Asustek Computer Inc

TWSE:2357

Earnings Call Analysis

ASUS Reports Record Q3 Revenue, Focuses on AI and Gaming Growth

In Q3 2024, ASUS achieved record revenue of TWD 156.7 billion and a net income of TWD 12.5 billion, reflecting a strong market position driven by gaming and AI PCs. The company expects a 15% sequential decline in PC revenue for Q4, with a year-on-year growth of 20%. As they prepare for 2025, ASUS anticipates significant market penetration of AI products, aiming for 20-30% for AI PCs in 2025. Their server business is projected to grow fivefold, with active shifts toward AI-driven products. Continued investment in AI and gaming remains central to ASUS's growth strategy.

Strong Quarterly Performance Sets New Milestones

ASUS recorded a remarkable third quarter for 2024, achieving a record brand revenue of TWD 156.7 billion, marking a significant 15% increase from the previous quarter and a 24% increase year-over-year. This growth in revenue was aided by a robust operational performance, which saw net income after tax reach TWD 12.5 billion, representing a 6% quarterly growth and a 13% increase from the previous year. The earnings per share also impressed, standing at TWD 16.8.

Key Growth Drivers and Regional Performance

The substantial growth was supported by market share gains in gaming laptops and Copilot+ PCs, with the Asian market—primarily China—contributing significantly due to demand driven by popular games and government economic initiatives. Notably, ASUS's gaming products now constitute over 40% of total revenue, highlighting the importance of this segment for overall growth.

Strategies Shaping Future Growth

ASUS co-CEO, S.Y. Hsu, identified ongoing transformations towards AI product lines as a key strategy, declaring that generative AI presents an unprecedented opportunity for growth. The company plans to lead the market by launching various AI platforms and solutions, thereby solidifying its leadership position in the market. ASUS aims to maintain competitive advantages by leveraging AI throughout its three main business segments.

Operational Focus and Future Investments

With a continued focus on AI and Gaming, ASUS will invest strategically in commercial PCs and AI servers. Looking towards the future, ASUS anticipates increased research and development (R&D) expenses while preparing for potential seasonal fluctuations in demand. The expected decrease in PC product revenue of about 15% sequentially for the fourth quarter is counterbalanced by a 20% year-on-year growth projection, with components and servers expected to see a 5% to 10% sequential increase along with over 30% growth year-over-year.

Market Outlook and Growth Projections

As for the overall market, ASUS expects the PC market to grow between 3% to 5% in 2025. AI PCs—highlighted as a key growth area—are projected to reach a market penetration rate between 20% to 30% in 2025, potentially evolving to 60% or more by 2026. This reflects ASUS's commitment to adapting its product lines and ensuring they meet the requirements dictated by current technological trends.

Challenges Ahead and Competition Landscape

Despite the positive outlook, ASUS faces challenges in the form of a competitive AI server market and shifts in consumer demand driven by new technology trends. The company has noted a focus on securing extensive orders for its GB200 server units, set to launch after the ongoing validation phase, with increased volumes expected by Q1 2025. This forward momentum will be critical as ASUS navigates through the prevailing uncertainties associated with seasonality and market fluctuations.

Closing Thoughts: Long-Term Vision

ASUS's management remains optimistic about the coming quarters and intends to solidify its leadership positions across critical segments, especially in AI-related markets. They are proactive in their long-term strategies, focusing on both consumer and commercial segments to ensure sustainable growth. Overall, ASUS's current trajectory positions it well to capitalize on upcoming trends, particularly in AI and gaming.

Earnings Call Transcript 2024-Q3

[Operator]

Hello, welcome to the ASUS Quarter 3 2024 Online Investor Conference. Today's conference will be held by ASUSTeK Computer Co-CEO, S.Y. Hsu and Samson Hu alongside CFO, Nick Wu.

The conference will be divided into 2 parts. In the first part, CFO, Nick Wu will start by outlining our quarter 3 financial results. Next, our 2 co-CEOs will go over the operational strategies and business outlooks for ASUS. For the second part, we will be conducting a Q&A session.

You are welcome to raise any questions you might have in the panel on the left side of the web page. Questions will be collected and answered. Let us start with the presentation from CFO, Nick Wu.

[Nick Wu, executive]

Good afternoon, everyone. Please allow the team to make sure that the slide numbers in the materials we have distributed are consistent with the what I have.

Please allow us a moment to make sure that the page numbers are aligned. Okay.

Then please turn to Slide #5. Here, we have an overview of ASUS brand income statement for quarter 3 2024. Revenue in quarter 3 reached TWD 156.7 billion, a quarter-over-quarter increase of 15% and year-over-year increase of 24%. Operating profit came in at TWD 11.1 billion, up 4% from the previous quarter and 32% from last year. Net income after tax was TWD 12.5 billion, representing a quarterly growth of 6% and an annual growth of 13%.

Earnings per share for the third quarter were TWD 16.8. Gross margin was 17.1% and the operating margin was 7.1%. This is a significant excellent performance. We have significantly outperformed our earlier forecast on both operational and profitability. Breaking down the growth drivers from different perspectives.

First, on the product side, ASUS has achieved notable market share gains in both gaming laptops and Copilot+ PCs. We have achieved steady share expansion outpacing industry peers. Regionally speaking, China's market has actually driven a substantial portion of growth for ASUS in quarter 3. This was driven by the popularity of major game titles and also supported by government economic stimulus and consumer subsidies, both of which have spurred demand and boosted shipments in the China region.

From an operational management perspective, the ASUS performance in quarter 3 met our expectations, with successful inventory management and partial reversals of inventory write-downs contributing to our overall profitability. In summary, these factors underpinned ASUS quarter 3 revenue and profit.

Now moving on to the next slide. For nonoperating items, investing income totaled TWD 560 million with foreign exchange gains of TWD 2.33 billion and dividend income at TWD 1.09 billion due to a sizable dividend from an investee company recorded in quarter 2, there was an approximate TWD 1.8 billion dividend income that quarter, while quarter 3 dividend income came to TWD 490 million, totaling non-op income in quarter 3 to around TWD 4.05 billion.

Next, on the balance sheet. Overall, management aligned with our expectations. Net inventory decreased from TWD 145.3 billion last quarter to TWD 138.6 billion this quarter. This met our management targets. For further details, please refer to the slides we have provided.

Turning to the next slide. This is our revenue breakdown by business unit. The system business group accounted for 64%, the Open Platform business group 34% and AIOT business group 2%. Regionally, Asia contributed 48%; Europe, 29%; and the Americas, 23%.

Next slide. Looking ahead to quarter 4 2024. In terms of market demand, we have had a very high volume of demand for quarter 3. Currently, quarter 4 demand appears relatively uncertain. Discussions with channel partners suggest that they will be adopting a more cautious approach to inventory and operational management. For operational management, ASUS has achieved significant gains and competitive advantages in the gaming and Copilot+ PC segments in quarter 3.

We plan to expand investments to solidify our long-term strength in these 2 key markets, which we have already secured a lead in. We anticipate that for quarter 4, we will have increased R&D and development expenses. Given the potential seasonal demand fluctuations, we will also strategically deploy marketing and channel promotional activities. Considering the overall environment and strategy for quarter 4, we expect the quarter to remain relatively stable for ASUS with a focus on preparing for growth cycles.

So overall, for quarter 4, I do believe that the season will prove to be relatively stable. What's important is that going into 2025, we will set up ourselves for success. This includes potential upgrades in gaming products and graphic cards in early 2025, and perhaps the introduction of more diverse AI products, AI PCs throughout the year, starting from early 2025.

These are areas in which we are proactively laying out long-term strategies for. So as for our quarter 4 outlook, we expect that the PC product revenue will decrease by about 15% sequentially, but it will nonetheless be a 20% year-on-year growth. For components and servers, we anticipate 5% to 10% sequential growth and over 30% year-on-year growth.

This concludes the financial outlook. Next, I'll hand the mic to our 2 co-CEOs for the discussion on the ASUS strategy and operational outlook. Thank you.

[Hsien-Yuen Hsu, executive]

Good afternoon, investors and members of the media. First, I would like to thank everyone for joining ASUS Quarter 3 earnings call. I am ASUS co-CEO, S.Y. Hsu. I am pleased to share ASUS's outstanding quarter 3 2024 results with you. In quarter 3, ASUS achieved a record-breaking brand revenue of TWD 156.7 billion, setting a new high. Our net income after tax also reached a record TWD 12.5 billion with earnings per share at TWD 16.8. In the first half of 2024, ASUS demonstrated excellent execution, enhancing operational efficiency and advancing AI-driven transformation.

This improved our overall effectiveness and produced remarkable financial results, as you can see in the chart. ASUS net income is steadily progressing toward our original targets, although quarter 4 may see some seasonal fluctuations. We expect annual profits to meet our projections. As we enter the second half of 2024, we anticipate a new growth cycle driven by AI. ASUS will lead the initial wave of AI PC products, launching several AI platforms and solutions to foster growth within the company and the broader AI field. We will continue to expand our competitive edge and solidify our leading position on the market.

Moving on, I will outline ASUS strategy and goals. This year, I think one of the hottest topics has undoubtedly been generative AI as our Chairman, Jonney Shih announced at COMPUTEX, ASUS is transforming into a full spectrum AI company. He emphasized that AI presents a once-in-a-century opportunity for the PC industry, leveraging this momentum to drive ASUS growth has naturally become a core strategy for us.

Each of our 3 core business groups has distinct focus areas, the Systems BG is fully dedicated to AI PC development and has already achieved solid results in the market for the AI Server BG following a fivefold growth target achieved earlier this year, is set to start shipping the latest GB200 products with client orders expected to commence next year. For the AIOT BG, meanwhile, we are using generative AI to enhance existing products and deliver complete solutions. We believe that this phase is -- this phase of rapid generative AI development is ideal for product innovation, allowing us to secure market leadership and improve customer satisfaction.

The second key area is our core product lines. Over the past few quarters, ASUS broader gaming products have come to represent over 40% of our total revenue, making gaming as an essential area of growth. In addition to gaming motherboards and Graphic cards, we are maintaining our market share also in gaming notebooks accessories, especially for keyboards and mice. These 2 products have received consumer price, which encourages us to continue to innovate and maximize customer satisfaction to capture this fast-growing market.

On the market front, ASUS has traditionally allocated more resources toward the consumer segment and has achieved solid results there. Our latest initiative is expanding into the commercial sector. The commercial PC BU involves engaging with government, corporate and business channel partners. For the Server BU is associated with growing -- associated with cloud data center clients and the AIOT BG is focused on various industries.

Our goal is to maximize corporate user satisfaction and establish a growth path for new market share strategies through maximizing user satisfaction, The progress should become more visible over time. Regarding AI PC, ASUS is leveraging its strong R&D and innovative capabilities to lead the industry with the launch of the most comprehensive AI notebook lineup in 2024. Our lineups cover consumer, business, creative and gaming users with options across Qualcomm, Intel and AMD platforms. Customers have a full range of choices.

Given our solid market foundation, we are pleased to announce that ASUS is the leading brand in the Copilot+ PC market, capturing over 25% of market share. This milestone demonstrates our commitment to innovation and AI leadership. We believe that 2024 is just the start of the AI PC development cycle. The AI PC product upgrade cycle will span multiple years and ASUS will continue to expand its market influence and deliver top-notch products and services based on our insights into customer demands.

Next page. ASUS has long cultivated growth in the gaming segment, achieving a compound annual growth rate of over 15% from 2020 to 2024, highlighting the vast potential of the gaming market and ASUS leadership in this space. In quarter 3 2024, ASUS gaming PC market share grew 20% year-over-year. This is an impressive feat as our overall market share has reached 30%. This impressive growth again underscores our strong market position and leadership. To further strengthen our gaming market advantage, ASUS will continue to invest in developing a complete gaming ecosystem.

We aim to deliver the best gaming experience, investing in both hardware and software to elevate user satisfaction and engagement.

Now I'll hand it over to Samson for a more detailed presentation. Thank you.

[Samson Hu, executive]

Hello, everyone. I am ASUS Co-CEO, Samson Hu. I will now go over the performance of each business group and highlight our key strategies. First, the System Business Group recorded a year-over-year revenue growth of 15% to 20% in quarter 3. This was driven by effective execution and product strength. Key factors include prudent inventory management, product portfolio updates and streamlined product shipment cycles.

According to market research, ASUS quarter 3 shipment volume increased over 10% year-on-year, more than 30% quarter-on-quarter, outperforming the industry average by a large margin. Furthermore, ASUS has maintained its leading position in the gaming laptop market. We continue to enhance the ASUS gaming experience and push our market share to a record high of over 30%. As previously mentioned, we launched the most comprehensive cross-platform Copilot+ PCs in 2024. In this initial launch phase, we captured an impressive 25% market share, reinforcing our leadership position.

Copilot+ PCs contributed to a higher-than-expected share of ASUS' overall laptop revenue in quarter 3 as it reached a middle to high single-digit numbers. We believe that 2024 is only the beginning of the AI PC growth cycle, and we are confident in continuing to leverage innovation to expand both our market influence and mind share among customers.

Next slide, please. In our open platform business group, quarter 3 revenue grew significantly by 35% to 40% year-over-year. Revenue from Graphics cards, including both premium and gaming series grew by 5% to 10%, maintaining our leadership in this premium and gaming segment. AI Server sales have also achieved several fold year-on-year growth.

For quarter 3, our internal share of brand revenue in this segment exceeded double digits for the second consecutive quarter. On a full year basis, as previously stated, our Server revenue is on track to grow fivefold by the end of 2024. As for securing new customers and client orders, we have the initial orders for the GB200 units, which will further support our progress in the AI server market.

Now moving on to the next slide. For the AIoT Business group in quarter 3, we sustained the high growth momentum from quarter 2, achieving 150% year-on-year revenue increase. The NUC product line, in particular, was a major contributor with ASUS expanding AIoT sales channels and broadening its user base to include professional, commercial and industrial sectors.

Now to give an example, we codeveloped a high-performance AIoT NUC platform with Intel and it was successfully adopted by a well-known semiconductor testing and packaging equipment brands for high-speed signal processing applications. I think this is without a question an important advancement and an important milestone. The ASUS AIoT business group will continue to work closely with partners and advance in areas such as smart cities, smart manufacturing, health care, retail and others.

Next slide, please. Now thanks to years of strategic investment, ASUS has established itself as a leading gaming brand with ASUS ROG. In August, ASUS achieved over 33% market share in the gaming laptop market, particularly approaching 50% market share in high-end models that make use of the RTX 4080 and RTX 4090 series GPUs. The ROG brand was also recently nominated by the Times Magazine as the world's best gaming hardware brand, a significant honor, I'm sure. Additionally, we have won multiple best gaming laptop awards from major media outlets, further solidifying our leadership in gaming laptops and boosting market share.

Looking ahead, ROG is introducing virtual AI assistant. It was unveiled at Gamescom. The virtual assistant leverages the Llama 3 language model and runs on AMD Ryzen AI 300 series devices. It allows users to interact directly with the virtual assistant for an enhanced experience.

ROG also unveiled its first thin and light NUC gaming device, which provides high-performance gaming in compact format. Lastly, we have also continued our engagement with the community to expand our reach to more potential users. Recently, we launched video series titled Exploring Republic of Gamers. The video features influencers in gaming and tech, sparking strong discussion across gaming media and forums. And it is worth noting that the second video of the series will premiere globally next week to maintain this momentum.

And this concludes the operational updates for each of our business groups and key product lines. Thank you.

[Operator]

Thank you to our CEOs and CFO. We'll now proceed through the Q&A.

[Operator Instructions]

Thank you. Our first question comes from Morgan Stanley.

First, we would like to congratulate ASUS for its excellent results in quarter 3. Now as you mentioned, therefore quarter 4, there will be more R&D and retail-related investments and expenses. Can you talk about your operating margin and gross margin expectations for quarter 4.

[Nick Wu, executive]

I'll be answering this question. Now firstly, for quarter 4, we will be experiencing changes to our product cycles because historically, for Graphics cards and motherboards, they have sold relatively poorly in quarter 4. While for integrated systems products, they have sold well for quarter 4. So due to this trend, we have naturally expected that our gross margins will naturally adjust downward as course of the seasonal changes.

Now that is, of course, due to the changes to our component product sales. Now as for operating margin, as we mentioned previously, ASUS is focused is on its proactive position in the market, both short term and long term. Now we know that even though quarter 4 is perhaps less performance season. But as we continue to maintain an active stance for R&D and retail promotions, we will -- we are confident that this will aid in our long-term growth cycles. So overall, we believe that for quarter 4, it will match our previously set long-term operating margin targets, which is about a 4% to 5% operating margin percentage.

Now going forward into 2025, we expect to see the upgrade cycle for gaming products to kick in, and this will possibly last throughout 2025. Markets such as AI PC and increases to the market penetration of these AI PC markets will also help ASUS ascertain its leading position in the market, owing to the product upgrade cycles, increasing our company value as a whole.

[Operator]

The next question comes from JPMorgan. We would like to congratulate ASUS for its excellent results in quarter 3. Can you talk about how big of a percentage does Server business group account for. In particular, how much does the AI Server contribute? Also, can you talk about the challenges of sales from AI servers.

[Nick Wu, executive]

Okay. So for quarter 3, I think we can look at this on a few different perspectives. I think back in quarter 2, I think that in the earnings call, we reported that to be 10% to 15%. So for quarter 3, we also expect AI Servers to fall in this range. AI servers still account for the majority of our Server business group sales, about 80% of the business group.

As for quarter 4, we expect that the growth will probably be a continuous growth from season 3 -- from quarter 3. But as for whether we will be able to acquire more orders from competitors, that is something that we will -- we cannot make clear at this moment. But what I will say is that we are committed to the cultivation of this product segment, this market segment and to the expansion of the business group as a whole.

So I'm sure as we provide competitive products, we will be able to get more orders.

[Operator]

The next question comes from JPMorgan. As you mentioned before, the first wave of GB200 orders have already arrived. Can you confirm when you expect to ship those GB200 Servers? And also, can you talk about the clients to which the servers are going to and also the profitability from the GB200 products.

[Nick Wu, executive]

Okay. I will answer this question. Now for the first 3 quarters, our product center on the H100 chips. Starting October, we have started to see H200 and GB200 chips. And as we mentioned, we have started to receive orders for GB200 chip products. But currently, we are in the validation stage, which means there will be less shipments for validation purposes.

Now per customer expectations, we expect to officially increase volumes by quarter 1 2025, but that will ultimately depend on how NVIDIA is able to supply us with chips. We are overall optimistic about the prospects of these orders. We will work closely with suppliers to ensure that our Server products can be delivered promptly to satisfy customer demands.

[Operator]

For the next question, from Commercial Times, we would like to ask the co-CEOs whether ASUS is -- how ASUS is performing in the gaming PC and the commercial PCs for its Europe, Americas and China regions, okay?

[Hsien-Yuen Hsu, executive]

So I think that for Europe, Americas and China, I think that was something that was already covered by CFO, Nick Wu. So in terms of the relative percentages, it's more or less corresponds to what we have already talked about. But as for the China market, I think it accounts for the highest percentage. This has indirectly pointed out to the fact -- indirectly correlated to our excellent results for quarter 3.

The main cause of which I think is because of the release of the game Wukong Black Myth because this was AAA title with relatively high hardware demands. And this popular software has driven the sales of these high-end hardware. This in combination with subsidies from the Chinese government that targets both the high-end notebook and the gaming notebook laptop markets have significantly benefited ASUS.

[Operator]

Okay. So the next question from the Commercial Times again, can you talk about whether you are seeing the replacement cycles for commercial PCs to kick in right now.

For 2025, how do you treat the prospects for the market as a whole?

[Hsien-Yuen Hsu, executive]

Okay. So for the commercial PCs. I think there are a few factors at play here. Firstly, is Windows 10 is starting to reach end of life status. So starting from early next year, we anticipate that Windows 11 will drive some replacements of the commercial PCs. Other positive factors also come from the fact that the PCs from the work-from-home periods during COVID will likely start to be replaced starting early next year.

So these 2 factors in tandem will likely aid in the sales of commercial PCs next year. Another topic of discussion, of course, is AI PCs. Now for the AI PCs will mainly benefit the consumer market or mainly in the commercial market. We do see AI PCs play out in both markets. So the whole, we think that talking about commercial PCs, both Windows 11 and the COVID-driven upgrade, replacements and implementation of AI PCs have all -- will all be positive driving factors.

[Operator]

Okay. The next question comes from UBS.

Will ASUS consider using mergers as a way to promote the growth of its Server business units?

And also in terms of manufacturing strategies, is ASUS relying on in-house manufacturing or external contractors. And a more detailed question is regarding your GB200 products, are you manufacturing them based on the NVL72 versions or the NVL36 versions.

[Hsien-Yuen Hsu, executive]

So ASUS has always been open to the possibilities of mergers, provided there are good opportunities and good partners. We are open to the possibilities of mergers. But besides mergers, ASUS has invested a lot of resources to increase the R&D capabilities for ASUS in terms of the Server market segment. So starting last year, we have had some very experienced foreign hires coming to the company to help us better our growth.

Regarding our manufacturing strategy, I think ASUS has started as a brand which is why for manufacturing, we have partner with EMS for manufacturing. But the Server segment due to the nature of the product, we may adopt slightly different strategy for major clients like Google and other cloud service provides. They hope that the clients -- they hope that the suppliers they work with can take care of everything from design to manufacturing without the need of relying on external manufacturers, which is why we've also received requests for this sort of streamlined production from our clients which is why we are now actively planning such manufacturing possibilities.

We have a production line planned for [indiscernible] is expected to commence operation by the end of this year. And regarding our GP200 products, our orders are focused on the NVL72, the premium spec version of the products.

[Operator]

The next question comes from Morgan Stanley. Can you comment on the newly elected President Trump and how his policies regarding tariffs and supply chains may impact ASUS?

[Hsien-Yuen Hsu, executive]

Okay? I think that this is, of course, a very topical issue. Now for this issue, I will be answering it from 2 perspectives. From a market expansion perspective, we reply by distributing our market. And the second is from the supply chain perspective, which is about, of course, supply chain resilience. Now sourcing from supply chain resilience, Trump -- President Trump was, of course, the one that sorted the so-called U.S.-China trade war.

By then, we had already started to find different manufacturing partners and suppliers and distribute them across the globe to increase the resilience of our supply chains. This is something that we can adjust dynamically at any time as needed. I'll quote an actual example, say, for example, our motherboards, starting from the U.S.-China trade war, we've started to work with supply partners outside of the China region.

Now in terms of motherboards, for the past few years and to even now, most of our boards that are shipped to America now are manufactured outside of China. As for other products, as we mentioned before, we also have distributed suppliers throughout the globe, which is going to allow us to dynamically adjust our supply chains as needed. As for market distribution, besides the North American or The United States market, the CFO has, of course, also mentioned that we have a market presence in Europe, in Asia, in India and even in South America.

We have a very wide distribution of markets, which is why I think that the trade war will have limited impact for us.

[Operator]

Okay. The next question comes from KGI Asia. Our question is regarding ASUS perspective on the PC market for 2025. And also with the AI PC will have a higher market penetration in 2025.

[Nick Wu, executive]

Okay. I'll answer this one. For 2025, the PC market expectations, we believe, will fall between 3% to 5% growth. And as for penetration rates of AI PCs, I think that -- because this year, it's considered the starting year for AI PCs, but it has proved to be very popular despite its nascency.

However, it actually accounts for a relatively low number among the total amount of laptops exported. This includes both for Intel and AMD. Now based on the fact that the new platforms more or less have Copilot PCs that meet the Microsoft definition, we believe that the AI PCs may have a market penetration rate of 20% to 30% going into the next year.

We believe that for 2026, it might even be possible for AI PCs to account for 60% or even higher of the total laptop sales because vendors across the globe have come to acknowledge how important AI PCs are to the PC industry as a whole. There will not be a vendor that is going to be willing to give up their stake in this rapidly developing market, which is why for vendors, they will try to match the Copilot+ PC hardware requirements.

But besides hardware, OS and software are also important components of AI PC. Now for this year, Microsoft is continuing to optimize their Copilot+ PC operating software for the years to come. I think they will continue to promote third-party software with AI capabilities to truly drive AI PC into becoming a mainstream PC option. Now this is something that we will, of course, work closely with partners, including Intel and AMD to promote the AI PC ecosystem. Thank you.

[Operator]

Okay. So right now, we see that for the questions that we are seeing, we seem to have covered most of the questions raised already. If you have any further questions, please feel free to submit them on our network chat on live chat room. Thank you.

Okay. We have a new question from Tachan Securities. We would like to ask ASUS about your opinions on Qualcomm or how they are working or how they are faring for the AI PC trend.

[Hsien-Yuen Hsu, executive]

I think that Qualcomm is now novice to the AI PC market. However, its initial debut to AI PC market was, perhaps, not as successful. But this time, owing to the support from Microsoft, Qualcomm should probably have reached results that they expected. But I think what everyone is most concerned with is how the Qualcomm platform is performing when it comes to software compatibility because, again, this comes back to the issue of OS and CRT compatibility issues.

Now we believe that these compatibility issues are being solved gradually. At the same time, because the ARM platform tends to have lower power draw, we see that clients are actually very satisfied from what the Qualcomm platform has been able to deliver when it comes to battery life. I believe that as a whole, Qualcomm's addition to the PC ecosystem is positive for the consumers because having more competitors, ultimately, means that there is going to be more variety to choose from for the consumers.

[Operator]

Our next question comes from Midland Holdings.

As the CEO mentioned, do you believe that the 2025 PC market were probably in the low single digits. As for the average sales price, do you have any opinions or inputs? Also, do you expect that the ASP for the AI PCs will drop to the mainstream price points? Or how do you think it will behave?

[Nick Wu, executive]

Okay. I think this is also a topic that we have covered before because as we mentioned before, AI PCs have certain hardware requirements, such as memory. At the very minimum, AI PCs have 16 gigabytes. In fact, most of the models, I see have actually 24 gigabytes of memory. At the same time, because AI PCs have CPU chips that has an additional NPU on the die, it means that these products will tend to have a higher price than the traditional PCs. This in combination with other hardware requirements means that AI PCs will have a higher -- MSRP, higher street price than traditional PCs by 1 to 2 price bands, which translates to about USD 100 more at the very least.

And there's also the fact that as we look at how AI PC chips are coming in with new generations, we think that AI PCs will probably still be mostly premium with some models coming down to the mainstream price points. But again, owing to the hardware requirements, the price points will remain high, meaning that the ASP for the PC market as a whole will increase.

[Operator]

For The next question it comes from Winrock Stock Market Consultancy. Now we have a question about the Intel Lunar Lake CPU because this generation of CPUs have integrated low-power DDR5, which gives it a low power draw advantage. Is it possible that all future x86 CPUs will develop in this direction? And this sort of memory integrated on die design, how will it impact PC profitability?

[Nick Wu, executive]

Okay. So I will answer this question. Now I think that the Lunar Lake generation of CPUs marks an important milestone for Intel because this is the first CPU that Intel is introducing in collaboration with TSMC. We have conducted a lot of internal studies at ASUS regarding the Lunar Lake CPUs. And right now, we believe that the design behind the Lunar Lake CPUs are very much on track. On the whole, the customer experience is very positive.

But the peculiar thing about the Lunar Lake CPUs is the fact that the memory is built into the CPU die. This, of course, has certain distinct advantages when it comes to both performance and battery draw. But besides these advantages, there are also limitations as a result of this change. Because traditionally, memories tend to be fixed to the motherboard from a traditional PC perspective, which means that clients tend to have more flexibility when it comes to choosing how much memory they want for their PCs. But because Lunar Lake CPUs have their memories integrated onto the die, this means that there's only going to be 2 choices for the customers to choose from, meaning that there's less choice for the consumers.

And at the same time, it's also going to have less expandability when it comes to memory. And for system integrators, it will also impact them because due to the fact that the memory is being packaged inside the CPU die, it will help with reducing the size of the memory on the PCB as a whole, it will help them provide lighter or a smaller design.

But because the memory is integrated into the CPU die, it will also decrease product flexibility as a whole. So there are pros and cons to this at the same time. Based on market -- media reports, Intel seems to not want to continue this sort of memory integration architecture for its future CPUs. This is likely a response to the feedback that it has gotten from the market. Thank you.

[Operator]

The next question comes from Midland Holdings. For 2024, ASUS was able to achieve a fivefold growth for its server business units. Can you talk about how you anticipate the Server business unit to perform to 2024 -- 2025? And also will it surpass the average growth rates of the market?

[Hsien-Yuen Hsu, executive]

Okay, So right now, ASUS is very much committed to the Server market segment. It is one of our internal company focuses. We are gradually shifting from the H100 to the H200 to now the GB200 chipsets, and we are seeing that there are more and more product demands and customers that are demanding these sort of AI Servers products. We are expanding from clients in the Asia regions to clients coming in from Europe and the Americas.

So on the whole, we think that we will actively invest in our AI Server business unit. But due to factors restricting the PC market in 2025, we actually have more -- we actually carefully assess how we lay out our company operating targets at the end of each year, meaning that we will not be able to disclose our plans for the AI Server market at this point. We will talk about that in greater detail for our next earnings call, including our plans for our Gaming products and our Server products. Thank you.

[Operator]

Now we have looked through our chat room and seeing that we have addressed most of our -- most of the main topics of interest. If there are any questions that we didn't cover, please feel free to reach out to our team after the meeting team via e-mail or phone.

Now we will turn the floor back over to our 2 Co-CEOs to conclude the earnings call. Thank you.

[Hsien-Yuen Hsu, executive]

First of all, I would like to once again thank our employees at ASUS for their hard work in delivering such strong results in quarter 3. We are also grateful for the support of our investors and media for covering our progress. ASUS remains focused on key operational priorities, concentrating resources on high-growth areas, particularly those related to AI and Gaming. While our past performance in the consumer market has been excellent, we also aim to make significant strides in the commercial sector where we will continue to apply our efforts. We look forward to your ongoing support thank you.

[Samson Hu, executive]

Hello. I am co-CEO Samson Hu. I will also like to extend my gratitude to all our media and investors for taking time out of your schedules today to attend our earnings call. Although 2024 is not quite over yet, we anticipate that this will be a strong year overall for ASUS. Looking ahead to 2025, we will continue to solidify our leadership in core areas like Gaming, Graphics cards and other products to drive ongoing growth.

Furthermore, we plan to invest strategically in business units such as commercial PCs, AI Servers and AIoT to enhance our competitive edge and establish new engines for growth for the company.

I believe that the current wave of AI presents a transformative shift for the ICT industry, across segments like AI PC, AI Server and AIoT from cloud to edge to end devices and spanning both products and solutions, ASUS has laid a comprehensive foundation and is well positioned to capture this momentum. We are confident and determined to seize the new opportunities offered by AI PCs, driving growth in the short, medium and long term to create value for our shareholders. Thank you.

[Operator]

And with that, we will conclude today's earnings call. Thank you all for participating.

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