Lite-On Technology Corp

TWSE:2301

Earnings Call Analysis

LITE-ON Q3 Results: Sales Growth, Margin Gains

In Q3 2023, LITE-ON Technology's sales hit TWD 40 billion, marking a 7% sequential growth. Year-over-year, sales decreased by 9% after excluding the sold-off Imaging BU. Notably, gross profits climbed 9% from the previous quarter and 5% compared to last year, resulting in a gross profit rate of 23.6% and an operating profit rate of 11.6%. The increase was fueled by the expansion of high-value businesses and enhanced operating efficiency. R&D spending also rose to 5.1% of net sales, a nearly 10% year-on-year increase. Cloud and AIoT, alongside Opto-Electronics which represents 54% of net sales, reported QoQ growth, with Cloud and AIoT up 3% and ITC up 14%, reflecting robust demand for advanced technologies. Despite a general drop in consumer electronics demand, specific segments still grew, driven by improvements in AI server specifications and automotive applications. Book value per share (BVPS) also rose by 6% year-over-year, showcasing a growth in intrinsic value.

Moderate Growth Amidst Structural Challenges

LITE-ON Technology showcased a resilient Q3 of 2023 with steady growth, underscoring its strategic agility in a changing electronics landscape. Despite the combined headwinds of a sluggish economy and a less buoyant peak season, LITE-ON's gross profit (GP) has comfortably surpassed 20%, with an operating profit (OP) over 10%. These numbers reflect not only an adherence to operational goals but signify the management's success in strategically adjusting the product mix and enhancing efficiency.

A Tale of Three Segments

Diving into the business segments, Opto-electronics, including auto electronics, and Cloud and AIoT commanded 54% of net sales, indicating a robust emphasis on high-end product growth within the company. The Cloud and AIoT segment particularly benefited from innovation, leading to increased sales and an impressive GP rate of over 28%. However, performance within the Opto-Electronics segment, while boasting a GP of over 30%, was tempered by soft consumer electronics demand.

Investment in Innovation and Efficiency

LITE-ON is committed to investing in research and development (R&D), with expenditures climbing to 5.1% of net sales in Q3 and demonstrating a nearly 2 percentage points growth over three years. This increase is a deliberate strategy to foster the development of new applications and products that promise to deliver rapid growth in the future.

Financial Prudence and Future Readiness

A notable financial move was the board of directors' approval of issuing domestic convertible corporate bonds, capped at TWD 10 billion, for a span of five years. This action reflects a strategic effort to balance short-term and long-term borrowings, securing more favorable long-term capital costs, and increasing Taiwan dollar liquidity amid geopolitical uncertainties.

New Initiatives and Long-term Prospects

LITE-ON introduced new ventures such as Level 3 DC EV fast chargers and a unique liquid cooling solution for cloud computing, named COOLITE. This cooling technology, oriented toward AI development and the inevitable increase in power supply demands, is a testament to LITE-ON's evolution. The company expects these initiatives to contribute to its revenue stream beginning in 2025, transitioning from being an ODM/OEM to becoming a provider of comprehensive systems and solutions.

A Strategic Outlook

LITE-ON envisions its AI segment in high power to potentially account for 10% to 15% of its business by next year, with a compound annual growth rate (CAGR) of 18% through 2025. Even as revenue in EV chargers saw minor declines, LITE-ON continues to channel investments into product differentiation, confident that its innovations will bear fruit and strengthen the company's competitive edge.

Conclusion

LITE-ON Technology's third-quarter earnings report narrates a story of a company pivoting with proactive measures during uncertain times, showing modest growth while laying the groundwork for significant longer-term advancements. With strategic product shifts, increased R&D investment, and prudent financial management, LITE-ON is equipping itself to evolve in a competitive and dynamic market space.

Earnings Call Transcript 2023-Q3

[Julia Wang, executive]

Dear investors and friends from the media, welcome to LITE-ON Technology's 2023, Q3 Fiscal Earnings Conference. In addition to explaining the operating results of Q3 and the first 3 quarters, we also hope that everyone will better understand LITEON's growth strategy after completing many operational adjustments and transformation in recent years, our meeting will begin when everyone is seated.Today's agenda consists of 3 parts. I'll first explain the results and financial performance of Q3 and the first 3 quarters. Next, President Anson will explain the company's operating outlook and growth strategy. The Q&A session is open for questions and further explanations.For those who are here for the first time, this page provides you with an introduction to the 3 major business segments. They are Opto-electronics, including opto-electronic semiconductors and auto electronics, Cloud and AIoT used in data centers, servers, 5G, networking products, AI, IoT, et cetera, ITC used in notebooks, workstations, desktop computers, game consoles, et cetera.LITE-ON Technology's net sales in Q3 was TWD 40 billion, gross profit, TWD 9.4 billion with a GP rate of 23.6%. Operating expense TWD 4.8 billion with a rate of 12%. Operating profit, TWD 4.6 billion, operating profit rate, 11.6%. In general, Q3 net sales increased 7% Q-o-Q. Excluding the Imaging BU disposed of last year, the net sales fell by 9% Y-o-Y, mainly due to industrial restructuring.Gross profit increased by 9% Q-o-Q and 5% Y-o-Y, thanks to the growth of high-value businesses, supply chain resilience optimization and the continuous improvement of operating efficiency through centralized production in recent years. GP went up by 0.3 percentage points Q-o-Q and 4.1 percentage points Y-o-Y.Operating expense increased by 11% Q-o-Q and 4% Y-o-Y. It's mainly due to the increase in R&D investments. In Q3, R&D expenses accounted for 5.1% of the net sales with the amount up by nearly 10% Y-o-Y. Above R&D, cloud computing, opto-electronics, 5G and new businesses accounted for a relatively high share.Operating profit up by 7% Q-o-Q and 5% Y-o-Y. Operating profit ratio was the same as Q2 and up 2.1 percentage points Y-o-Y.Net other income was TWD 1.1 billion, up TWD 150 million Q-on-Q and up TWD 170 million Y-o-Y, respectively. This mainly reflects the increase in market interest rates, which has led to an increase in net interest income.Profit before tax was TWD 5.7 billion. Profit attributable to parent was TWD 4.6 billion, and EPS was [ TWD 1.99], up 9% Q-o-Q and up 7% Y-o-Y, respectively.Net sales in the first 3 quarters was TWD 111.4 billion; gross profit, TWD 24.5 billion with a GP rate of 22%. Operating expense, TWD 13.4 billion with a rate of 12.1%. Operating profit, TWD 11.1 billion with a rate of 10%. Compared with the same period last year is excluding the Imaging BU that was disposed of, the net sales was down by 9% Y-o-Y despite the restructuring of the electronics industry, high-value businesses continue to grow.The operating GP was up by 2.9 percentage points Y-o-Y and the rate was up by 1 percentage points Y-o-Y. This reflects the synergy from centralized and digital operation management and the high-quality growth of high-end businesses in recent years.Operating expense increased by 3% Y-o-Y. Among it, R&D expenses accounted for 5.2% of total net sales with an annual increase of more than 10%, focusing on improving the value of core products and investing in new businesses.Net other income was TWD 2.9 billion, up TWD 1.7 billion Y-o-Y. The main difference is VIZIO's financial investment evaluation loss of about TWD 1 billion was recognized in the same period last year. However, VIZIO treatment was completed in Q3 this year, and there will be no further impact on us. In addition, net interest income increased this year in response to market interest rate going up.Profit attributable to parent in the first 3 quarters was TWD 11.1 billion, and EPS was [ TWD 4.86 ], up 8% Y-o-Y.In Q3, 2023 the 2 major segments of Opto-Electronics, including auto electronics and Cloud and AIoT accounted for 54% of the net sales. In it, Cloud and AIoT net sales was TWD 13.7 billion, up 3% Q-o-Q, benefiting from the spec improvements of AI server, high-end power supply and cloud computing products. Among them, the GP of high-end products exceeded 28%. Operating profit reached TWD 2 billion, up 25% Q-o-Q.ITC net sales was TWD 18.4 billion, up 14% Q-o-Q, reflecting the launch of new products by client and product mix optimization in H2 this year. Among them, the GP of high-end products reached more than 20% operating profit TWD 3.3 billion, up 19% Q-o-Q.The net sales of the Opto-Electronics segment, including auto electronics was TWD 7.9 billion, down 1% Q-o-Q. Despite poor demand for consumer electronics, Opto-Electronics semiconductors have made new progress in automotive lighting and invisible light sensing applications. Among them, the GP of high-end products exceeded 30%. Operating profit was TWD 640 million, down 15% Q-o-Q. Each segment continues to optimize its product and client portfolio.In terms of current assets in Q3, accounts receivable were down by TWD 7.9 billion Y-o-Y and inventory was down by TWD 5.4 billion Y-o-Y. Among current liabilities, bank borrowings were down by TWD 1.9 billion Y-o-Y and accounts payable were down by TWD 4.9 billion.Working capital management includes accounts receivable, accounts payable and inventory levels. In Y-o-Y terms, the inventory days decreased by 4 days and the CCC improved by 10 days, reflecting the improvement in the effectiveness of working capital management.The net cash position was TWD 59.8 billion, up about 9.3 billion Q-o-Q. This will prepare and help improve operating momentum in the future, as well as investment and growth in core businesses. The BVPS increased to 36%, a Y-o-Y increase of 6%, indicating that the intrinsic value continues to increase.Now a quick overview of Q3 and the first 3 quarters of 2023. Net sales in Q3 was nearly TWD 40 billion, thanks to the increased share of high-end products, centralized production, improved operational efficiency and optimized supply chain resilience. GP increased by 4.1 percentage points Y-o-Y to 23.6%. Operating profit margin increased by 2.1 percentage points Y-o-Y to 11.6%. Among the operating expense in Q3, R&D investment accounted for 5.1% of net sales, up nearly 10% Y-o-Y and continue to focus on cloud, opto-electronics, 5G and new businesses.Net profit after tax in Q3 was TWD 4.6 billion, and EPS was TWD 1.99, up 7% Y-o-Y. Core businesses benefit from the improved specs of AI server, high-end power supply and cloud computing products. Cloud power supply net sales grew by nearly 20% Y-o-Y.ITC clients also launched new products in H2 this year, driving net sales and profit growth from high-end products in the ITC segment. There are new developments in automotive lighting and invisible light sensing applications in opto-electronics semiconductors. But overall, performance is still affected by poor consumer demand.Net sales in the first 3 quarters was TWD 111.4 billion, the GP was 22%, and the operating profit rate was 10% with an annual increases of 2.9 percentage point and 1 percentage point, respectively. EPS, TWD 4.86, up 8% Y-o-Y. This concludes the financial report for the first 3 quarters of 2023.Next President, Anson will explain the company's operating outlook and growth strategy. Thank you.

[Anson Chiu, executive]

Dear investors and friends from the media, good afternoon. Thank you for coming today to pay attention to LITE-ON Technology's operation and development. This year, due to inflation and geopolitics, we've seen that consumption demand has slowed down due to the sluggish economy. The peak season of Q3 was not as prosperous and the company's net sales performance is not as good as expected either. But fortunately, in terms of profit, thanks to our product strategy adjustment, in Q3, our GP was already higher than 20%, and our OP was higher than 10%, which achieved our operation goals.In terms of our product strategies, I'd like to take this opportunity today to talk to you about some of our recent new products launched, including our American subsidiary, Pii, which has launched Level 3 DC EV fast chargers ranging from 30 kwatt to 180 kwatt. This solution can be widely adopted in commercial or public fields, including public EV infrastructure, fleets and service operators.Maybe you may want to ask, well, on the market, there are already many similar products. At this moment, LITEON launches such products, what are the differences, what kind of pain points can that solve for our clients? What kind of value can that bring to our clients?Well, the answers are very affirmative. And to better answer these questions, today we have arranged a physical exhibition to better answer your questions. So if you're interested, after our earnings call, you can take some time to go outside to our exhibition area. We have dedicated guides to provide you with introduction and explanation.In addition, for cloud computing power business, the new generation 5.5 kwatt high-end power products have started shipping in small value and [ has ] high power heat management is an inevitable issue. Just back in October this year at the 2023 OCP Summit, the latest OrV3 specification power management system and COOLITE liquid cooling solution have been exhibited currently.Today, outside the conference call, we have also arranged relevant product introduction. If you are interested, you can have a look. We just finished this exhibition in October. So we made a short video clip to show you, so that you can understand the situation on site.[Video Presentation]Okay. Very likely, isn't it? I hope that next time, if there is an opportunity, our media friends and investors can all go there to have a look on the spot.Now let me conclude what I just talked about in terms of all of these products. All of them are based on LITE-ON Technology's core advantages and technologies. Within our IOE 10-year strategy, we gradually move towards energy saving, conversion, control and saving in order to achieve the ESG Net 0 555 objectives. In the future, we will continue to launch new products. And we hope that in addition to providing the market and their clients with more solutions and product applications, we also hope to contribute to the humanity and the next generations by building a better future.Last but not least, well, as usual, you all want to understand a little bit about the Q4 situation. I guess, you may want to ask this question. For all the products that we just talked about, will they immediately contribute to LITEON's net sales? My answer is no. And the answer is quite simple because when we become a solution provider, our products need to be examined by the clients and the market, which, of course, takes time. But we firmly believe that -- as long as our products and solutions have value, we will continue to invest in R&D and optimization. I think it's just a question of time to see the [ footfall ] results.Despite the fact that in Q4, the business compared to the past is relatively plain. According to the current situation, ITC and Consumer Electronics demand has bottomed out already. If we look at the economic situation in Q3, notebooks started to enjoy Y-o-Y growth already. As for desktops, in Q1 next year, the latest, there will also be Y-o-Y growth. If you look at the news in terms of auto electronics, there are some strikes recently in the U.S. But in the short term, we believe that the situation will come down, and the result as for cloud computing market demand, there is GPU shortage for now indeed. But after this problem is resolved, there can soon be a pickup.The current economic situation is relatively pessimistic and sluggish indeed, but the company remains optimistic about Q4's net sales and profit situation. This concludes my very brief presentation. I wish you a great day ahead. Thank you.

[Julia Wang, executive]

Thank you, Anson. Now is a Q&A session. We open the floor for you to raise questions, and we will explain further.

[Unknown Analyst]

Anson and Julia, good afternoon. I want to ask you a little bit about the Opto-Electronics segment, the Q3 profit was relatively weaker. Could you analyze the reasons for us? Because I remember that in the previous quarter, Anson mentioned that photo couplers were a leading indicator and that there was already some recovery. I also want to have some updates on EV chargers and DC-DC OBC progress. This is my first question.

[Anson Chiu, executive]

Okay. In terms of up to [ OTS ], Opto-Electronics, just as I explained a while ago, if we look at the Q3 performance, it was not as good as expected despite the fact that in Q-o-Q terms, it went up quite a lot, but the recovery speed was not as fast as expected. But in terms of the OTS product mix, industrial automation, which is the good part, didn't pick up. So consumer had a larger share. Therefore, the GP went down slightly. So because of this factor, the GP went down -- sorry, the OP amount went down in Q-o-Q terms.In terms of EV chargers and on-board chargers, when it comes to EV, there are 2 parts: Level 2, this year, we are affected by the American market. The client demand is weak. So we don't really grow in that regard. As for Level 3, in Q3, we launched our DC fast charger. This is ongoing as planned for Q3. Of course, we have received some RFQs in our hands. And I believe that as this market continues to progress, we will be able to pick up this business gradually.As for on-board chargers, the update is that about 2 years ago, 2 car makers started to develop products for 11 kwatt and 22 kwatt. The products are expected to be ready in Q4 this year for client certification. If everything goes smoothly, next year, you will see our new on-board chargers officially launched on the market. This is how I would like to answer your first question.

[Unknown Analyst]

Thank you, Anson. May I follow up? You talked about that consumer had a higher share in opto-electronics, so which part dropped?

[Anson Chiu, executive]

Well, no, I would say that the product mix compared to the previous quarter was less advantageous to us. Consumer had a higher share, but industrial automation was not as high as expected. So the GP dropped slightly.

[Unknown Analyst]

Okay. As for Level 2, if it doesn't grow this year, does that mean that H2 declines a lot compared to H1?

[Anson Chiu, executive]

We know on the entire year this year will be at the same level roughly as last year. So no growth, but no significant decline either.

[Unknown Analyst]

Okay. As for cloud power supply in Q4, is there a significant growth acceleration because AI GPU supply becomes smoother and some major clients of cloud have some big platforms launched in Q4, which will benefit cloud power supply?

[Anson Chiu, executive]

Yes. This is what we are seeing in Q4. We are more optimistic about Q4 in terms of cloud power supply. First of all, voltage goes up 5.5 watt has officially launched, and the volume is going to go up in Q4. And also, if GPU material shortage is resolved, shipments for clients will also go up. This is why we are more optimistic about Q4.

[Hank Hu, analyst]

Anson and Julia, this is Hank from Chinalife. My first question is this. In this current situation, are you seeing that the next-generation PC products will need to introduce more SoC or AI chips, which will drive more power supplier ASP? And also in Q3, in ITC, the OP went up almost to [ 15 ]. So this OPM level can be maintained, can go up? Or is this a onetime phenomenon? I want to understand your take on this profit rate.

[Anson Chiu, executive]

If you pay attention to Q3, our ITC products, especially our PCs went up quite a lot. There are 2 reasons. First of all, our market share, we have made some progress in terms of market share.As for ASP, it also went up because of our product mix. In addition to PCs, our power supply also goes into 300 watt, 400 watt or even 1,000 watt workstations. So as a result, ASP is driven high due to this product mix. If you look at voltage, those that are higher, of course, enjoy better GP compared to the lower voltage counterparts. So in Q3, our ASP went up as a result and our revenue also went up, as a result.Your first question is about whether in the future PCs will combine with AI. Right now, we are seeing such a trend in our clients if AI chips can be bundled into PCs, then that can massively enhance the computing performance of notebooks in order to be faster. Of course, the demand for power supplies is higher. This is correlated for sure. But so far, we haven't seen any client using AI chips inside laptops or desktops yet, but this is indeed a trend with our attention

[Hank Hu, analyst]

Understood. I'd like to follow up -- right now, the revenue growth of photo couplers, do you have some opinions? And also, can you share with us the percentages of auto electronics, industrial automation and consumer? If Toshiba is going to be delisted on the market, would that represent an opportunity for you?And also, I'd like to ask you Level 3 charging -- for Level 3 charging, do you need to go through client or UL certification in order for NACS products in North America? And will that take a long time?

[Anson Chiu, executive]

Okay. For photo couplers, this is related to market applications indeed because it's used mainly in auto electronics and industrial automation, and both of them this year have been affected by the economic volatilities, so they didn't pick up a lot this year. So right now, maybe consumer is the main part, including invisible light wearable devices and visible light.If we look at all of these 3, this year, all of them didn't perform well Y-o-Y, they all declined Y-o-Y. We believe that next year, the room for growth will not increase due to Toshiba. On the other hand, we may seek some M&A strategies for some major great [indiscernible]. Such strategies right now are ongoing. I can let you know about this a little bit.As for Level 3, indeed, in North America, UL certification is needed. This is why we only launched it in Q3. Our products were already ready, but we needed to have Level 3 UL certification. By the end of November, our UL certification can be obtained. This is why I said that we already have some RFQs and orders, but we haven't officially launched these things because only after certification, where we gradually launch these products for our clients. So for NACS, we have no problem with that.Later, if you go to our exhibition, you will see 2 things. I can explain briefly now. First of all, our design adopts our power supply core capabilities. This is the first thing. Second, the EV chargers in terms of applications are very convenient. They can be maintained very fast. As you know, when it comes to EV chargers, there will be a big problem, which is that maintenance is quite difficult. So I can tell you that these 2 are our bright spots. First of all, we adopt got a power solution; second, because of that, our maintenance can be done very rapidly. These are the 2 major bright spots, which you can have a look later.

[Michelle Huang, analyst]

Anson and Julia, hello. This is Michelle from Fubon. Anson just mentioned that in Q4, cloud is relatively optimistic. So can we assume that in Q4, cloud and AIoT can achieve a Q-o-Q growth, right? And could you further talk about the other 2 segments in terms of the Q4 outlook?

[Anson Chiu, executive]

You mean...

[Michelle Huang, analyst]

Well, opto-electronics and ICE, your view on their Q4 outlook.

[Anson Chiu, executive]

You mean ITC.

[Michelle Huang, analyst]

Yes.

[Anson Chiu, executive]

Okay. In general, I think these 2 segments in Q4 will grow slightly because we just saw that PCs are bottoming out [ it seems ]. But unlike in the past, the rebound is not as fast this time. It seems that it's rebounding moderately. If there are more and more urgent orders from clients, this rebound will be more visible. So both in terms of opto-electronics and ITC, we are seeing a moderate rebound in growth for Q4.

[Michelle Huang, analyst]

As for gross margin, can you give us direction for Q4, [ is every ] segment growth in terms of net sales. Well, it seems that cloud has a stronger growth momentum. Do we assume that in Q4, the gross margin can keep expanding?

[Anson Chiu, executive]

Well, as I told you previously, after 20% -- after -- well, gross margin is no longer our main pursuit because in this profit and cost structure, what's more important is to grow our net sales rapidly. Of course, we continue to aim at 20% to 23% of GP, but that increase will be invested into our OpEx to keep our OP at 10%, and our R&D percentage will be enhanced. For those who pay attention to us for a long time, 3 years ago, our R&D was 3.2% and right now, in Q3, it's almost at 5.2%, meaning a 2 percentage points growth within 3 years. We invest a lot of resources in new applications and new products, hoping that they can bring to us rapid growth momentum in the future.

[Michelle Huang, analyst]

One follow-up question. In terms of AI server power, are you seeing fiercer competition? Or is demand still higher than supply with stable prices. We want to understand this fiercer competition affect your market share.

[Anson Chiu, executive]

Well, let me put it this way, competition always exists. Regardless of the environment and conditions, competition is always there. When the pie is still small, one player, one person will be enough, but when the pie gets bigger and bigger for both the market and the clients, they hope to have more supply. So if the market grows by 10x, now even though we only represent 50% of the market, we have grown 5x still. I think this is the correct approach.And market competition is a good thing. And it's the norm only with virtuous competition, do we progress and improve. And in order to facilitate a better development of the market, I don't think that's something important. The more important thing is that can our business grow along with the growth of the pie, if that's the case, I think that's more important.Let me add one point here. This morning, our BOD just approved the issuance of domestic unsecured convertible corporate bonds. The purpose is to enrich our medium- and long-term working capital and optimize financial structure. The total issuance base value is capped at TWD 10 billion period 5 years, coupon rate 0%.As for the issuance conditions and content after being submitted to the securities regulatory -- regulator for approval, they will be announced in accordance with relevant laws and regulations. I mentioned a while ago in my presentation that currently 90% of our bank borrowings come from short-term borrowings. Through this issuance, the proportion of our long-term borrowings can be increased to cover our long-term expenditure planning and enrich medium- and long-term working capital.At the same time, the Taiwan dollar is an important currency that the company needs. Through the issuance of domestic unsecured convertible corporate bonds, we can obtain Taiwan dollar funds, and we can also increase capital market liquidity through direct finance. This was just approved by the BOD this morning.

[Sharon Shih, analyst]

Hello Anson and Julia. This is Sharon from Morgan Stanley. I have 2 questions. First of all, you just mentioned the issuance of the bonds. It sounds more like something that can increase the company's leverage rather than cash flow management because your net cash position is quite high. I'm not quite sure why at this point you want to issue such funds? This is my first question.My second question is this, could Anson share with us a bit more about COOLITE that you just mentioned, the liquid cooling solution, why at this moment, do you establish this brand. And in terms of its position, what are the differences or differentiators compared to your peers. And in your solution provision, how much will be self-manufactured by yourself and face your -- face with your clients, what will be the cooperation model? And when will it start to contribute to your revenue? I want to better understand COOLITE strategies and future goals.

[Anson Chiu, executive]

Let me first answer the question about the bonds. Well, if you look at our liabilities structure, more than 90% of our liabilities come from short-term borrowings. Long-term borrowings account for less than 10%. If in the future, we are going to have some operation plans, we are still using short-term borrowings to cover that. So internally, we have an ideal goal, which is to reduce the share of short-term borrowings and increase that of long-term borrowings, so that we can have a financial leverage. And for our long-term capital cost, it will be a better WACC. This is the first reason.Second, the currency. Over the past few years, there have been many geopolitical uncertainties, and because of these uncertainties, we need to accelerate our overseas presence. We need to in different places in different regions, have presence and increase our investment.In terms of our borrowing currencies, NTD is less relatively. But if we look at our daily operations, for example, dividend distribution once every 6 months. And also, if you look at our [ Dongguan and Kaohsiung ] expansion plans, NTD, the Taiwan dollar is a gap that we want to bridge. We want to increase NTD capital supply, and we want to utilize the right finance. So this is why we issue this such bonds to get NTD capital. Among our major currencies, NTD is relatively competitive in terms of capital cost. So compared to the other currencies, NTD is more competitive in this way.So simply put, first of all, we want to adjust the balance between short-term and long-term borrowings. We want to have more long-term borrowings. Second, the currency, our HQ is in Taiwan. So when we pay for our operations, Taiwan dollar is still urgently needed. And third, more importantly, over the past few years, the geopolitical uncertainties have allowed us to know that we cannot put all the eggs in the same basket. So our overseas presence and preparations are also very important. So when we look at these few considerations this is why today, our BOD approved the issuance of such domestic convertible corporate bonds to satisfy these needs.Okay. To answer your second question, why does LITEON propose such a liquid cooling solution? Strategically speaking, cloud computing develops as AI develops and power supply goes from [ 3.3 to 5.5 ]. And in the future, it will achieve 7,000 watt to 8,000 watt. And we think that if it achieves 7 kwatt to 8 kwatt in cooling were not enough to satisfy their needs. And if it reaches 25 kwatt, power chips cannot satisfy the needs either. So liquid cooling may be a better solution.Our current clients are mostly OCP clients in North America. Of course, there are also some AI clients. They mostly believe that from their perspective, in terms of their needs, they want a company to provide them with a total solution rather than having different companies to address and solve different problems such as power supply, heat dissipation and mechanism, et cetera. So our overall strategy is that we hope that these OCP clients -- for our OCP clients in terms of their power supply, heat dissipation, mechanism and [ even ] in the future, heat generation, we can provide a better option for these clients.Our power supply has a biggest advantage, which is that in the solution this time, there are 2 bright spots later, you can have a look outside. First, it's a digital power control, which is different from the past. It's digitized. Second, we provide an active management model. Our heat dissipation is triggered by our power. We can clearly monitor the loading situation when it's about to get hot, we can -- before we start, we can initiate the heat dissipation function. In the past, it was different. In the past, it got hot, and we tried to reduce the heat. But now before it gets hot, we can already do something to contain it. So -- it doesn't get hot that fast and energy consumption can be reduced. So when we talk about long-term ESG strategies, we keep moving in the direction of energy saving, so that power efficiency can be enhanced. So I think this is how I can answer your question. Thank you.

[Sharon Shih, analyst]

We are seeing that some of your peers also use power supply to provide a so-called one-stop solution. So compared to these peers, what are your differences?

[Anson Chiu, executive]

Well, of course, there are differences because there's nothing to copy. It's not possible to make something completely the same as others. So everyone, based on their own core capabilities, provides the best possible solution. Ultimately, is the market that decides. As I said, a lot of times, the market and the clients need to certify and validate and compare before deciding, which solution to adopt. I can only tell you, my perspective. What is the value that we give to our clients? If our value can be greater than that of our competitors, then it's more likely for our clients to adopt our solution and succeed at the end.

[Sharon Shih, analyst]

My last question, when do you think there will be revenue contribution?

[Anson Chiu, executive]

We budgeted [ at ] 2025 for now because well, later, you can have a look, but they need to be certified by the clients still. Let me emphasize this once again. This is quite different from what LITEON did in the past. In the past, a big share focused on ODM and OEM, we receive the specs, and we manufacture accordingly. But in the future, LITEON will be a system and solution provider. We will provide a solution. So we will actively approach the clients in the market and provide our best solution. And for it to become a real business, it will take the longer while.

[Unknown Analyst]

Thank you, Anson and Julia for your explanations. Two questions very quickly. First of all, in cloud, do you have AI high-wattage general purpose and AIoT revenue percentages? And previously, you said that you were optimistic about AIoT outlook in the long run, could you also talk about edge computing for next year?Second, you talked about corporate bonds. Do you have the highest dilution extent if it's [ 10 billion ]? What is the percentage of equity dilution?

[Anson Chiu, executive]

Well, this was just approved today by the BOD, and we still need to submit it to the securities regulator for approval before we have the issuance, details and content. With the approval, we will make announcements immediately. So today, it just went through the BOD, and we need to submit it to the securities regulator. After the approval, we will make announcement immediately.Let me use some figures to answer your question. If you look at AI in terms of high power, not the entire company, AI accounts this year for 5% to 6% only. Next year, we may have a chance to achieve 10% to 15%. Of course, this is just a rough range. The revenue CAGR we think is 18%. So by 2025, we will have a chance to exceed 15%. These are roughly the percentages.

[Unknown Analyst]

Hello, Anson and Julia, first of all, let me check a number. You just said 5% to 6% of AI in high power. Previously, you talked about 5% to 8%. So now you're being more accurate. Is it affected by GPU shortage, right? Well, now we can see things more accurately compared to the past. Okay. So the contribution, as you said, is mainly in Q4, right?

[Anson Chiu, executive]

Right now, in terms of volume, yes, Q4 is higher than Q3.

[Unknown Analyst]

Okay. Let me confirm another number. You also said that in Q3, cloud computing power supply was nearly 20%, right? Well, if that's the case, the first 3 quarters also had 20% of -- 20% of accumulative growth. So can you talk about the entire year in terms of Y-o-Y? Is it over 20%?

[Anson Chiu, executive]

Well, for Q3, we have the accurate number is over 30%. If you look at the entire year, on average, it's about 20%.

[Unknown Analyst]

Okay. So for Q3 alone, high power Y-o-Y, it's over 30%. Okay. My last question, you also talked about EV chargers. The revenue growth is not as good as expected. I want to ask you, well, please correct me if my numbers are wrong, last year, it was TWD 2 billion. So this is also the revenue scale this year. Okay. There is some slight decline this year, okay? And you continue to invest in new product development. And when the revenue doesn't grow this year, does it erode some of the OP margin?

[Anson Chiu, executive]

Well, TWD 2 billion as opposed to TWD 100 billion is quite small. It's like 1%. So it's very minimum in our entire net sales.

[Unknown Analyst]

What about profit because more resources are involved. So maybe this year, there may be some loss that well, from my perspective, it's not really a loss because we need to invest in new businesses if you don't improve your R&D, how can you optimize your product? And how can you create differentiation.

[Anson Chiu, executive]

This is why I said in terms of EV charger, Level 3, you can look at it later. You will see our differentiation with the market. It does make sense to launch something that already exists on the market. We need to know where we should win and where our advantages are. That's more important.

[Cheng-Tai Lee, analyst]

Hello. This is Terry from KGI. One question. When we look at IT-related sectors, 2024 is not that visible yet, but I still want to understand a little bit, in addition to cloud and EV chargers, you also have many other businesses that are developing. So are there some new businesses that may have some new results in 2024?

[Anson Chiu, executive]

Well, for 2024 and 2025, in terms of our strategic growth, we've talked to you about the idea of IOE. At the beginning a while ago, we told you that every year, we would continue to launch new products. Next year, you may have the chance to see our energy saving products. Again, under this large IOE framework, we start to have energy -- sorry, energy storage, not energy saving products.So from storage to saving to control to conversions, this series of strategic development is still ongoing. We will launch them step by step. Of course, there is an order because resources are limited. It's not possible to expand suddenly. Next year, the new products will probably be related to energy storage. And also, in terms of on-board chargers, as we said, 11 kwatt and 22 kwatt products will be launched next year probably.

[Cheng-Tai Lee, analyst]

Sorry, I want to ask you because I didn't hear about this. You said that cloud and AIoT was originally [ 6 to 4 ]. And what is the percentage of cloud in high power?

[Anson Chiu, executive]

Well, cloud power supply is mainly for servers. So all of it is high power.

[Cheng-Tai Lee, analyst]

Well, maybe next year is still a bit far, but do you already have some thoughts about next year's growth and direction?

[Anson Chiu, executive]

Well, I think in terms of high power, as I have emphasized many times, if you look at AI in servers, servers have performed fully. It's not just LITEON. The entire market has declined this year. So next year, the growth can return to a moderate growth next year. As for AI, there are now some external factors limiting its development. If the negative factors can be removed, we will start to see a rapid growth again. So back to our company internally in terms of high power, the maintenance of growth next year for high power, we are quite optimistic.

[Cheng-Tai Lee, analyst]

What about opto-electronics?

[Anson Chiu, executive]

Well, it's mainly due to consumer products being affected by inflation and geopolitical factors. So if the entire consumption cannot pick up, it will be difficult for opto-electronics to go up in the short term. Right now, in Q3 and Q4, we had Q-o-Q growth. So it's a moderate growth trend. But for a massive increase, some new things need to be added. And in the future, we focus on 2 markets in terms of opto-electronics. First, auto electronics, we have prepared for 2 years, including LED lights; and another one is photo cover. So these 2 areas we hope can give us more room for growth in the future. Of course, as I said, in order to grow in the future, some M&A strategies need to be implemented as well.

[Cheng-Tai Lee, analyst]

Could you also talk about the Dallas plant and future plant expansion plans?

[Anson Chiu, executive]

Well, our biggest expansion just as we announced a while ago, is in Vietnam. So Vietnam, they become our biggest overseas manufacturing base. As for Dallas, we have prepared for more than 1 year and overcome all the problems, including electricity. If everything is fine in November, we will have 2 lines starting their trial. And next year, this plan should contribute TWD 2 billion to our revenue. And we don't have any other plant expansion plans at least not next year.

[Cheng-Tai Lee, analyst]

So you said that next year, it will contribute TWD 2 billion?

[Anson Chiu, executive]

Yes, the Dallas plant.

[Unknown Analyst]

Hello, Anson. This is [ World Tree Capital ]. The company previously said that for high power, above 3,000 watts, the ASP per watt was USD 0.1 to USD 0.15 and for above 5,500 watts, such linear calculation doesn't work. So now with the shipment, do you have a clear indicator about the unit price?

[Anson Chiu, executive]

Well, we cannot disclose our cost to our competitors. So I can only tell you this. If you look at 3,000 watts and 5,500 watts, the [ later's ] unit price, of course, is higher than the former, but it's not proportionate. Second, the design of 5,500 watts is also more difficult than that of 3,000 watts, meaning its GP is also better than that of 3,000 watts.Okay. If there are no further questions, this concludes our earnings call today. You are welcome to visit our exhibition hall. We have dedicated guys for you. All the content today will be put on to our official website. Thank you for your participation. Thank you so much.