Summary of the Investor Presentation on Greater China Technology Hardware Industry Overview - The focus is on the Greater China Technology Hardware sector, particularly in relation to AI demand growth and design value upgrades, which are expected to drive profit increases [4][5][6]. Core Insights - Preference for AI server components over AI server Original Design Manufacturers (ODMs) due to better execution and production flexibility [4][6]. - Consumer electronics demand is described as lukewarm, indicating a potential slowdown in this segment [5]. - Significant opportunities are identified in AI GPU and ASIC server/rack design upgrades, with major design upgrades anticipated for platforms such as GB300, Vera Rubin, and Kyber architecture [6]. - AI ASIC servers are expected to enhance computing power and increase rack density, with demand growth anticipated in 2026-2027 [6]. - Transition to 800V High Voltage Direct Current (HVDC) power architecture is noted as a power solution upgrade [6]. - Adoption of liquid-to-air solutions is highlighted for faster deployment in server setups [6]. - Expansion of PCB/substrate capacity is necessary to support ongoing design upgrades [6]. - Upcoming foldable iPhone models are anticipated in the second half of 2026, which may influence market dynamics [6]. - The proliferation of AI PCs is expected to take time, indicating a gradual market shift [6]. - The status of supply chain reorientation and its potential impacts are acknowledged, suggesting ongoing adjustments in the industry [6]. Key Stock Ideas - Recommended stocks in the AI server components category include Delta Electronics, AVC, Gold Circuits, Lotes, Unimicron, and LandMark [6]. - Recommended stocks in the AI server ODMs category include Hon Hai/FII, Wistron, Wiwynn, Quanta, and Lenovo [6]. Valuation Comparison - A detailed valuation comparison of various companies within the Greater China Technology Hardware sector is provided, including metrics such as closing price, market cap, EPS, P/E ratio, P/B ratio, P/S ratio, EV/EBITDA, ROE, ROA, trading volume, and yield [8]. - Notable companies include Lite-On Tech, Delta, Hon Hai, Foxconn Tech, and others, with varying ratings and target prices [8]. Additional Considerations - The report emphasizes the importance of considering Morgan Stanley Research as one of several factors in investment decision-making, highlighting potential conflicts of interest [2].

Summary of Key Points from the Conference Call Industry Overview - The conference call focused on the **semiconductor industry**, particularly the **AI semiconductor** segment, with insights from **Morgan Stanley** regarding the **cloud capital expenditure (capex)** and the **supply chain dynamics** in Taiwan [6][10]. Core Insights and Arguments - **Cloud Capex Growth**: Major cloud service providers (CSPs) are projected to spend nearly **US$582 billion** on cloud capex in **2026**, with estimates from Nvidia suggesting global cloud capex could reach **US$1 trillion** by **2028** [13][15]. - **AI Semiconductor Market Size**: The global semiconductor market size is expected to reach **US$1 trillion** by **2030**, with the AI semiconductor total addressable market (TAM) projected to grow to **US$235 billion** by **2025** [25]. - **Nvidia's Rack Output**: Post second-quarter earnings, expectations for **GB200/300 rack output** have become more bullish, with projections of approximately **34,000 racks** for **2025** and at least **60,000 racks** for **2026** [49]. - **Nvidia's GPU Supply**: TSMC is anticipated to produce **5.1 million** chips in **2025**, while NVL72 shipments are expected to reach **30,000** [42]. - **AI Semiconductor Demand Drivers**: The primary growth driver for AI semiconductors is attributed to **cloud AI**, with a significant focus on inference versus training AI semiconductors [27][71]. Additional Important Insights - **Capex to EBITDA Ratio**: The capex to EBITDA ratio has surged since **2024**, indicating increased capex intensity [21]. - **Custom AI Chips**: Custom AI chips are expected to outpace general-purpose chips, with a projected market size of approximately **US$21 billion** in **2025** [139]. - **TSMC's Capacity Expansion**: TSMC plans to expand its CoWoS capacity significantly, with projections of **93k wafers per month** by **2026** to meet the growing demand for AI chips [105][110]. - **China's AI Semiconductor Demand**: The demand for AI semiconductors in China is expected to grow, with local GPUs projected to fulfill only **39%** of the country's AI demand by **2027** [178][181]. Conclusion - The semiconductor industry, particularly in the AI segment, is poised for substantial growth driven by cloud computing and AI applications. Companies like Nvidia and TSMC are at the forefront of this expansion, with significant investments and capacity enhancements planned for the coming years.

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Global Technology, specifically focusing on AI Supply Chain and semiconductor industry - **Key Players**: TSMC, Nvidia, Broadcom, AMD, MediaTek, Alchip, Aspeed, Advantest, KYEC, and others Core Insights and Arguments 1. **Cloud Capex Growth**: Morgan Stanley expects 2026 cloud capex to increase by 31% year-over-year (Y/Y) to US$582 billion, significantly higher than the consensus estimate of 16% Y/Y growth [2][10][67] 2. **AI Server Capex**: The implied AI server capex is projected to grow approximately 70% Y/Y in 2026, driven by an increase in AI server capex mix [2][11] 3. **TSMC CoWoS Capacity**: TSMC's 2026 CoWoS capacity is estimated to remain unchanged at 93k wafers per month, which is expected to support the anticipated AI capex growth [1][4][27] 4. **Hyperscalers' Capex**: The top 11 global hyperscalers are tracking a cash capex of US$445 billion for 2025, reflecting a 56% Y/Y growth, with major contributions from Microsoft, Amazon, and Alphabet [9][68] 5. **AI Chip Demand**: Strong demand for AI semiconductors is expected to persist, with Morgan Stanley maintaining an "Overweight" rating on key semiconductor companies [2][11] Additional Important Insights 1. **China's AI Chip Supply**: There are ongoing developments in China's AI chip supply, with Nvidia placing new wafer orders at TSMC for H20 chips, adding 200k units to the previous production of 1 million units [8] 2. **Nvidia's CoWoS Consumption**: Nvidia's CoWoS consumption assumption has been raised from 580k to 595k units for 2026, indicating strong demand for their chips [22] 3. **Market Dynamics**: The report highlights the competitive landscape, noting that Huawei is developing its own AI chips to compete with Nvidia, showcasing the CM384 server rack prototype [8][41] 4. **Depreciation Trends**: Depreciation as a percentage of total expenses for data center customers is expected to rise, reflecting increased investments in data centers [60] 5. **AI Inference Demand**: Monthly tokens processed by major cloud service providers indicate a growing demand for AI inference, with Google processing over 980 trillion tokens in July 2025, doubling from May [15] Conclusion The conference call emphasizes a robust outlook for the AI semiconductor industry, driven by significant increases in cloud capex and AI server investments. TSMC's capacity plans and the competitive dynamics in the AI chip market, particularly with developments in China, are critical factors to monitor.

Investment Rating - The report does not explicitly provide an investment rating for Time Interconnect (1729.HK) Core Insights - Time Interconnect is expected to experience revenue growth in 2025 driven by rising AI demand, production site diversification, and exposure to various end markets [1][8] - The company reported revenues of HK$7.4 billion in 2024, with a gross margin of 14.6% [3] - The revenue from server ODM business reached HK$3.2 billion in 2024, accounting for 43% of total revenue [7] Summary by Sections Industry Overview - Time Interconnect specializes in customized copper and optical fiber cables, as well as servers ODM, with production sites in mainland China, Japan, and Mexico [3] - Key applications include telecommunications, data centers, industrial equipment, medical equipment, and automotive wiring harnesses [3] Growth Drivers - AI demand is driving the adoption of high-speed cables, with a reported 208% year-over-year growth in high-speed cable revenues in 2024 [4] - 42% of cable assembly revenues were derived from data center clients in 2024, indicating strong demand from this sector [4] Business Outlook - Management is optimistic about revenue growth in 2025, supported by the expansion of the Mexican production site and increasing capex spending from Chinese CSP clients [8] - The planned acquisition of Leoni AG is expected to diversify the business into automotive cables and wiring harnesses [8]

Investment Rating - The report maintains an "Overweight" (OW) rating for the covered companies, indicating an expectation of outperforming the average total return of the stocks in the research analyst's coverage universe [29][31][33]. Core Insights - The report highlights robust capital expenditure (capex) growth among major US Cloud Service Providers (CSPs) such as Meta, Microsoft, and Google, with a combined year-over-year growth of 60% [1]. - The positive outlook for capex investments is supported by raised full-year guidance from Meta and reiterated forecasts from Microsoft and Google, suggesting continued strong investment momentum throughout the year [1][3]. - Despite concerns regarding a slowdown in AI investments and tariff impacts, the report suggests limited near-term effects on capex trajectories for the CSPs [1]. Summary by Company Meta - Meta's capex increased by $7 billion year-over-year for the second consecutive quarter, with a 104% rise year-over-year in Q1 2025, reaching $13.7 billion [3]. - The full-year capex outlook for 2025 has been raised to $64-$72 billion, reflecting a year-over-year growth of 73%, driven by AI investments and core business support [3]. Microsoft - Microsoft reported a capex of $21.4 billion for Q3 2025, marking a 53% increase year-over-year, despite a 5% quarter-over-quarter decline [3]. - The company maintains a double-digit growth outlook for fiscal 2H25, with expected year-over-year growth of over 10% for Q4 2025 [3]. Google - Google's capex for Q1 2025 rose by 20% quarter-over-quarter and 43% year-over-year, totaling $17.2 billion, primarily due to infrastructure investments [3]. - The full-year capex outlook for 2025 is reiterated at $75 billion, indicating a year-over-year growth of over 40% [3].

Summary of Conference Call Notes Industry Overview - The conference call focuses on the **technology sector** in China, specifically regarding **China Telecom (CT)** and its server tender results. Key Points and Arguments Server Tender Results - CT's server tender results indicate a **28% year-over-year growth** to **Rmb17 billion** [1] - The **localization rate** for CPUs in the tender increased from approximately **37% to 68%** [1] - CT has guided for a **22% growth** in computing capital expenditures (capex) for 2025 [1][2] Market Share Dynamics - Significant shifts in market share were observed, with **Lenovo, Power Leader, and ZTE** gaining the most, while **H3C, xFusion, and Inspur** saw substantial declines [4] - Inspur's decline is attributed to its recent inclusion in the **US Entity List**, which may further impact its market share [4] - xFusion is also considered vulnerable due to its ties with US sanctions [4] Localization Trends - The localization rate for the 2024-25 server tender reached **67.5%**, with **49%** of that attributed to **Huawei's Kupeng** [3] - The demand for locally developed cloud and AI technology is expected to drive further increases in localization rates among state-owned enterprises and government entities [3] Future Projections - CT's upcoming server tender for 2024-25 will involve **156,000 servers** [3] - The **cloud capex** for both CT and China Unicom (CU) is projected to grow over **20% year-over-year**, while China Mobile's (CM) capex is expected to remain flat [2] - Accelerating AI development in China may necessitate an upward revision of CM's cloud capex guidance in the second half of 2025 [2] Financial Performance and Risks - ZTE reported over **40% growth** in server revenue in the second half of 2024, but faces challenges due to lower margins (3-5%) compared to telecom equipment (40%+) [4] - The potential for an earnings miss at ZTE is highlighted, maintaining a rating of **Underperform (UNPF)** [4] Competitive Landscape - The top winners of CT's 2024-2025 server tender include: - **1. xFusion**: 17.9% - **2. Huakun Zhenyu**: 13.6% - **3. Power Leader**: 12.8% - **4. ZTE**: 10.3% - **5. Fiberhome**: 9.3% - **6. Inspur**: 7.2% - **7. H3C**: 7.0% [5] Historical Comparison - Comparison with the previous year's tender shows a decline in market share for xFusion, Inspur, and H3C, which were the top three players in 2023 [5] Additional Important Insights - The localization rate has nearly doubled from the previous tender, indicating a significant shift towards domestic suppliers [3][9] - The competitive pricing strategies of companies like Lenovo, which offered prices **13% below** the average of other winners, are influencing market dynamics [4] This summary encapsulates the critical insights from the conference call, highlighting the evolving landscape of the technology sector in China, particularly in relation to server tenders and market share shifts.

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