Delta Electronics Inc

TWSE:2308

Earnings Call Analysis

Modest Growth and Margins Dip Amid Expansion

The company reported a slight year-on-year revenue increase of 1% to TWD 107.8 billion in Q3, with a 7% sequential rise. While gross profit (GP) grew 9% quarter-on-quarter, it saw a 1% year-on-year moderation. Q3 net profit after tax was down 15% year-on-year to TWD 9.3 billion, reflecting a varied business segment performance. The EPS for Q3 stood at TWD 3.60 and TWD 9.40 for the first three quarters, a slight decrease from TWD 9.53 year ago. The company plans to maintain R&D investments at a minimum of 8% of annual revenues. Capital expenditures in the first three quarters reached TWD 21.2 billion, with expectations to remain above the TWD 20 billion mark as the company invests in new plants and R&D centers.

Artificial Intelligence as a Key Growth Driver

The demand for AI is anticipated to be a primary growth driver for the company in the long term. This optimism is founded on the increasing integration of AI technologies across various industries, despite the current challenges in forecasting AI revenue contributions due to the nascent stage of AI application business models.

Cooling Solutions' Role in AI Server Performance

The company continues to innovate in cooling technologies for AI servers, providing solutions such as air cooling and liquid cooling. Given the high-density nature of AI servers, these cooling solutions are critical for maintaining performance and will remain a focal point of the company's product offerings.

Awaiting Recovery Signals in the Chinese Market

While the industrial automation (IA) demand in China has been lackluster, the company maintains a positive long-term outlook, expecting a recovery driven by labor strategies among other factors. However, signs of an imminent recovery are not yet visible in the near term.

Impact of Labor Actions and Competitive Pressures

Recent labor strikes have affected order flows in the U.S., but most automotive manufacturers, including Tesla's competitors, have reached preliminary agreements with unions that may help resolve the issue. The company is under pressure to reduce production costs as automakers face cost pressures from wage increases and aggressive competition. Tesla's own price reductions have increased pressure on other automakers to lower their costs, which in turn affects the company's pricing strategies as a supplier.

Standardization in EV Charging to Boost Market Penetration

The company views the standardization of charging technology as a beneficial trend that can lead to increased electric vehicle (EV) adoption. A more universally compatible charging infrastructure is akin to the widespread adoption of charging standards like USB Type-C, which can foster a more EV-friendly charging ecosystem and drive higher penetration rates.

Expanding Global Operations and R&D Capabilities

The company is executing an expansion strategy with construction projects across Taiwan, the United States, Hungary, India, and China. These efforts represent not just an increase in production capacity but also an expansion of R&D capabilities, with new R&D centers slated for development in Thailand, India, and Europe. This global approach is a response to challenges in recruiting technical talent solely in Taiwan due to its shrinking labor market.

Continuing Commitment to Research and Development

Despite the external pressures, the company plans to maintain its R&D investment ratio at or above 8% of annual revenues. This commitment underscores the strategic importance of R&D for maintaining the company's competitive edge and fostering innovation.

Robust Capital Expenditure amidst Expansion

Amidst its expansion, the company's capital expenditure (CapEx) has already reached around TWD 21.2 billion in the first three quarters. This upward trend is expected to continue, with future CapEx projected to remain above the TWD 20 billion mark, highlighting the company's significant investments in new plants and technology.

Navigating Industry Challenges and Geopolitical Tensions

The company acknowledges that geopolitical tensions have an indirect influence on its operations. To mitigate risk and uncertainty, it is diversifying its manufacturing footprint and building capacity outside of China, reflecting a strategic shift to avoid potential disruptions.

Building Automation: A Division with Future Promise

The company's building automation division experienced growth in the first half of the year, though it has encountered a slowdown in the second half. Despite near-term headwinds, the company remains optimistic about the long-term prospects, driven by the increasing demand for energy-efficient, healthy, and intelligent building management systems.

Competitive Charging Station Business Landscape

In the charging station business, the company faces a competitive landscape, particularly for entry-level AC charger products which are lower-priced and more ubiquitous compared to the more lucrative DC chargers. This necessitates strategic pricing and product differentiation to maintain profitability in a crowded market.

Earnings Call Transcript 2023-Q3

[Ying Jun Hai, executive]

Hello, everyone. So welcome to our earnings call today. So before we report financial numbers of this quarter, we would like to make an announcement for the reorganization of our structure. As you can see from the slide as the EV business has grown in significance over the past few years, we've decided to separate it from the Power Electronics segment. So that is to say we are restructuring our existing business categories moving from 3 segments which are Power Electronics, Automation and Infrastructure to 4 major segments, which are Power Electronics, Mobility, Infrastructure and Automation. So this new organizational structure will take effect at the beginning of next year.

As usual, we will have our IRO, Rodney to report to present the Q3 financial results. So meanwhile, I would like to thank you for voting us in the Institutional IR Awards.

[Rodney Liu, executive]

So now we are going to review the financial number of Q3. So Q3 revenue was TWD 107.8 billion, representing a 1% year-on-year growth and a 7% sequential increase. So the sales revenue was seasonal, but slightly below our initial expectations. So GP in Q3 grew 9% quarter-on-quarter, but moderated by 1% year-on-year, which was actually in line with the expectations because the comparison base from last year was actually relatively high. So thanks to the improved scale. GP margin in Q3 increased to 29.6% from 29.2% in Q2 but dropped from the high base of 30.3% a year ago due to the advantaged product mix.

So Q3 expense was up 7% year-on-year and 5% quarter-on-quarter. As a result of wage increases for engineers, the R&D expense grew faster than the SG&A. So the OpEx grew by 7% compared to the previous year. So as a result, Q3 operating profit was up 16% quarter-on-quarter but down 12% year-on-year from the high base of last year. So the OP margin improved to 11.0% versus 10.2% in Q2 but dropped from the high base of 12.7% a year ago.

So the performance by segment varies from one segment to another. So for example, as a combined result of lackluster macro demand and a high comparison base from the previous year, we saw revenue contractions in Q3 for several businesses including IA, BA, telecom power, networking and EV-chargers. While the EV component business, server and server or data center-related power supply business, Energy Storage Systems business continued to see decent growth in Q3. So for the operating profit, Q3, our operating profit was TWD 1.9 billion, slightly increased from TWD 1.6 billion in Q2. The foreign exchange income provided the most incremental gains as to the strength in the U.S. dollars in Q3.

In Q3, we had TWD 13.8 billion profit before tax, up 15% quarter-on-quarter but down 9% year-on-year. EBITDA was TWD 19.7 billion, up 13% quarter-on-quarter, but down 2% year-on-year. Q3 tax expense was about TWD 2.7 billion, representing a 20% effective tax rate. As a result of Delta Thailand's earnings growth, the noncontrolling interest has increased in Q3 from Q2 and a year ago. So Q3 net profit after tax was about TWD 9.3 billion, up 15% quarter-on-quarter but down 15% year-on-year. So the EPS in Q3 was TWD 3.60.

Now we have a look at accumulated numbers for the first 3 quarters. The revenue was TWD 301.2 billion in the first 3 quarters, up 8% from a year ago. Gross profit was up 7% year-on-year, while GP margin was 28.8% versus 29.1% a year ago. The operating expense in the first 3 quarters was up by 11% year-on-year with SG&A up 10% and R&D up 13%. OpEx ratio increased to 18.7% from 18.1% a year ago with the SG&A expense ratio expanding to 10.0% from 9.8% from a year ago. And the R&D expense ratio increased to 8.7% from 8.3%. So the OP was flattish compared to the previous year and OP margin in the first 3 quarters was 10.2% versus 11% a year ago.

So in terms of the performance by segment, we found this in revenue growth in Power Electronics, modest and more from an load increase in automation and flattish growth in the Infrastructure segment. So for the earnings, except Power Electronics saw strong profit improvement. The profits of Automation and Infrastructure shrank from a year ago due to the high base and slow economy Therefore, non-operating profits, we had about TWD 5.1 billion non-operating profit in the first 3 quarters.

In total, we had TWD 35.7 billion pre-tax income, up 3% from a year ago. Our EBITDA was TWD 52.4 billion, up 7% from a year ago. So the effective tax rate was -- for the first 3 quarters was 20%, which has been quite stable. Therefore, the net profit after tax in the first 3 quarters was TWD 24.4 billion versus TWD 24.8 billion. So the EPS in the first 3 quarters of the year was TWD 9.40 versus TWD 9.53 a year ago.

[Ying Jun Hai, executive]

So now we are open to your questions.

[Rodney Liu, executive]

So the first question here is regarding the auto market. So in the recent earnings call of Tesla, Panasonic and on semiconductor concerns about softer demand for electric vehicles were mentioned. So have you seen any signs of slower demand for electric vehicles?

[Ying Jun Hai, executive]

So I think due to the impact of the high interest rate environment, the current macro environment is indeed somewhat unfavorable to the whole auto market. And then as for the strike by the U.S. auto workers has been somewhat -- I mean -- I mean the strike I think the U.S. auto workers have already reached some preliminary agreements with their companies. So in my point of view, I think that the electric vehicle market will continue to grow quite decently, I mean, in the coming years. But speaking of the price of the electric vehicles, I do believe there is actually room to -- I mean, room for further reduction.

And if you look at the prices of the batteries, they have also been coming down, I mean, from the high base in the previous from -- they have also been coming down recently. And then it's going to be helpful on the price reduction of the whole vehicles. So if you are -- I mean, curious about whether the strike in the U.S. had any kind of impact or has any kind of impact on our business. I think to some extent, we did see some impact from the strike. But I think besides the strike in the U.S., there are also many other uncertainties in the market, including the wars between and the geopolitical tensions among many countries.

And then also the petrol price is another critical factor to the inflation. So considering the likelihood of increasing -- continuously increasing petrol price, I think that is still going to be beneficial to the auto market. Because after all, if you put aside about the concerns on the environment, still as a consumer, what really matters is the price of the whole vehicle. So I think that is going to be -- I mean, one of -- it is going to be helpful for the auto market.

[Rodney Liu, executive]

So the last question would be the outlook for Q4 and for the next year. What are the main growth drivers? And what is the trend in revenue and gross margin?

[Unknown Executive]

So in terms of sales momentum, I think the sales momentum in Q4 is going to be similar with Q3. And for next year, we do expect some recovery for the businesses across many segments.

[Rodney Liu, executive]

So -- and then are there any signs of demand recovery in consumer electronics?

[Unknown Executive]

I think it's difficult to say that we have already seen a recovery. But it hasn't really returned because it has not really returned to positive growth after all. However, compared to before, the pace of decline has in this significantly slowed down. So next year, I think it's going to be better, I mean, with the low base of this year.

[Rodney Liu, executive]

So could you please, I mean, comment on the revenue contributions, order visibility, capacity status, future growth prospects and gross margin range for the AI server power supplies?

[Ying Jun Hai, executive]

I think if you look at hyperscalers, the major hyperscalers, they are all in fierce competition in building up their capability in the high-performance computing as well as the AI technology. But if you ask me about the sales contribution to our overall revenues, I think it's hard to estimate because as I explained before, even though they are -- I mean, the hyperscalers, they are in fierce competition in this AI technology development, but still, -- they still lack the business models of AI applications. So whether or not -- I mean, they can -- or we as a supplier, again, translate their ambitions in the AI department to the real shipments of the products or revenues. It's hard to hard to make a forecast.

So for the AI technology, it is pretty costly, not just on the CapEx level, but also on the OpEx level, which means that the running cost of AI models is highly costly to those hyperscalers. and then also the AI -- I mean, in order to run the AI models, it can be usually -- it can be, I mean, super power hungry. I mean, those equipment are super power hungry in order to run the AI training models. So at the end of the day, what I was trying to say is even though that we are really optimistic about the development of the AI trend, but still, it's all -- I mean, coming back to whether or not we can, I mean, see mature business models, I mean, in the market in the near term, which we can. Because if they do -- I mean, for the customers, if they don't find applications or the business models, those investments could not be sustainable.

So in short -- so I think the AI -- I mean the AI demand is definitely going to be one of the main growth drivers for the company in the longer run.

[Rodney Liu, executive]

So my next question is, can you please give us more color on the revenue contribution and outlook for the cooling solutions of AI servers?

[Unknown Executive]

So we actually provide various cooling solutions, including air cooling and liquid cooling. So I think if you look at -- I mean, density for the AI servers.. The cooling technology is going to be -- I mean, play a vital role in the AI development. So I think that we will continue to work on this.

[Rodney Liu, executive]

So my next question is what are the conditions for the recovery of IA demand in China. When can we expect a more significant recovery?

[Unknown Executive]

So I think the IA market in China this year has been somewhat lackluster. But still considering the labor strategies and many other factors in the China market, that is -- I mean, at some point, we still think that this China labor market is going to recover -- is going to recover. But just -- I mean, in the near term, we haven't really seen any significant or any -- I mean, obvious sign of recovery for this market.

[Rodney Liu, executive]

So how do you see the impact of UAW strike and Tesla's aggressive price reduction?

[Ying Jun Hai, executive]

According to the U.S. customers, the strike has indeed had some impact on the order flowing of our products. But as I said, I think most automakers have now reached preliminary agreements with the union. And we also hope the strike will come to an end soon. I think the wage increases, I mean on the U.S. automakers, I mean, it's going to put some cost pressure on their cost structure because they are not going to -- they are not, I mean, just competing against each other and Tesla, but also the Japanese automakers and Chinese automakers as well. So the cost structures of the Chinese players and the Japanese players can be very different from the European or the American automakers.

And then speaking of Tesla's aggressive price reduction, I think Tesla's price reductions have put significant pressure on all automakers. So it will definitely affect the procurement prices for other OEMs as well. So as a supplier, we must continue to reduce production cost to support our customers in lowering their relatively high prices of their vehicles.

[Rodney Liu, executive]

So how do you see the impact of automakers adopting Tesla's standard? Has shipment based on the not standard resume?

[Ying Jun Hai, executive]

I think the case for the Chinese standards is just a little bit similar to the charging standard, I mean, the charging pad of type C. So eventually, in order to make the charging environment more friendly, so the chargers prices are going to be universal. So I think that is good for the overall market to further increase the penetration rate of the electric vehicles with the availability of better or more friendly charging ecosystem.

[Rodney Liu, executive]

And then what are the expansion plans for the new year? And what is the current capacity in Thailand and India?

[Unknown Executive]

We are following the previously mentioned plan for expansion. Currently, we have new batteries under construction in Taiwan, a and the United States, Hungary, India and Chongqing, China. I think they will contribute to capacity gradually. Thailand, India currently accounts for about 30% of the company's capacity. And there is still some room for further expansion. Just in the stage of expanding our footprint in many markets. So we're not only building up our capacity in Thailand, but also we are building up an R&D center in Thailand.

And then we also have another R&D center in Bangalore in India. And then also in Europe, we also have a plan to build up a new R&D center there. So it's not only about the capacity expansion, but also about the expansion of our global operations and footprint. So I think if you look at the labor market in Taiwan, I mean considering the shrinking population, it's actually getting more and more challenging to recruit enough engineers and good workers, good employees. So that's the reason why we will need to recruit the engineers, I mean, from other regions, I mean, limited to the engineers, I mean, in Taiwan.

[Rodney Liu, executive]

And why was there improvement in gross margin and operating margin in Q3 compared to Q2?

[Ying Jun Hai, executive]

The improvement of Q3 -- in Q3 compared to Q2 was primarily due to an increase in economies of scale and some minor product portfolio improvements.

[Rodney Liu, executive]

And the next question is how should we assume the future R&D expense ratio?

[Ying Jun Hai, executive]

So I think the guidelines we made -- it's highly likely that we will continue to invest at least 8% of our annual revenues into R&D every year. So after all our commitment to R&D will remain, I mean on wafering and it is actually the source of our competitiveness.

[Rodney Liu, executive]

So what are the CapEx plans for next year and for this year?

[Unknown Executive]

So our CapEx for the first 3 quarters has already reached around TWD 21.2 billion. So it is estimated that the total CapEx for this year will increase from last year. So in the coming years due to the construction of several new plants and R&D centers, the need for machinery and equipment for expansion, the demand for automation -- I mean, other CapEx is expected to remain above the TWD 20 billion mark.

[Rodney Liu, executive]

So has the U.S. strike control and the Chinese market impacted your business?

[Ying Jun Hai, executive]

I think such conflicts do have some indirect impact on our business, but not a direct impact. So that is the reason why -- I mean there are so many companies. They are actually also building up their capacity overseas, not limited to China because of the increasing geopolitical tensions.

[Rodney Liu, executive]

So what about the Building Automation business? When do you expect to see improvement?

[Unknown Executive]

Well, building automation -- I mean we actually had pretty decent growth in the first half of this year, mainly because many projects with longer delivery times that were secured before the economic slowdown were still be shipped. However, we have seen, I mean, a clear slowdown in the market in the second half. So I mean, looking ahead, I think there are multiple drivers driving the secular growth of this market and this business. So for example, the increasing requirements for energy efficiency in a healthier environment and then also the requirements for a smarter building automation management. So in long run, we are still quite optimistic about the growth, I mean, for this business. But just in the near term, there might be some headwinds for the business to cap the growth in the near term.

[Rodney Liu, executive]

So can you comment on the profitability for the charging station business?

[Unknown Executive]

There are actually a wide range of charging products. So for example, for the entry-level charging product, which is the AC chargers, the prices, I mean, of this AC chargers are significantly lower than the DC chargers and also the market is more competitive.

And what we are seeing in the market currently is if you look at the China auto market, there are something called switching batteries vehicles. So in order to support this -- I mean, the system of switching batteries that you got to have the fast chargers to charge the batteries fast enough. So we do think that -- I mean the trend of, I mean, more and more increasing numbers of switching battery -- switching battery cars is going to be one of the tailwinds for the penetration of the EV chargers in the market.

So I think there are actually -- I mean, there is actually plenty of room for the further development and further upgrade of the charging of the EV charger products in the market. And then also, there is also plenty of room for further price reduction for the products as well.

[Rodney Liu, executive]

So how has the performance of data center solution been this year?

[Ying Jun Hai, executive]

I think like -- just like many other businesses, this market has slowed down, I mean, this year for the conventional or general servers. But we should still achieve modest positive growth for this business.

[Rodney Liu, executive]

So have you seen a restocking in the PC market. Does AI PCs like AI servers have higher power demands that can drive the value of power supplies?

[Ying Jun Hai, executive]

So to be honest, I totally do not get the idea of AI PCs, what they are really for. Okay. I will have our CIO [ Lanford ] to, maybe to give us share his insights.

[Unknown Executive]

I think there are actually many emerging terms in the market. But in my perspective, I think AI PCs are just like the extension of gaming PCs.

[Rodney Liu, executive]

So for the new segment called mobility, will you start to disclose your financial numbers with these 4 new segments from next quarter.

[Unknown Executive]

And I mean whether or not infrastructure -- I mean, the charging infrastructure business is part of, I mean, this mobility segment.

[Ying Jun Hai, executive]

For the second question, the answer is no. Because the EV charger is actually part of the infrastructure. So we keep it within the infrastructure segment. So we only [indiscernible] onboard EV components from power electronics, and then we make it a new segment call Mobility. This new segment will go in to take effect from the beginning of next year. So for Q4 revenues, we will continue to use the existing -- I mean, the current business category to disclose our numbers. So we will start to disclose the numbers, I mean, with the new business segments from Q1 of last year.

[Rodney Liu, executive]

So -- and then I have a question regarding the telecom power business. When do you expect to see a recovery for the telecom power business?

[Unknown Executive]

I think that next year is going to be better than this year.

[Rodney Liu, executive]

So what is the sales contribution of your EV-related business, for this year, for next year?

[Unknown Executive]

This year is around 12%. I think it's probably around 12%. And next year, it is going to be higher.

[Rodney Liu, executive]

And the next question is regarding the sales contribution of the AI servers or AI-related products?

[Ying Jun Hai, executive]

So I think we have -- I mean, explained this before. There isn't really a very clear or specific definition about the AI servers. So our definition is, okay, despite the [ bad debt ] I mean there is not really concrete -- I mean definition for the AI servers, but we define the servers with the GPU as AI servers. So I think for the AI servers or for the GPU-based servers, we not only provide the AC adapter -- AC power supplies, but also provided DC to DC power supplies to the AI servers.

For the sales contribution for next year, I think, at this moment, because we are still in the process of finalizing the budget for next year. So what I can be sure is that next year is definitely to see, I mean, pretty significant growth. But in terms of the sales contribution or as a percentage of our overall revenues, it's hard to predict.

So are there any other questions?

[Unknown Analyst]

So as you said, there was some impact, I mean, from the UAW strike. So as far as I know that, I mean, the EV business is turning to a profitable business this year. So would there be any impact on the profitability because of this UAW event?

[Ying Jun Hai, executive]

No, I think the profitability of the EV business is more related to the economies of scale. Despite -- I said, I mean, there was some impact on the business, I mean, by this UAW strike from this UAW strike. But because those factories with the strikes are not really the factories making the electric vehicles. So the impact from the strikes is actually much, much less than the impact from the high interest rate environment. So in the early days, the borrowing interest rates was around 1% to 2%. But recently, it has already come to a level of 8%. So the high interest rate environment will still eventually to, I mean, have some impact on the demand and the macro demand.

[Unknown Analyst]

So I have a follow-up question on the EV business. So do you have any -- can you give us any guidance on the profitability or the margin profiles of the Mobility segment?

[Unknown Executive]

I think the nature of the auto business, I mean, for everyone in this market, the margins that I mean, are not going to be -- they are not -- I mean, this business is not going to be a high margin business anyway. So I think ideally, the GP margin should be somewhere around 15%. But well, the reason why we separate this business and make it into a new segment because we naturally want to make -- to be more transparent, of course, our investors.

[Ying Jun Hai, executive]

I think I can provide you, I mean, give you an advice on the profitability forecast for these EVs. So I think that when you look at margin profile for this Mobility segment or this EV business, I think you can picture it as a contract manufacturing business. So if you look at the contract manufacturing guys, I mean, in Taiwan, even though their GP margins and OP margins are actually relatively low. But because they actually, in terms of the turnovers and the overall scale of the businesses are, I mean, pretty large. So still, the returns and profits on a dollar basis can still be pretty decent for the investors.

[Unknown Analyst]

So I know that, I mean, there are many competitors in the market for the EV business, just like what we know, Japan is -- one of the Japanese companies, they actually have been always pretty ambitious about their goals. So what do you see the competitive landscape in this market?

[Unknown Executive]

So I think -- I mean, the only the big companies, I mean, they can really join the game in this market. It is actually 1 or 0 market, which means that if you don't get the side win, I mean, today, that you won't secure the orders and revenues in the next 3 years for a certain model.

So well, if you were the supplier for the EV market in the CEP market. I think that it just requires pretty high capability and expertise in the product size and manufacturing, but also requires pretty high level of your capital or financial preparation. For example, once you get the design wins or the project wins from customers, that before you are going to the stage of mass production that you -- before you need to get a qualification for your production line for 1 year. And so the cost -- it's already there before you can make the revenues and make money from the business. So this business nature and the business model is actually pretty challenging for the companies. So only the large companies can have this capability to handle this.

[Unknown Analyst]

So can you please provide more colors on your thermal management products or solutions for AI servers or for other ICT obligations?

[Unknown Executive]

I think that we not only provide cooling products for the ICT space, but also we provide cooling solutions for the auto space as well. So we actually also provide the cooling products for the batteries on the vehicles. I think we actually are seeing increasing sales contribution from the auto application for -- I mean, within our cooling fan business.

[Unknown Analyst]

So my question is, is the qualification process for the GPU-based server is longer than conventional servers?

[Unknown Executive]

No, I think they are similar to other service because we have been always been producing the high powers.

Yes. Because the basic technology for the higher power output products is actually similar. So I don't think there is any significant difference in terms of the qualification process.

[Unknown Analyst]

Okay. So can you give us any updates with your lawsuits I mean, against Vicor?

[Unknown Executive]

So because it's -- I mean, still in the legal proceeding, so we are not allowed to, I mean, share any comments or updates on this.

[Unknown Analyst]

Do you have any target for the ideal debt ratio?

[Ying Jun Hai, executive]

Considering the current higher interest rate environment -- so yes, I think the high interest rate indeed has an impact in many aspects. So that is also one of the reasons why we just sold some of our shares of Delta Thailand recently because by -- I mean selling the shares, I mean, of Delta Thailand that we were able to pay down some of the debt.

[Unknown Executive]

So we will continue to, I mean, invest in China. So we actually are still -- I mean, despite many overseas -- I mean, new overseas capacity, but we are still, I mean, in the process of expanding our investments and capacity in China in many different provinces. So we are not really moving away from China, but just overseas capacity, outgrowth, I mean, in terms of the pace of expansion outgrow the capacity in China.

So I think our goal, I mean, for the capacity, I mean, the China capacity as a percentage of overall capacity is struggling near or around 50% eventually. And then as I said, we are not really moving away from China because if you look at the manufacturing environment in China or the whole supply chain, it's highly, highly efficient and is way more efficient than any other markets even compared to Thailand. So that's the reason why we will continue to, I mean, invest in China.

So we are just in the process of diversify our global footprint. But it doesn't mean that we are -- I mean, lowering our investments in China. So I can be sure that the capacity of overall capacity -- I mean China capacity is definitely going to be above 50% mark.

[Unknown Analyst]

So can you share the outlook for your China market?

[Unknown Executive]

So well, we don't really have many direct exposure to the China market. So I think in terms of the sales, China, I mean, sales to the China market is only below 15%.

[Ying Jun Hai, executive]

So thank you for coming today. Thank you.

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