I want to know from which competitors have you gained your share and competitive advantages.

[Anson Chiu, executive]

Well, if you don't know yet about our competitors, we have 2 major competitors. And in this area, their market shares have been -- have changed, especially one foreign competitor. It's inconvenient for me to point out the name directly. But this year, our market share mainly comes from this foreign competitor.

I was asked a similar question last time. Why are we able to increase our market share this fast? Well another reason is because over the past 2 years, supply chains have been a determining factor. And you know that we are the second-largest power supplier, and we have a sufficient supply chain scale and influence. So despite semiconductor price increases and raw material challenges, our performance is still better than our competitors' performance. This is also why our clients have been giving us many new projects over the past year. And we were ready, so we were able to seize such opportunities, and our supply chains can really satisfy our clients' needs. This is why we have been able to grow this fast.

[Operator]

The next one is from Anne from Nomura.

[Anne Lee, analyst]

My first question is about car chargers. The President mentioned that there are some high-wattage fast chargers. So I want to ask you about the percentage of DC fast chargers next year and in 2 years' time. Do you have an estimation of the percentage as opposed to the entire shipment?

[Julia Wang, executive]

Thank you for the question, Anne. Your first question is about EV chargers. We have been putting forward high-wattage products. So in terms of Level 3 fast chargers, what is the estimated percentage for next year and in 2 years' time?

[Anson Chiu, executive]

Well, over the next 2 years, we will still focus on Level 2 as our major product. Why do we say that? Well, Level 2 volume compared to DC is still larger. So this is something that we value. In terms of AC-to-DC ratio in the future, I think according to the current plan, in the future, DC will account for 1/4 while AC will account for 3/4. This will be the ratio.

[Anne Lee, analyst]

Got it. I want to ask you, by future, how many years?

[Anson Chiu, executive]

Well, in 2 to 3 years' time. So by 2025, this will be the situation.

[Anne Lee, analyst]

Understood. My second question, could you update us on your CapEx planning? Because you mentioned some overseas factories.

[Julia Wang, executive]

Okay. And your second question is about CapEx. So you mean next year?

[Anne Lee, analyst]

Yes, of course. You can also talk about this year.

[Patricia Chou, executive]

Okay. Anne, in terms of CapEx, at the beginning of this year, we mentioned that it would be TWD 5 billion to TWD 6 billion. And the current implementation corresponds to our expectations. Well, by that, I mean, the CapEx that has been initiated, so that corresponds to our plans. And for next year, we are still budgeting for next year. So maybe we will have to wait until the next conference to give you a clearer answer.

[Anne Lee, analyst]

Okay. But you're still budgeting, right. But do you already have a direction? Will it go up, remain or go down?

[Patricia Chou, executive]

I think it will go up, right?

[Anson Chiu, executive]

My opinion is this. In CapEx, there are 2 parts. The first part is overseas capacity expansion. The second is in factory intelligent manufacturing upgrade. And this year, we have overseas factories such as [ Gaozhong ] in Vietnam. They have been completed. We wanted to do Thailand, but because of visible light market changes, it is still pending, but it's a very small share. Most of our CapEx is put in intelligent manufacturing. So next year, if we continue to move towards manufacturing 4.0, I think that will follow our current plan.

As for overseas factories next year, in addition to [ Gaozhong ] in Vietnam, there will also be -- there will be America and Mexico, as we just said. So I think roughly, it will be the same as this year or slightly more than this year's CapEx.

[Operator]

[ Tian Zhou ] from DIGITIMES.

[Unknown Analyst]

Can you hear me?

[Anson Chiu, executive]

Yes, very clearly.

[Unknown Analyst]

I want to ask the President to analyze further the development progress of car lighting. Is it put in the [ Gaozhong ] factory? You mentioned some in-factory manufacturing upgrade. So what is the current situation about that?

[Julia Wang, executive]

[ Tian Zhou ], thank you for your question. [ Tian Zhou ] mentioned our car lighting. So is it only in the [ Gaozhong ] factory? Or where is the production, in which factories?

[Anson Chiu, executive]

For car lighting, we don't mainly put it in [ Gaozhong ]. We have 2 factories for that production: in Mexico and in Guangzhou. So we will expand the production in Mexico. As for [ Gaozhong ], I think the percentage will be reduced gradually.

[Unknown Analyst]

Could you talk a little bit more in terms of car lighting? What is the capacity development direction?

[Julia Wang, executive]

[ Tian Zhou ], your voice is broken and unclear. Is your question about automotive progress and direction?

[Unknown Analyst]

Car lighting, automotive lighting, capacity planning and progress, could you explain that?

[Julia Wang, executive]

Okay. So it's about car lighting capacity planning.

[Anson Chiu, executive]

We said that for car lighting, according to the current estimation, the annual growth is double digit. And for the Chinese market, we will put it in Guangzhou. And for the overseas market, we will put it in Mexico, basically. So in terms of capacity expansion, we will have a chance to expand the capacity in both of these factories.

[Unknown Analyst]

A follow-up question. You mentioned that your strategy is still 4-3-3. It seems that in terms of Opto-electronics, the percentage is lower than 30%. It's even lower than 20%. So the other 2 segments are different because they have exceeded the 4-3-3 goal. So for Opto-electronics, do you have other plans to be able to catch up with the 4-3-3 goal?

[Anson Chiu, executive]

Well, for Opto-electronics, in addition to high-end couplers, there is also automotive electronics. Whether it's this year or next year, as the CFO just said, there will be high growth. So we maintain our 4-3-3 idea.

[Patricia Chou, executive]

Let me add one point, 4-3-3 is a more mid-term goal. Of course, all the products have short-term volatilities, but we expect to see that in the long run, high-end applications have great potential.

[Julia Wang, executive]

Thank you for your participation. If you don't have any further questions, we can conclude our conference today. Thank you for your participation. All the content and materials will be published onto our official website.

[Anson Chiu, executive]

Thank you, everyone. Thank you so much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]