Summary of Conference Call Notes Industry Overview - **Industry**: Greater China Technology Hardware - **Focus**: GB200/300 rack shipments and forecasts Key Points 1. **Forecast Adjustment**: The forecast for GB200/300 racks has been raised to approximately 34,000 units, up from 30,000 units, primarily due to strong guidance from Hon Hai, which anticipates a 300% quarter-over-quarter growth in AI rack shipments for Q3 [2][9] 2. **Market Share**: Hon Hai is expected to account for about 57% of the market in 2025, with an estimated 19,500 racks shipped [2][18] 3. **Q3 Expectations**: Total racks for Q3 are now expected to reach 11,600, an increase from the previous estimate of 10,000 to 11,000 racks, driven by Hon Hai's positive guidance [3][9] 4. **Q4 Projections**: Q4 is projected to see further growth, with an estimated 15,700 racks, as demand for GB300 racks ramps up [4][9] 5. **GB200/300 Split**: The estimated mix for GB200/300 racks in 2025 is 87% for GB200 and 13% for GB300 [4][21] 6. **CY26 Forecast**: For CY26, assuming a carryover of approximately 2 million Blackwell chips, assemblers could potentially assemble over 60,000 racks, even if NVIDIA chip production remains flat year-over-year [5] Additional Insights 1. **ODM Preferences**: The order of preference among major ODMs is Hon Hai > Wistron > Quanta, indicating a strong confidence in Hon Hai's capabilities [1][5] 2. **Investor Sentiment**: Following Hon Hai's guidance, investor confidence has reportedly returned, suggesting a positive outlook for the sector [3] 3. **Capacity Transition**: Wistron is expected to increase shipments in Q4 after undergoing a capacity transition in Q3 [4] 4. **Exhibits**: Monthly and quarterly estimates for rack shipments by major ODMs are provided in the exhibits, showcasing detailed projections [2][10][13] Risks and Considerations 1. **Market Risks**: Potential risks include geopolitical developments affecting foreign investment, slower-than-expected AI server penetration, and fierce price competition in the mega data center segment [27][29] 2. **Growth Assumptions**: The forecasts are based on current assumptions and may be subject to change based on market conditions and company performance [5][9] This summary encapsulates the essential insights and projections regarding the GB200/300 rack market and the performance of key players within the Greater China Technology Hardware industry.

Summary of Key Takeaways from APAC's OCP Summit Industry Overview - The report focuses on the AI server development industry, particularly the challenges and innovations discussed at the APAC's Open Compute Project (OCP) Summit held in Taipei on August 5-6, 2025. Core Points and Arguments 1. **AI Datacenter Clusters and Power Innovations**: Current large-scale datacenters consume between 50-100MW and are not fully compliant with AI server hosting standards. Companies like Meta are planning to build Titan AI clusters, with the first 1GW+ AI datacenter (Prometheus) expected to be operational by 2026. Another datacenter, Hyperion, will have a capacity of up to 5GW. Key beneficiaries include Delta, Vertiv, and power plant vendors [1][12][31]. 2. **Capex Increase for US CSPs**: The top four US Cloud Service Providers (CSPs) are expected to increase their capital expenditures (Capex) by 55% and 25% year-over-year in 2025 and 2026, respectively, indicating a robust multi-year investment in AI infrastructure [1][12]. 3. **Modular Design Trends**: The DC-MHS (Datacenter Modular Hardware System) is gaining traction as a modularized computing platform that enhances scalability and cost efficiency. Intel is a key player in this trend, which is expected to see high adoption rates starting with its next-generation server platform [9][12]. 4. **Customized Liquid Cooling Solutions**: There is a rising demand for customized liquid cooling solutions among the top four US CSPs. Amazon is shifting to its proprietary thermal solution, IRHX, while Google is developing a customized L2L CDU design. Delta is identified as a key ODM for these solutions [12][31]. 5. **HVDC Power Technologies**: The report discusses bifurcated HVDC (High Voltage Direct Current) power technologies, with a focus on the ±400V architecture being more favorable due to its compatibility with existing datacenter practices. This shift could benefit suppliers of SiC or GaN components [18][21]. 6. **Increased Content in Power Rack Designs**: CSPs are expected to introduce side power rack designs to accommodate higher power density. This will lead to significant content increases for system vendors like Delta, as the complexity of power delivery systems rises [21][23]. 7. **Vertical Power Delivery Adoption**: Vertical power delivery is anticipated to become more common in next-generation AI accelerators, driven by the need for power efficiency. This trend is expected to benefit power vendors like Delta and Infineon [29][31]. 8. **Networking Equipment Upgrades**: The demand for high-end networking equipment is increasing due to the growth of AI clusters. Ethernet technologies are being explored as alternatives to Infiniband for scale-up networking solutions, which could benefit Ethernet switch vendors [31][32]. Other Important Insights - The introduction of OpenBMC and Caliptra is expected to enhance security in server designs without necessarily lowering entry barriers for BMC chip vendors [7][12]. - The report highlights the importance of customized solutions in the evolving landscape of AI server infrastructure, indicating a shift towards more tailored approaches in hardware design and cooling solutions [12][31]. This summary encapsulates the key insights and trends discussed at the OCP Summit, emphasizing the ongoing innovations and investment opportunities within the AI server development industry.

Summary of Conference Call Notes Industry Overview - **Industry**: Greater China Technology Hardware - **Analysts**: Howard Kao, Sharon Shih, Irene Yen from Morgan Stanley Taiwan Limited Key Points 1. **Decline in Rack Shipments**: GB200 NVL72 rack shipments fell to approximately 2,000 units in July from about 2,500 units in June across major ODMs (Hon Hai, Quanta, and Wistron) [1][2] 2. **Reason for Decline**: The decline in shipments is attributed to a production shift at Wistron, moving compute tray production from Taiwan to Mexico. This is part of Wistron's capacity adjustment strategy to enhance production flexibility in response to potential unfavorable tariff announcements [2] 3. **Impact of Production Shift**: The transition to the Mexico plant is causing near-term production shortfalls. However, it is expected that once the transition is complete, production will increase, and the compute trays produced in Mexico will be compliant with USMCA regulations for the US market [2] 4. **Upcoming Earnings Call**: Quanta's 2Q25 earnings call is scheduled for August 12, 2025, at 3 PM HKT [3] Additional Insights - **Industry View**: The overall industry view remains in-line, indicating that the performance of the technology hardware sector is expected to align with broader market trends [4] - **Analyst Certification**: Analysts Howard Kao and Sharon Shih certify that their views on the companies discussed are accurately expressed and have not received compensation for specific recommendations [11] - **Investment Banking Relationships**: Morgan Stanley has investment banking relationships with several companies in the technology hardware sector, which may influence research objectivity [5][13][15] Important Disclosures - **Conflict of Interest**: Investors should be aware of potential conflicts of interest due to Morgan Stanley's business relationships with companies covered in the research [5][12] - **Stock Ratings**: The report includes stock ratings for various companies within the industry, with a distribution of ratings indicating a mix of Overweight, Equal-weight, and Underweight classifications [21][25] Conclusion The conference call highlighted a significant decline in rack shipments due to production shifts, with expectations for recovery post-transition. The industry outlook remains stable, and upcoming earnings calls will provide further insights into company performance. Investors should consider the potential conflicts of interest when interpreting the research findings.

Investment Rating - The industry investment rating is "In-Line" [6] Core Insights - The report highlights an increase in GB200 rack output, with estimates suggesting a rise to approximately 10-11k in Q3 from around 6k in Q2 [1] - Quanta's June revenue reached approximately NT$190 billion, reflecting an 18% month-over-month increase and a 71% year-over-year increase [2] - Wistron's June revenue was NT$209,182 million, remaining flat month-over-month but showing a 136% year-over-year increase, with Q2 revenue at NT$551.3 billion, which is 22% above estimates [2] - Hon Hai's cloud and networking business saw a slight month-over-month increase, attributed to higher shipments of GB200 server racks [3] - The actual deliveries to end customers may be lower than reported due to the inclusion of computing tray equivalents without accounting for assembly and testing times [4] Company Summaries - Quanta shipped 500-600 GB200 racks in June, totaling 1.2-1.3k for Q2 [8] - Wistron shipped 700-800 GB200 racks equivalent of computing trays in June, with a total of 1.8-1.9k for Q2 [8] - Hon Hai delivered slightly over 1k GB200 racks in June, totaling approximately 3k racks in Q2 [8] - The report notes a higher number of notebook shipments at 5.0 million, reflecting a 32% month-over-month increase [9]

Investment Rating - The industry investment rating is In-Line [7] Core Insights - In 1Q25, global ODM direct server shipments reached 1.86 million units, reflecting a 25% quarter-over-quarter (q/q) increase and a 50% year-over-year (y/y) increase, accounting for 47.4% of global server shipments [2][3] - The aggregate ODM direct server shipment value was US$59.6 billion, showing a 45% q/q increase and a 253% y/y increase, driven by strong demand for AI servers and high-ASP rack architecture [3][6] - The report highlights a preference for specific ODMs, including Hon Hai/FII, Wistron, Quanta, and Wiwynn, due to their strong performance and market share gains [6] Summary by Sections ODM Shipment Performance - ODM shipment units grew 25% q/q and shipment values grew 45% q/q in 1Q25 [1] - MiTAC experienced the highest growth in shipment units at +46% q/q [2] Market Share Analysis - Wiwynn led the major ODMs with a 22.6% market share, followed closely by Quanta at 22.5% [3][12] - Intel regained unit share to 47.0%, while AMD's share dropped to 36.4% [4][11] Regional Performance - The USA was the best-performing region with a 67% y/y growth in shipment units, accounting for 74% of aggregate ODM direct shipments [5][10] Stock Implications - The strong demand for general servers from cloud services contributed to unit share gains for Quanta and Wiwynn, with expectations of continued revenue growth for major ODMs in the upcoming quarters [6]

Financial Data and Key Metrics Changes - Revenues in Q1 2025 were $1,500,000, down from $3,100,000 in Q1 2024, indicating a significant decline [12] - Gross margins decreased to 30% in Q1 2025 from 49% in Q1 2024, primarily due to lower margins from a contract with the UK's NQCC [12] - Total operating expenses (OpEx) increased to $22,100,000 in Q1 2025 from $18,100,000 in the same period last year, driven by salary increases and higher stock compensation expenses [13] - The operating loss for Q1 2025 was $21,600,000, compared to $16,600,000 in the prior year [13] - The company recorded a net income of $42,600,000 in Q1 2025, a turnaround from a net loss of $20,800,000 in Q1 2024, largely due to favorable non-cash changes in derivative warrant and earn-out liabilities [14] Business Line Data and Key Metrics Changes - The company is focusing on advancing its utility-scale quantum computer concept through collaborations and government contracts, which are critical for future sales [4][5] - The NQCC contract is noted for having lower gross margins, but it is strategically important for the company to establish itself in the UK quantum ecosystem [50] Market Data and Key Metrics Changes - The company is actively participating in DARPA's quantum benchmarking initiative, which is crucial for advancing utility-scale quantum computing [4][27] - The interest in quantum computing remains primarily in R&D, with significant government contracts driving current sales, but commercial sales are expected to be several years away [39] Company Strategy and Development Direction - The company aims to scale up qubit counts using a chiplet approach, with plans to demonstrate over 100 qubits by the end of 2025 [16][18] - The focus is on achieving higher fidelity and faster gate speeds as part of the roadmap to utility-scale quantum computing [26][56] - The partnership with Quanta Computer is strategic, with a commitment of $250,000,000 over five years to support non-GPU hardware development [90] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the NQI reauthorization bill, which is expected to provide funding for quantum computing initiatives, although delays are anticipated [20][46] - The company is still in the R&D phase of quantum computing, with expectations that significant commercial sales will not materialize for another three to five years [39][41] Other Important Information - The company has received multiple awards to advance its quantum computing technologies, including a $5,480,000 grant for chip fabrication technology development [5][67] - The integration of optical signaling is seen as a critical advancement for scaling quantum systems, with expectations for implementation in the next few years [76][80] Q&A Session Summary Question: Progress on chip tiling and timelines - Management confirmed confidence in the chiplet approach to achieve 36 qubits by mid-year and over 100 by the end of 2025, with promising data supporting this strategy [16][17] Question: Updates on the NQI Reauthorization Act - Management indicated bipartisan support for the NQI reauthorization, but noted that it has not yet passed, with funding expected to take additional time to flow after approval [20][46] Question: Details on the DARPA contract - The DARPA Quantum Benchmarking Initiative is critical for achieving utility-scale quantum computing, with specific milestones related to qubit counts and fidelity required to progress to the next phase [25][26] Question: Customer interest in quantum processors - Management noted that while interest exists, the current environment is primarily R&D-focused, with significant sales unlikely until quantum advantage is achieved [39][41] Question: Optical signaling and its importance - Management highlighted the significance of optical signaling for future scalability, with a transition expected from coax to fiber optic cables in the coming years [76][80] Question: Revenue recognition from NQCC and Air Force contracts - Revenue from the NQCC opportunity is expected to be recognized over the next year, while the Air Force contract is projected to contribute approximately $1,000,000 over the upcoming year [81][82] Question: Future milestones with Quanta Computer - The partnership with Quanta is expected to evolve, with Quanta taking on more R&D responsibilities for control systems and hardware components over the next year [90][93]

Financial Data and Key Metrics Changes - Revenues in Q1 2025 were $1,500,000, down from $3,100,000 in Q1 2024, indicating a significant decline [12] - Gross margins decreased to 30% in Q1 2025 from 49% in Q1 2024, primarily due to lower margin revenues from a contract with the UK's NQCC [12] - Total operating expenses (OpEx) increased to $22,100,000 in Q1 2025 from $18,100,000 in the same period last year, driven by salary increases, new hires, and higher stock compensation expenses [13] - The operating loss for Q1 2025 was $21,600,000, compared to $16,600,000 in the prior year [13] - The company recorded a net income of $42,600,000 in Q1 2025, a turnaround from a net loss of $20,800,000 in Q1 2024, largely due to favorable non-cash changes in derivative warrant and earn-out liabilities [14] Business Line Data and Key Metrics Changes - The company is focusing on advancing its utility scale quantum computer concept, collaborating with Riverlane on quantum error correction technology [4][5] - The consortium for the AFOSR award aims to develop chip fabrication technology, with a total award of $5,480,000 [5] Market Data and Key Metrics Changes - The company is actively participating in DARPA's quantum benchmarking initiative, which is critical for advancing utility scale quantum computing [4][28] - The interest in quantum computing remains primarily in R&D, with significant government contracts driving current sales [38][41] Company Strategy and Development Direction - The company is pursuing a chiplet approach to scale qubit counts, aiming for 36 qubits by mid-2025 and over 100 qubits by the end of 2025 [16][18] - The strategy includes enhancing quantum error correction capabilities and integrating digital chip-based technology with existing systems [8][9] - The partnership with Quanta Computer is strategic, focusing on non-GPU hardware components, which will allow the company to concentrate on QPU development [91][94] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the NQI reauthorization bill, which is expected to pass with bipartisan support, although funding may take additional time to materialize [21][48] - The company anticipates that achieving quantum advantage will take at least three to five years, with current efforts focused on R&D and technology milestones [38][42] Other Important Information - The company has closed a $35,000,000 investment from Quanta Computer, which strengthens their strategic collaboration [10][90] - The company is exploring optical signaling as a future technology to improve scalability and reduce thermal load in quantum systems [78][81] Q&A Session Summary Question: Progress on chip tiling and timelines - Management confirmed confidence in the chiplet approach to achieve 36 qubits by mid-2025 and over 100 by the end of 2025, with promising data supporting this strategy [16][17] Question: Updates on the DARPA contract - The DARPA Quantum Benchmarking Initiative is crucial for utility scale quantum computing, with specific milestones related to qubit count and fidelity required to progress to the next phase [26][28] Question: Revenue from DARPA phases - Phase A of the DARPA project includes a $1,000,000 award, with expectations for increased funding in subsequent phases [34] Question: Customer interest in quantum processors - Current interest remains in R&D, with significant government funding impacting the conversion of interest into orders [40][41] Question: Optical signaling and its roadmap - Optical signaling is a key element for future scalability, with expectations to transition from coax to fiber optic cables in the next three to four years [78][81] Question: NQCC revenue recognition timeframe - Revenue from the NQCC opportunity is expected to be recognized over the next year, with a similar timeline for the Air Force contract [84]

Financial Data and Key Metrics Changes - Revenues in Q1 2025 were $1,500,000, down from $3,100,000 in Q1 2024, indicating a significant decline [12] - Gross margins decreased to 30% in Q1 2025 from 49% in Q1 2024, primarily due to lower margins from a contract with the UK's NQCC [12] - Total operating expenses (OpEx) increased to $22,100,000 in Q1 2025 from $18,100,000 in the same period last year, driven by salary increases, new hires, and higher stock compensation expenses [13] - The operating loss for Q1 2025 was $21,600,000, compared to $16,600,000 in the prior year [13] - The company recorded a net income of $42,600,000 in Q1 2025, a turnaround from a net loss of $20,800,000 in the previous year, largely due to favorable non-cash changes in derivative warrant and earn-out liabilities [14] Business Line Data and Key Metrics Changes - The company is focusing on advancing its utility scale quantum computer concept through collaborations and government contracts, which are critical for future sales [4][5] - The NQCC contract is noted for its lower gross margin profile, impacting overall profitability [12] Market Data and Key Metrics Changes - The company has been awarded multiple contracts, including a $1,000,000 award from DARPA for the Quantum Benchmarking Initiative, which is seen as strategically important despite its relatively small monetary value [34] - Interest in quantum computing remains primarily in R&D, with significant reliance on government contracts and academic research funding [41] Company Strategy and Development Direction - The company aims to demonstrate a chiplet approach to scale qubit counts, targeting over 100 qubits by the end of 2025 [16][19] - The strategy includes collaborations with various institutions to enhance quantum error correction capabilities and improve chip fabrication technology [5][6] - The company is optimistic about the NQI reauthorization, which is expected to provide funding for quantum computing initiatives, although delays in passing the bill are noted [22][50] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the chiplet approach as a means to scale up qubit counts, emphasizing its importance for the entire industry [19] - The company is optimistic about the future of quantum computing, although it acknowledges that achieving quantum advantage is still several years away [39] - Management highlighted the strategic importance of government contracts and collaborations in driving future growth [41][42] Other Important Information - The company has closed a $35,000,000 investment from Quanta Computer, which is expected to strengthen their partnership and reduce R&D costs in non-QPU hardware areas [10][96] - The company is exploring optical signaling as a future technology to improve scalability and reduce thermal load in quantum computing systems [80][84] Q&A Session Summary Question: Progress on chip tiling to reach 36 qubits - Management confirmed that the chiplet approach is critical for scaling qubit counts and expressed confidence in achieving the target by mid-year [16][19] Question: Updates on NQI Reauthorization Act - Management noted bipartisan support for the NQI reauthorization but indicated that it has not yet passed, with funding expected to take additional time to flow [21][50] Question: Details on the DARPA contract - The DARPA Quantum Benchmarking Initiative is crucial for developing utility scale quantum computing, with specific milestones related to qubit fidelity and gate speed [27][90] Question: Customer interest in acquiring processors - Management stated that interest remains high, but funding issues are currently hindering conversion to orders [41][42] Question: Timeframe for the 36 qubit QPU upgrade - Management indicated that the upgrade could occur in the second half of the year, depending on the demonstration of the chiplet approach [51][54] Question: Importance of optical signaling - Management emphasized the significance of optical signaling for future scalability and the transition from coax to fiber optic cables [80][84] Question: Revenue recognition from NQCC and Air Force contracts - Management expects revenue from the NQCC contract to be recognized over the next year, with the Air Force contract contributing approximately $1,000,000 over its three-year term [87]

Core Insights - Rigetti Computing has successfully closed a $35 million investment from Quanta Computer, purchasing shares at approximately $11.59 each, as part of a strategic collaboration agreement [1][2] Company Overview - Rigetti Computing is a pioneer in full-stack quantum computing, operating quantum computers over the cloud since 2017 and serving various clients through its Rigetti Quantum Cloud Services platform [2] - The company began selling on-premises quantum computing systems in 2021, with qubit counts ranging from 24 to 84, supporting national laboratories and quantum computing centers [2] - Rigetti introduced its 9-qubit Novera QPU in 2023, designed for high-performance integration into existing cryogenic and control systems [2] - The company has developed the first multi-chip quantum processor for scalable quantum computing systems and manufactures its chips in-house at Fab-1, the first dedicated quantum device manufacturing facility [2] Strategic Collaboration - The collaboration with Quanta is expected to leverage Quanta's expertise in notebook and server manufacturing alongside Rigetti's advancements in superconducting quantum computing, positioning the company at the forefront of the quantum computing industry [2]