BizLink Holding Inc

TWSE:3665

Earnings Call Analysis

Strong growth and robust margins with strategic expansions at BizLink

In the third quarter of 2024, BizLink showcased significant growth, led by a 39% quarter-over-quarter increase in HPC sales and a 35% rise in Semicast sales. Gross margin approached 30%, with operating margins hitting record highs. Despite minor foreign exchange losses, net profit reached all-time highs, supported by effective cost management. The company anticipates continued growth in HPC and semi-cap sectors, expecting year-over-year sales and profit increases in 2025. Big opportunities lie in complex system integrations, reflecting rising customer demand in various segments. Recent acquisitions are set to enhance capabilities further【4:1†source】.

Strong Financial Performance and Growth Recovery

In the third quarter of 2024, BizLink demonstrated a robust recovery in its financials, pulling multiple levers for operating leverage. The company's gross margin moved closer to 30%, driven by a favorable product mix and ongoing operational excellence initiatives. Notably, high-performance computing (HPC) sales surged 39% quarter-on-quarter and 74% year-on-year, while semicast sales rose 35% quarter-on-quarter and 56% year-on-year. These segments now comprise 31.4% of total sales, up from 24.8% in the previous quarter and 20% in the same quarter last year.

Record Profits Amid Strategic Investments

Despite some foreign exchange losses from a weaker U.S. dollar, BizLink achieved new all-time highs in net profit. The company expects to see additional conversions of shares, which could further enhance earnings per share (EPS) in the coming months. Moreover, operational expenses have remained controlled, indicating effective cost management as the company invests in growth areas.

Regional Growth and Expanding Market Presence

Sales in Southeast Asia have experienced remarkable growth, increasing by 41% from Q1 2022 to Q3 2024, due to successful market penetration strategies. Conversely, sales in Europe have remained weak. Overall, while North America showed minor growth, Asia's growth trajectory presents a significant opportunity for BizLink's expansion and market share gain.

Focus on High-Demand Segments and Future Growth

HPC and semi-cap segments remain the primary growth drivers for BizLink, accounting for a substantial portion of sales. The overall corporate strategy reflects a commitment to investing in these high-spec industries, where customer demand continues to grow. The company is targeting annual profit increases in these areas, projecting this trend to persist into 2025. Additionally, the ongoing development in next-generation AI servers suggests a sustained growth trajectory, as demand for complex and integrated systems increases.

M&A Strategy and Future Opportunities

BizLink has successfully completed two acquisition deals, Easys and Cable Con, which are expected to provide additional revenue streams and enhance operational capabilities. The integration of these companies will begin yielding synergies in early next year. Furthermore, the company remains open to further acquisitions that will contribute to its long-term growth plans, demonstrating a proactive approach in expanding its technological capabilities.

Capital Management and Strategic Outlook

Despite high capital intensity, BizLink is positioned favorably, with a strong cash generation capability. The market capitalization has recently surpassed USD 2 billion and is nearing USD 3 billion, reflecting confidence in the company's trajectory. With a target to boost cash flow from operations and capitalize on favorable market conditions, BizLink is anticipated to demonstrate strategic flexibility as it continues to navigate its growth initiatives.

Adapting to Market Dynamics and Customer Needs

The company acknowledges rising complexity in customer demands and is adapting its operational strategies accordingly. With strong demand for customized products and integrated solutions, BizLink's ability to respond quickly and effectively positions it favorably against competitors. The increasing focus on corporate sustainability and strategic partnerships further enhances the company's competitive edge in the market.

Conclusion: Optimism for Continued Growth

Summarizing the outlook, BizLink is entering a multiyear growth phase fueled by its successful product offerings in HPC and semi-cap sectors. The ongoing efforts in operational excellence, strategic M&A, and a keen understanding of customer requirements are laying a solid foundation for sustained financial success. The company's proactive management and adaptation to market shifts indicate a positive outlook for investors.

Earnings Call Transcript 2024-Q3

[Mike Wang, executive]

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



Our results were just released and are available on our IR website where you can download the latest earnings release materials as well as access them from MOPS. This 1-hour call will begin with Charles to highlight our financials before we switch to Florian to highlight our operations and then end with Felix to highlight corporate-wide items. We will then move to Q&A before concluding this call.



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



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



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

[Tse-Shen Tsai, executive]

Thank you, Mike. First, let me talk a little bit about our income statement. We successfully pulled multiple levers in our operating leverage this quarter. This led to a noticeable improvement in our overall financials as [indiscernible] headed back to prior heights. Our gross margin continued to grow increasingly closer to 30% on a more favorable product mix and on progress in our excellence effort.



There were minimal inventory impacts. HPC sales rose 39% quarter-on-quarter and 74% year-on-year and accounted for 19.9% of total sales. Semicast sales rose 35% quarter-on-quarter and 56% year-on-year and accounted for 11.5% of total sales. The sales for these 2 major drivers were a total of 31.4% in the third quarter of 2024, which is versus 24.8% in the second quarter '24 and versus 20% in the third quarter '23. We kept OpEx under control, seeing just a minor increase since the first quarter of 2022 as we raised investment in some businesses and adjusted it for others.



Operating margins rose to new all-time highs. Our operating expenses to sales ratio fell back down to historical averages as our scale continued to slowly recover. Non-OP was negative as we saw some foreign exchange losses due to a weaker U.S. dollar, which was partially offset by lower finance costs and by some investment income. We further deleveraged with our liability-to-asset ratio falling back to historical ranges, reaching our 2024 year-end target in 1 year and ahead of time. We're persistently working towards improving our global tax structure, which led to our tax rate to fall to just above 30% and efforts are ongoing.



Net profit also rose to new all-time highs by ECB conversions. totaling 16.8 million in new shares led our EPS improvement to not reflect our record profitability. There is less than 8 million shares outstanding left to be converted or less than 4% dilution left, and we expect to see further conversions in the months to come.



On product sales by segment, industry, ID datacom, and auto sales were in line directionally quarter-on-quarter, while electrical appliances sales were stronger than expected. Year-on-year industrial sales were slightly positive, and this was mainly driven by semi-cap. Year-on-year ID Datacom sales were significantly positive, and this was mainly driven by high-speed compute. Year-on-year auto sales which was still negative, improved both on a quarter-on-quarter and year-on-year basis.



Finally, year-on-year, electrical appliance sales were positive again for the third straight quarter. On a quarter-on-quarter and year-on-year basis, we achieved some sales growth in North America, but sales growth in Asia was much more pronounced, while sales in Europe remained weak. Sales in Southeast Asia have grown 41% from the first quarter 2022 to the third quarter 2024 and reflect our successful ongoing footprint expansion there to support our customers' regionalization effort in the region.



On balance sheet and cash flow. Our market capitalization recently rose to above USD 2 billion, and it is just a stone's throw away from reaching USD 3 billion as our share has ducked finally pricing some of our HPC sales and profit growth potential for next year. Our result also reflected ongoing group-wide initiatives in sales, operation, and finance and accounting for further efficiency and productivity gains. This effort was initiated about a year to 1.5 years ago, and our work is not yet done. We have been putting our robust balance sheet to work as we position ourselves to realize more growth in the coming quarters and are actively selectively deploying capital to support our multiyear growth plans.



Operational and operating cash flow were still elevated despite falling quarter-on-quarter as we utilized our working capital to maximize our benefit from improving demand conditions with rising HPC order volumes and with longer semi-cap lead time. Capital intensity was still high but was lower versus the prior 3 quarters as we finished construction of 2 new sites last quarter. We are preparing them for mass production. Free cash flow was barely positive, and third quarter 2024 was the eighth consecutive quarter of net cash generation, totaling over TWD 8.3 billion in free cash flow this past 2 years and closing in on our historical 9-quarter record.



Cash conversion cycle further improved, and it will eventually stabilize within a certain range. However, it will be above historical level given the regionalization of our supply chain. Our results show sustained operating efficiency, robust cash flow sustainability, greater liquidity and financial strength, and strategic flexibility.



On the bigger picture, we have high expectations for continued growth as we enter deeper into this new multiyear growth rate. And our execution is showing its initial returns from our long-term investments. We're not new suppliers in HPC and semi-cap and have established strong customer relationships, reliably delivering capability at capacity on time.



HPC sales have grown from under 10% of ID datacom in 2018 to 20% of total sales now with organic sales rising 8 to 9x from the first quarter 2019 to the third quarter 2024 so far. Semicast sales have grown from under 10% of industrial in 2019 to under 10% of total sales now with organic sales rising 31 to 32x from the first quarter 2019 to the third quarter 2024 so far. We are riding the growth rate in these 2 businesses with achievable potential for them to become much bigger in the next few years as we win new projects and new customers.



M&A remains a core part of our corporate strategy, and we just closed 2 new deals, Easys and Cable Con with sales of EUR 44.5 million and USD 22.3 million, respectively, in 2023. These 2 deals will help boost our NPI and box build and system integration capabilities and capacities. As an industrial insider, we look for targets that present us with a win-win scenario and emerging HPC cable and semi-cap of wire harness opportunities are the result of CDBG and IMG synergy.



Our EABU, Speedy, and RMBG are all generating cash for the group with EABU already having and Speedy about to have paid back their deal value, achieving strong payback for BizLink. If you map our gross margin from the first quarter 2017 to third quarter 2024, you will see that after a bottom in the first quarter 2018, there has been a general uptrend since then with the third quarter 2024 levels just shy of the first quarter 2017 levels.



From a financial perspective, you can see our execution over the past 2 to 3 years, leading to a leaner and a stronger BizLink across profitability, asset turnover, and capital structure. There are many spending projects incoming as well as lots of ongoing customer engagement. And we'll continue to evaluate opportunities to accelerate development in market and customer penetration. HPC and semi-cap need solid financials to successfully realize them. The successful diversification of our global business to create a resilient supply chain for customers has given us many options to grow with HPC and semi-cap being the latest ones.



However, we remain nimble and highly adapted to change as this quality is central to our Silicon Valley corporate identity. We aim to achieve profitable and healthy long-term growth like our global peers. And this rise in HPC and semi-cap is not about price, but about developing a proven track record by delivering quality on time.



Dorian will now provide us updates on our latest quarterly operational takeaways.

[Florian Hettich, executive]

Yes. Thank you, Charles. So let's start with the near-term outlook. We are seeing various demand situations across our globally diversified business with some areas growing increasingly stronger and some areas still trying to find the bottom. HPC and semi-cap remain our key highlights. Factory automation and electrical vehicles are still the key lowlights, and healthcare continues to slowly grow. These 5 drivers account for just under 2/3 of total sales. Industrial is still the largest segment followed by IT datacom.



Automotive continued to be the smallest segment from last quarter with electrical appliances getting progressively bigger than that. Looking into the fourth quarter 2024, industrial and IT datacom will stay strong. Automotive will remain weak and electrical appliances will enter into a seasonally slower period.



Now let's look at IT datacom. Deep-diving into our HPC business, we delivered on increases in customer demand for high-speed data and high-power cable and connector solutions. CSPs are aggressively building data center capacity, and they are depending on proven and agile suppliers they trust to supply critical high-value components. The current challenge is ensuring the ability to deliver the required quantity, quality, and timeliness of the current platform and on the design and specification for future platforms rather than focusing on determining who will supply what and when.



We continue to expand our capacities and capabilities in more locations with Southeast Asia and Taiwan to become important production or competence centers. Key customers have recently reported their results. While there is a worry of an AI bubble, we conquer with other companies in the HPC supply chain that AI is real and that it is here to stay. Customer demand in terms of specification and volumes continue to move up despite recent market chatter, and we will be realizing some of them in our sales and profits next year.



We are shipping 400G high-speed data cables in volume and have started to ship some 800G as well, which will support networks that are multiplexed to 800G or to 1.6T, respectively. We are also shipping AC 30 amps and AC 60 amps high-power WIPs as well as various bus bars to support 33 to 70 kW power shelves and up to 100 kilowatt rack power.



Many of the latest specifications that we are developing with customers will not be realized next year in volume as technology is moving faster than our shipments nowadays. The landscape is very fragmented, but our ability to consistently design and supply high-capability solutions in more locations is an important winning factor. We are successfully building a strong track record with existing customers and are winning new ones, including other cloud service providers and infrastructure providers.



Now coming to our Industrial segment. Deep diving into our semi-cap business next, we delivered on increases in customer demand for cable assemblies, wire harnesses, box build, and system integration solutions. Semiconductor production equipment companies are expanding their footprint in more regions while dealing with advanced chip scaling, 2.5D packaging, power efficiency, and yield challenges for tomorrow's silicon. The issue is now being able to supply not just simple cable assemblies and wire harnesses, but more complex industrial-grade integrated electrical mechanical systems.



We continue to expand our capacities and capabilities in more locations with Southeast Asia, North America, and Europe to become important production or competence centers. Key customers have recently reported their results. And while there was some worry last month, we have only seen business conditions continuing to strengthen.



Customer demand in terms of box build and system integration are very strong and growing, and we are working to fulfill all of them heading well into 2025. Projects are becoming more complicated with high complexity system integration needing 4,000 to 5,000 components and over 10,000 process steps, but lead to more content and margin. We are fulfilling cable assemblies and wire harness demand for both high-spec engineer-to-order and high-efficiency build-to-print projects covering more ground together.



We are slowly seeing cables assembly and wire harness engineer-to-order demand needing faster time to market and box build and system integration build-to-print demand needing design work. We aim to win them and upgrade our capabilities. Customer requirements remain high for all categories despite differences in business models, and we are executing to plan with market share gains materializing.



Now if we look at the bigger picture perspective, many projects start off in the new product introduction stage, and having this capability in more of our sites is a key part of our winning ability with existing and new customers. Providing fast responses reliably to customers allows us to realize their new ideas together, constantly innovating for tomorrow's solutions. Capability expansion is ongoing with our 2 new sites and with our 2 new acquisitions, providing customers with more options to serve them from.

Global supply chains continue to be broken up to de-risk from future disruptions, future restrictions and to service future local demand much faster. HPC and semi-cap customers are moving into this direction, and this trend will accelerate next year. BizLink is there to help future-proof our supply chains.



We will achieve strong year-on-year HPC and Semi-Cap sales and profit growth this year, and this will persist in 2025 as we roll out new projects and new customer contributions. There are still many things that we need to do, and we are seeking strategic partnerships and actively evaluating acquisitions to develop technologies for future growth waves. We have kicked off post-merger integration activities with Easys and Cable Con and synergies with them will materialize next year within the Industrial segment.



We are actively working with various business groups and business units heads in realizing additional efficiency and productivity gains with the goal to produce more at higher quality. This is benefiting our cost of goods sold and operational expenses, and we will see more gains in the coming quarters as we progress through these efforts, some of which are in tracking already and some of which are enhancing phases now.



We are encouraging more cross-talk and more cross-work between various levels of our global operations and see many projects in the pipeline or about to be launched soon. We will enhance our R&D efforts to develop solutions with customers internally, but we will also continue to use M&A to add to our resources and bring in new businesses. We are greatly boosting our agility and our endurance to fulfill demand in an ever more complex and volatile operating environment and at ever more higher customer requirements.



We continue to strive towards greater corporate sustainability, and we have shared many initiatives to achieve our ideas over the past few quarters with more to come. It has taken some time, but we are slowly closing in on our global peers and are being recognized as a competitor in some areas or as a target for smaller peers. We have been able to catch up on the latest technology and specifications to ensure our market relevance is a viable and reliable alternative to our global peers



Chien-Hua will now provide updates on our latest quarterly corporate takeaways.

[Chien-Hua Teng, executive]

All right. Thank you, Florian. From a bigger-picture perspective, BizLink has come a long way from our founding days. But the key to our sustainable growth has been the constant building of a solid base of customer capability and capacity.



Customers come to us to help solve their problems, which nowadays means designing innovative solutions and mass-producing them across more regions. The process from quotation to production is the same despite different end applications. But this changes when the complexity of the solution rises. This is quickly becoming the new norm. Deeper and prolonged customer engagements in their industry give us insights on where we can elevate where the next opportunity is and if we need M&A to achieve it. It might not just be technology that needs to be upgraded, but it can also be a critical process central to improving efficiency or to validating a design. Breakthrough developments do not happen by chance. We have transformed from a commodity-focused supplier to a customized-focused one over the past few years, and we have had the privilege to know our customers' thoughts and their strategies in depth. This customer relationship is a competitive edge. Knowing their road maps allows us to be involved with new projects very early to have more time to meet cost, quality, supply chain, and volume needs. Being physically located near many customers allows us to readily make this shift as the distance at some sites is very close, allowing for faster response and showing we highly value them. Quick turnaround means having the flexibility and the speed to adjust to change, which is vital in a quick-moving technology industry like in HPC and in semi-cap.



We are raising our in-house know-how and boosting our vertical integration and are dealing directly as a Tier 1 supplier with customers without sacrificing margins for profitable growth and to gain market share. The breadth and depth of solutions that we offer customers and our willingness to tailor them to their needs while meeting stringent specs give us staying power. We do not compete with them.



HPC and semi-cap have large and growing TAMs and our customers have high and are gaining market share in their respective markets. So our growth has been a steady stream of strategically conscious decisions. We are following closely behind global peers in select business and solutions despite our smaller scale through agility and resilience. It has been a technical challenge to keep up, but we can quickly reinvent ourselves to gain new opportunities and use M&A to accelerate market and product development.



It is not just about being able to follow technological and customer demand trends, but eventually gradually being able to anticipate them. Our growing list of well-known global brand customers is proof that we are executing well. Our landscape continues to shrink even as end markets continue to grow bigger. The boom cycles have already started, and we are riding them. There are multi-year growth cycles, having a minimum of 2 to 3 years of growth from the 2023 lows.



On IT datacom, sharing our view on HPC first. We expect sales growth over the next few years to outpace total sales growth, resulting in a steadily higher mix. The trend for higher speed and higher power solutions to support rising bandwidth and voltage needs for newer high-performance compute is capital intensive. Achieving 400G and 60M does not mean that our R&D stops, but it immediately goes to 800G and 100M even before mass production, as it is a continual process. We need to be able to grab opportunities in target platforms to be in an advantageous position to grab opportunities. Traditional racks used to cost $300,000, but now GB200 racks cost well over $3 million and system integrators are seeing their sales reflect this jump in ASPs. The challenge is to be able to produce the same products in more locations, not just due to geopolitical but also to grab regional opportunities.



Easys is quickly becoming the mainstream high-speed data solution for Ethernet, given its best cost performance and Ethernet open source, encouraging widespread adoption and leading to better scalability and power efficiency. Easys is here to stay and its distance sweet spot is up to 7 meters, but it is possible that copper solutions may eventually hit physical and engineering limitations at some future bandwidth rate. This may be when CPO comes in as it may have more favorable cost performance at that time. We are developing relevant capabilities for optic interconnects and system integration support. There will be a massive growth in levels of power needed to support future data centers. Using liquid cooling does not reduce the amount of power needed and so there has been a trend towards tapping into nuclear.



GPUs with 2-kilowatt power requirements are possible within the next years or so, and B200 is just 1 kilowatt, essentially meaning a doubling in power density needed for a rack. Power is platform agnostic, and while it is possible that there is less overall content in racks, total HPC TAM can potentially be bigger than data. Market forecasts usually talk about data center TAM in terms of gigawatt hour, which is a power measurement, not data and so sufficient power supply is essential. There are lots of new technologies emerging, and this provides customers with more choices. So we must choose the correct one to ride the growth wave and to survive, and we have thus far executed very well.



On the Industrial segment, sharing our view on semi-cap, we also expect sales growth over the next few years to outpace total sales force, resulting in a steadily higher mix. Geopolitics is also forcing regionalization of semi-cap manufacturing, leading to the building of supply chain ecosystems with Asia quickly growing, North America emerging as next in line and Europe likely to be the last one. Smaller players are disappearing or are becoming acquired as customers want suppliers with staying power and those that they can see a future with, which is similar as in HPC. The growing installed base of lagging edge tools with service commitments and the need for them to be maintained or even upgraded to squeeze out additional productivity and efficiency gains benefits our semi-cap business as does the need for the latest and greatest tool.



We have raised our capacities and upgraded our capabilities over the past few years, leading to sizable value-added opportunities by becoming our customers' go-to global solution provider. There are multiple business models that work in semi-cap from cable assembly and wire harnesses to bus build and system integration as well as from build to print to engineering to order. We are experiencing multiple business exposure transitions to the higher end and customers want their partners to fulfill noncritical or overflow areas or design for their next-generation tool. Customers want a one-stop shop. This means having a strong balance sheet and maybe efficient process R&D resources, different class clean rooms, special equipment, and unique raw materials.



SPE tools may be operating in high vacuum necessitating high precision, high cycle times, high endurance acceleration value, zero dust, and high-performance flexible cables. Customers may want cable assemblies, wire harnesses, bus build, and system integrations that do not meet such strict clean requirements, sending us specs to manufacture them, but they need high efficiency. However, customers may send specs that need to be improved upon and/or may want their suppliers to design new specs for them, both needed R&D resources. Strong supply chain management, continual process improvement, and advanced MES shot floor with automated vertical module lift inventory systems are must-haves, especially for more complex projects.



This often deals with thousands of components, thousands of process steps, and thousands of artisan manpower hours to ship out this HMLB high mix low volume orders. We have essentially become an EMS for semi-cap, but there is a very different business nature compared to HVLM, high-volume, low-mix consumer electronics as our solutions are only for industrial-grade applications.



Finally, we are starting to see liquid cool enclosure projects which means in-house testing and installation capabilities will be needed.



Now let me turn to the call over to Mike.

[Mike Wang, executive]

Thank you, Felix, Charles, and Florian. This concludes our prepared statements section. Now let us begin the Q&A section.

[Mike Wang, executive]

Please type in your questions and then we will answer as many of them as possible in the time remaining. Some questions about our acquisitions. Now that the firm has completed the acquisition of Easys, is it possible to offer more color on what it does and what's the financial impact of business revenue margin and related expenses, more color on the Easys deal and potential impact on the P&L. For this one, I'll hand it over to our CFO, Charles, to provide some feedback.

[Tse-Shen Tsai, executive]

Okay. Thank you. Thank you for this question. Actually, we're excited to bring the Easys and Cable Connection team to Disney, and we look forward to their contribution. We just get their 2023 audited sales during the prepared remarks portion of this call. The blended 2023 audited gross margin is just slightly above our corporate average right now. And their sales will be added to our monthly total from this month onward. And fourth quarter 2024, we have 2 months of their contribution. Post-merger integration activity has commenced and their respective team have joined our relevant business unit. We anticipate seeing their initial synergy early next year.

[Mike Wang, executive]

Thank you, Charles, and as well as to Peter [indiscernible] for those questions. We continue to see a lot of questions about our M&A activity every quarter. So for this one, any specific segment looking for M&A or we stop looking for nonorganic growth from here? For this question, I would like to hand it over to our Chairman, Roger.

[Roger Liang, executive]

Yes. Of course, we will continue looking for M&A target, okay? So it seems that we get this question every time. And it shows to me that the market is looking forward to our M&A deals. It is encouraging that we are doing both deals without too much additional external funding. But this shows that our finances are strong enough to be able to do this. Charles earlier noted our target generate both cash and profit over time. We thank our various teams for making the entire integration smooth and timely so that we can all realize additional gains together sooner and with less headaches.



Felix also earlier noted that customer relationship is one of our competitive advantages. Long-term trust is a continuing test and reinforce over many years. HPC and Semi-cap are high-spec businesses with extremely low tolerance for error, and we need to ensure that we can handle the complexity. We have been able to show that we can ramp up our capacity to meet fast-growing customer demands. Our supply chain resilience and agility are very important, and we have shown to our customers that we are excellent partner. Our move toward corporate sustainability is also vital, and you cannot buy this.



We continue to be interested in areas that will boost our long-term growth, and we are the most optimistic on HPC and on semi-cap. We will, of course, look at all deals, but we are selected on our targets as we have explained during this call. Our M&A deals are not just about strengthening our customer capability and the capacity base, but also about bringing fellow industry professionals and their experience, expertise, and relationship in-house from sales to engineering to management.



Our results are proof that this works.

[Mike Wang, executive]

Thank you, Roger, for that insight. Thank you, Helen, for that question. This question for this next one is asking about any further fundraising debt borrowing plan. What will be the key purposes, including M&A, capacity expansion? For this one, I'd like to hand it over to Charles.

[Tse-Shen Tsai, executive]

Okay. Thank you. Actually, we do have good cash in the bank and strong cash-generating capability so far. So our financial does not really call for us to have any fundraising plan in the visible future. But no, it's never off the table. If we need extra capital to realize foreseeable opportunities, we will weigh our options and decide on the best possible course of action to take. We believe in the long-term potential of business. So we're working toward realizing this potential.



We aim to maximize our value to our stakeholders and our IR team has been instrumental in effectively communicating our efforts and our results that we recognize for our never-ending effort. We have shown our strong cash-generating ability for the past 2 years and our strong HPC and semi-cap sales growth over the past few quarters. Our funding in early 2022 and in early 2023 were sources of the funds that made all this possible. Sustainable gains does not come by luck nor do they come overnight.

[Mike Wang, executive]

Thank you, Charles, for the colorful commentary there as well as for the question from Disourse. Well, I see quite a few questions still about the high-performance computing side of our business. Let me read a couple of them. BizLink has been undergoing an industry status upgrade with GP200 track record. What could be the firm's next new major product line that has developed organically? There's another question. There are more and more connected companies declared that they've broken into GP200 supply chain. How the competition of AI connector market and the competitors of BizLink.



I'll just read another one so that everyone has an idea of the kind of questions that we're seeing. Once again, I would like to ask if you have sense more competition in AI products for now versus 3 to 6 months ago. That said, have you noticed more competitors trying to verify more AI cable products for lower prices? Any potential negative impacts investors need to monitor? And then the last one can we rest assured that BizLink has the same positive outlook for AI server sales contribution? That's quite a lot. But for this one, I'd like to hand it over to Florian.

[Florian Hettich, executive]

All right. Thanks. This is quite a lot of questions. So I try to tackle them. The future total addressable market for HPC is actually much too big for only one company to benefit from. It takes a lot of time and money to successfully ramp up production and also to deliver the solutions. We have a lot of interconnect peers on a global, but also on regional level, but also on higher or lower-tiered level. When you look at HPC, you need to look at the bigger picture, I think.



It takes a lot of resources to realize the growth that we have achieved. It's a multiyear and high-spending and strategically directed endeavor. So smaller regional peers, they do not have this kind of resources. So their realizable opportunity will be limited by this condition. So the further we get ahead the harder it will get for those smaller regional peers to catch up. They may eventually get small wins at customers diversify to prevent any single supplier from having a competitive advantage over them or dictate business terms. But not all components are high value and are critical to the ecosystem. And not all suppliers have a track record of strong execution.





So the price is usually their way in, but they are not directly dealing with CSPs like we do. They make lower profits in the business, and that needs to continue actually to invest in tomorrow's specifications. So their resources are tied in ramping up their wins and cadences for next-generation ecosystems are shrinking, meaning the R&D for them starts before these gains are realized.



So finally, the closer we are in the timeline for the opportunities that have yet to come, the lower or the lower the chances are for large changes and then the issue becomes entirely on execution. On the other side, larger global peers have more businesses, and they are usually a lot larger, meaning they need more total resources. But this tends to make them also less agile and less willing to make last-minute changes due to sudden shifts in customer requirements.



However, HPC and Semi-cap are very quick-moving and high demanding tech industries. These larger global peers are usually the tech leaders, and we have managed to keep up with them. Our global teams are working to ensure we meet these table stakes need to not fall behind. Eventually, there will be a few larger suppliers that will see the bulk of this growth, but we are also here in the game.



Our third quarter 2024 sales is already almost at the prior peak, and the bias from us is strongly pointing upwards. We expect this growth wave to last at least for a few more years. And I can tell you that HPC business is not the only one that we are achieving growth in. And actually, also our semi-cap business will not the last one to also see this kind of growth. And I think, hopefully, I answered most of the questions, and back to you, Mike.

[Mike Wang, executive]

Thank you, Florian, for the insights. I do realize there are quite a few other questions talking about AI as well, but I'll try to try to answer as much on that as we can. We do also see quite a few on semis, in particular maybe one. How do you expect the semi-CapEx cycle to impact orders in your CapEx plan? For this particular question, I'd like to hand it over to Felix.

[Chien-Hua Teng, executive]

All right. Yes, our third quarter sales already passed its R&D spend is higher and the bias is also strongly pointing upward. What the market seems to ignore is that semi-cap and HPC are highly correlated. In fact, the correlation coefficient for our HPC and semi-cap sales is 0.75, which orders a very strong association. So more SPE tools are needed for the most advanced compute given the various challenges in chip scaling, power efficiency, and packaging, and not all of these tools are directly tied to lithography.



Our specialist tool-making customers have high market shares in their respective processes, although we have the most upside in more generalist tool makers given our exposure now. The entire universe of front-end tool makers are spending more time and efforts in their core business means product R&D as well as sales and marketing. So customer demand is rising for cable assemblies and wire harnesses in both build-to-print and engineered-to-order categories.



But we are seeing an even bigger demand increase for more complicated box build and system integration, including control boxes, power distribution units, ICs, and enclosures, which all have higher content and higher margins. These have mainly been built to print, but we are slowly seeing engineered to order too. We have become an EMS supplier for these ultra-complex projects. Enclosures can have 10,000 parts in for cable business is typically in the hundreds. How many companies can manage this kind of complexity? Engineering capability and supply chain management are essential. As you can see, the ongoing semi-cap upcycle means we will also see our semi-cap sales growth. Our CapEx plans will focus on the area that we have highlighted throughout this call so far. Back to you, Mike.

[Mike Wang, executive]

Thank you, Felix, for answering that question, and for UBS's Eli for that one. Could you provide some color regarding order visibility across basic sub-segments, for instance, high-performance computing, compute semi-cap auto, and factory automation, which end applications are gaining more visibility and which are shortened? For this one, I'd like to hand it over to Florian.

[Florian Hettich, executive]

All right. Thanks, Mike. So the order visibility is actually differs a lot across our various businesses. We see at HPC and also semi-cap, first of all, being the strongest outlook at the moment, but also we have a good visibility, which is extending well into next year. On the other side, factory automation and electrical vehicles remain weak and still are subject to short-term changes and the visibility is rather low and the uncertainty is quite high.



Healthcare, on the other is somewhere in the middle, has slowly improved recently, and we get more growth momentum here in the last couple of weeks. EA is somewhere in between. We have seasonality here, which is towards the year-end increasing, and then after the Christmas business also going down again. And peripherals, I mean, is an area where we will continue to deemphasize as it undergoes its transformation, as we noted also in the last couple of calls. That's basically the overlook about the visibility and also for our different businesses. So back to you, Mike.

[Mike Wang, executive]

Thank you, Florian, for replying to Nomura's question. Let me see what other questions there are in the queue. For the next question, is the company participating in the design of next-generation AI servers? How does the company view its potential benefits from these future server developments? For this particular question, I'd like to hand it over to Felix.

[Chien-Hua Teng, executive]

Yes, Mike. So actually, as I mentioned earlier, the development or evolution of the AI actually is very fast. So while we are designing and we are making prototypes for the first one for the current one, actually, we are already working on the drawing on some of the specs with our customers for next generation so actually, we are talking about not just the next generation, but next 2 generations. So this is actually the whole thing has been changing, especially for the AI because of the development speed of this.



So that's why it's very important for us to work directly with either Tier 1 or even the chip makers directly on the new spec, okay, so that we can provide fast response to our customers, okay, and able to participate and also have time to work on the next one or opportunity to work on the next generation or the next generation. So yes, we are doing that.

[Mike Wang, executive]

Thank you, Felix, for the feedback on that question. I believe it was Eric that asked that question. Let me see. For the next one. The next question, there is one from Linda. Our inventory write-back in the third quarter 2024. I'd like to hand this over to Charles to give some insight on that.

[Chien-Hua Teng, executive]

Okay. Thank you, Mike. Actually, I believe in the prepared remarks session, I already said that inventory, impacts are minimal. Yes, there is still some minor write-back. But as we enter into the third quarter and even toward end of 2024, I believe most of the inventory that we rolled up in 2022, most of them already disposed off. So I wouldn't expect -- it wasn't really a meaningful impact in the third quarter 2024, and I wouldn't expect it to have a lingering effect into the foreseeable future.

[Mike Wang, executive]

Thank you, Charles, for that as well as Linda for the investor for that question. For this question also from Eric as well, has the market share for AEC products seen stronger-than-expected demand and our customer needs exceeding initial projections? For this one, I'd like to hand it over to Felix again.

[Chien-Hua Teng, executive]

Yes. I think post, yes, actually, we have been seeing stronger than expected and higher than expected demand and also as I mentioned in my earlier remarks this has become more and more standard. And I think more end customers, CSP or the other players, are looking into solutions with EAC. So yes, we are seeing that, and it's quite significant.

[Mike Wang, executive]

Thank you, Felix, for the feedback. Again, thank you, Eric, for the question. The other questions in the queue are quite similar to the ones that we already responded to or are in the prepared remarks section.



So with that, thank you, Roger, Felix, Forian and Charles. This concludes our Q&A section. A replay of the conference call today will be available on our IR website within 24 hours from now. If you have any further questions, please feel free to reach out to the BizLink Investor Relations team. We thank you very much for joining today's call. You may disconnect.