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September 29, 2025 10:56 PM GMT Greater China Technology Hardware | Asia Pacific Tuesday TMT Webcast: What's New in AI Data Centers? | M | | | | --- | --- | --- | | | | Foundation | | September 29, 2025 10:56 PM GMT | | | | Greater China Technology Hardware Asia Pacific | Morgan Stanley Taiwan Limited+ | | | | Sharon Shih | | | | Equity Analyst | | | Tuesday TMT Webcast: What's New in AI Data | Sharon.Shih@morganstanley.com | +886 2 2730-2865 | | | Morgan Stanley MUFG Securities Co., Ltd.+ | | | Centers? | ...

Daily Spotlight 29 September 2025 Michael MENG (852) 3988 6433 michael.meng@bocigroup.com Index Performance | | Last close | % 1D | % YTD | | --- | --- | --- | --- | | HSI | 26,128 | (1.3) | 30.3 | | HSCEI | 9,303 | (1.5) | 27.6 | | HSCCI | 3,996 | 0.1 | 5.7 | | MSCI HK | 13,151 | (0.1) | 24.5 | | MSCI CHINA | 87 | (1.5) | 34.8 | | FTSE CHINA A50 | 15,028 | (1.2) | 11.2 | | CSI 300 | 4,550 | (0.9) | 15.6 | | TWSE | 25,580 | (1.7) | 11.0 | | SENSEX | 81,160 | (0.7) | 3.9 | | NIKKEI 225 | 45,355 | (0.9) | 13. ...

Summary of the Conference Call on U.S. IT Hardware and AI Opportunities Industry Overview - The focus is on the U.S. IT Hardware industry, particularly the impact of AI on hardware vendors and the potential for growth in enterprise inferencing [1][2][18]. Key Insights and Arguments 1. **AI's Potential and Risks**: AI presents a significant upside opportunity for hardware vendors, with approximately 30% of knowledge worker tasks currently addressable by AI, potentially leading to a 10% productivity increase overall. This translates to a Total Addressable Market (TAM) of $370 billion for enterprise inferencing by early 2025 [2][19]. 2. **Long-term Growth Potential**: The long-term potential for enterprise inference is substantial, with estimates ranging from $336 billion in a bear case to $11.2 trillion in a bull case, with a base case of $1.3 trillion and a compound annual growth rate (CAGR) of 67% from 2025 to 2030 [3][41]. 3. **Model Improvement and Market Dynamics**: Continuous improvement in AI models is expected to alleviate concerns about market digestion. The pace of model enhancement is seen as a more reliable indicator than hyperscaler capital expenditures [4][21]. 4. **AI Server OEMs' Outlook**: The AI server market is currently dominated by cloud solutions, but a shift towards traditional enterprise on-premises solutions is anticipated, providing significant growth opportunities for Original Equipment Manufacturers (OEMs) like Dell, HPE, and SMCI [5][10]. 5. **On-device AI Opportunities**: On-device AI presents both risks and opportunities for OEMs. Companies like Apple are positioned to lead in this space, but they also face the risk of disruption if they fail to innovate [6][9]. Additional Important Points 1. **Investment Implications**: - **Apple**: Rated as Outperform with a price target of $290, benefiting from AI advancements and reduced downside risks from regulatory decisions [9]. - **Dell**: Also rated as Outperform with a price target of $175, expected to gain from AI server and storage opportunities [10]. - **SanDisk**: Rated as Outperform with a price target of $120, seen as undervalued in the NAND market [11]. - **Seagate**: Rated as Outperform with a price target of $250, benefiting from cyclical and structural tailwinds [11]. - **Western Digital**: Rated as Market-Perform with a price target of $96, facing market share and margin pressures [12]. - **IBM**: Rated as Market-Perform with a price target of $280, with growth driven by software innovations [13]. - **HPE**: Rated as Market-Perform with a price target of $24, facing challenges in realizing synergies from acquisitions [15]. - **HPQ**: Rated as Market-Perform with a price target of $30, facing structural declines in the printing industry [16]. 2. **Historical Context**: The discussion references historical digestion cycles in IT infrastructure, particularly during the dot-com era, highlighting the volatility that can occur in hardware demand [22][41]. Conclusion The U.S. IT Hardware industry is at a pivotal moment with AI presenting both significant opportunities and risks. Continuous model improvements and shifts in enterprise demand are critical factors that will shape the future landscape of hardware vendors. Companies like Apple and Dell are well-positioned to capitalize on these trends, while others may face challenges in adapting to the rapidly evolving market.

Summary of Datacenter Market Insights – Part 1: Overall Servers Industry Overview - The report focuses on the **Datacenter Market** within the **Hardware Technology** sector in the **Asia Pacific** region, specifically analyzing server shipments and trends in 2Q25 [1][9]. Key Insights - **Total Server Shipments**: Global server shipments reached **4.2 million units** in 2Q25, reflecting a **16% year-over-year (y/y)** growth and a **7% quarter-over-quarter (q/q)** increase. The growth is primarily driven by cloud demand, with expectations for continued growth in AI server shipments throughout 2025 [2][16]. - **AI Server Demand**: AI server yields are improving, with significant increases in average selling prices (ASPs) for major Original Equipment Manufacturers (OEMs) and Original Design Manufacturers (ODMs). High-value server shipments for Dell increased by **181% q/q**, while its overall server shipments declined by **4% q/q** [3][15]. - **Market Dynamics**: The demand for AI servers remains robust, particularly for GB200 racks, which saw shipments grow from **1.1k in 1Q** to approximately **4.9k in 2Q**. Expectations for 3Q shipments are projected to reach **8-9k** [5][6]. - **Regional Performance**: The **US** market outperformed others with a **32% y/y** increase in shipments, while regions like **Japan** and **Rest of the World (RoW)** saw declines of **12% y/y** and **13% y/y**, respectively [12][20]. - **Segment Performance**: High-end server shipments grew **399% y/y** in 2Q, mid-range servers increased by **85% y/y**, and entry-level servers saw a modest growth of **8% y/y**. This trend aligns with the ramp-up of AI server demand [13][14]. Vendor Performance - **ODM Direct Shipments**: ODM direct shipments increased by **46% y/y** and **3% q/q** in 2Q25, with ASPs rising to approximately **US$34.3k**, driven by AI server contributions [15][16]. - **Market Share Changes**: ODM direct market share decreased to **45.4%**, down **2 percentage points** from the previous quarter. Dell's market share fell to **8.2%**, while HP's share increased to **7.7%** [16]. Investment Preferences - The report suggests a preference for components over ODMs/OEMs, highlighting companies such as **Hon Hai**, **Wistron**, **Quanta**, and **Giga-Byte** as favorable investment opportunities [7]. Additional Considerations - **Tariff Impact**: The report notes that tariffs have influenced both enterprise and cloud demand, with expectations of a **5-10% y/y** decline in full-year enterprise demand [2][6]. - **Future Outlook**: Overall momentum for general servers is expected to slow in the second half of 2025, influenced by earlier pull-ins due to tariffs, although actual shipment momentum appears stronger than previously anticipated [6][16]. This summary encapsulates the critical insights and data from the conference call regarding the datacenter market and server shipments, providing a comprehensive overview of current trends and future expectations.

Group 1: Company Overview - Yidao Information is a provider of smart electronic products and solutions, focusing on product definition and R&D design [2] - The company’s main business segments include rugged smart terminals and consumer smart terminals, with applications in smart manufacturing, transportation, energy exploration, and public utilities [2] Group 2: Business Performance - In the first half of 2025, the company achieved a revenue growth of 19.24% year-on-year [3] - The rugged smart terminal business grew by 24.71%, smart hardware by 16.27%, and XR and AIoT business by 27.60% [3] - R&D expenses increased by 2.71% year-on-year [3] Group 3: R&D Focus - The company is increasing R&D investments in AI, spatial computing, and native hardware to align with the AI+ industry development trend [3] - New R&D projects and patent applications have increased, leading to breakthroughs such as AI industry terminals, AI enterprise workstations, and AI glasses [3] - The establishment of Yidao Research Institute in January 2024 aims to collaborate with universities and research institutions to advance research in AI, perception technology, cloud computing, and spatial intelligence [3]

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Semiconductor Sector in China - **Recent Performance**: The A-share semiconductor sector experienced a rally of 13% last week, outperforming the CSI300 index by the same percentage in August [1][3] Core Insights and Arguments - **Drivers of Rally**: 1. Launch of DeepSeek's V3.1 model, which supports next-generation local AI chips [1][3] 2. China Mobile's announcement of a supplier list for its Rmb5 billion AI server tender [1][3] 3. Strong wafer fab equipment (WFE) imports in July, which increased by approximately 14% year-on-year and 11% month-on-month [3] - **Valuation Expectations**: - The semiconductor sector is expected to undergo a re-rating, with a preference for local AI, China WFE, and Apple supply chain stocks due to positive catalysts [1][3] - Current trading levels are about 20% above historical average price-to-earnings ratios (PER), but WFE and Apple supply chain stocks are trading at 0.5 standard deviations below average [3] - **Investment Preferences**: - Favorable outlook on server companies like Huaqin and Inspur within the local AI supply chain [3] - Preference for leading WFE companies such as AMEC and Apple supply chain players like Cowell and Luxshare [3] - Caution advised on Android smartphone component suppliers due to sub-seasonal demand in the second half of 2025 [3] Additional Important Information - **China Mobile's AI Server Tender**: - The tender includes various packages with specific volumes and candidate suppliers, indicating a strong demand for indigenous AI solutions [4] - Notable allocations include H3C and ZTE dominating several packages, with Inspur securing 100% of one package [4] - **WFE Import Data**: - The increase in WFE imports is seen as a positive indicator for the demand in China, with expectations of flat to single-digit growth year-on-year driven by advanced memory and logic capacity expansions [3][10] - **Market Dynamics**: - Despite the overall positive sentiment, there is caution regarding semiconductor price hikes from foundries and integrated device manufacturers (IDMs) [3] - **Performance of A-share WFE Names**: - A-share WFE companies have underperformed compared to tech and semiconductor indices year-to-date, despite guidance for 30-50% sales growth [3] This summary encapsulates the key points discussed in the conference call, focusing on the semiconductor sector's performance, investment preferences, and market dynamics.

Group 1: Business Performance - The company's rugged intelligent industry terminal business achieved revenue of 173.46 million yuan in the first half of 2025, representing a year-on-year growth of 24.71% [2] - Growth is attributed to four main factors: ongoing global industrial digitalization, enhanced product competitiveness of the "ONERugged" series, increased brand influence and effective sales channel expansion, and successful acquisition of new clients in key sectors such as smart retail and fleet management [2] Group 2: Research and Development - The company has increased its R&D investment, resulting in a rise in the number of R&D projects and new patent applications [3] - Breakthrough R&D outcomes include AI industry terminals, AI enterprise workstations, AI glasses, AI edge computing models, AI digital humans, and AI servers, enhancing the company's ability to meet diverse customer needs [3] - The establishment of the Yidao Research Institute in January 2024 aims to collaborate with major universities and research institutions to advance research in cutting-edge technologies such as AI and cloud computing [3] Group 3: Share Repurchase Plan - The company's share repurchase plan is progressing in an orderly manner, with plans to actively advance the buyback project based on market conditions and company development [3]

Group 1 - The demand for AI computing power is surging, leading to significant growth in the performance of listed companies in the computing power industry in the first half of 2025 [1] - Companies in the computing power supply chain reported that their performance growth is primarily driven by the continuous construction of basic computing power facilities and steady investment in AI-related computing power [1] - The market for intelligent computing centers in China is expected to reach 288.6 billion yuan by 2028, with the scale of intelligent computing power projected to reach 1,037.3 EFLOPS by 2025 and 2,781.9 EFLOPS by 2028 [1] Group 2 - The AI video generation industry is entering a rapid commercialization phase, with significant improvements in product usability [2] - The new full-frame feature based on the 2.1 model by Keling AI shows a 235% improvement over the previous 1.6 model, enhancing video transitions and visual impact [2] - The global market for AI video generation is estimated to be worth 615 million USD in 2024, with projections to reach 2.563 billion USD by 2032, reflecting a compound annual growth rate of 20% from 2025 to 2032 [2]

Financial Data and Key Metrics Changes - The company reported a record high first quarter revenue of $18.8 billion, representing a 22% year-on-year growth [3][15] - Net income on a non-HKFRS basis increased by 22% to $389 million, while on an HKFRS basis, net income more than doubled to $500 million [4][16] - Non-PC revenue mix reached 47% of total revenues, indicating a significant diversification in revenue streams [5][16] Business Line Data and Key Metrics Changes - The Intelligent Device Group (IDG) generated $13.5 billion in revenue, an 18% year-on-year growth, with PCs and related businesses growing by 19% [6][24] - The Solutions and Services Group (SSG) achieved a record revenue of $2.3 billion, marking a 20% year-on-year increase with an operating margin of over 22% [10][29] - The Infrastructure Solutions Group (ISG) saw a 36% year-on-year revenue growth, reaching $4.3 billion, although it recorded an operating loss of $86 million due to strategic investments [8][28] Market Data and Key Metrics Changes - In China, revenue surged by 36% year-on-year, driven by strong AI PC shipments and leadership in the commercial segment [18][19] - The Asia Pacific region, excluding China, experienced a 39% revenue growth, with significant market share gains in Japan and India [19] - The Americas saw PC market share gains for the ninth consecutive quarter, while EMEA recorded strong bookings in Device as a Service and Software Solutions [19] Company Strategy and Development Direction - The company is executing a hybrid AI strategy aimed at capitalizing on AI opportunities, with a focus on personal and enterprise AI innovations [5][11] - Continuous investment in R&D, which increased by 10% year-on-year to $524 million, is a priority to drive innovation and support the hybrid AI strategy [21][60] - The company aims to maintain its competitive edge through a unique ODM Plus model, combining in-house manufacturing with ODM to enhance flexibility and resilience [50][52] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating future uncertainties and emphasized the importance of maintaining market share and profitability despite external challenges [5][6] - The company anticipates continued growth in the PC and AI infrastructure markets, with a positive outlook for the remainder of the fiscal year [36][46] - Management highlighted the importance of adapting to market shifts and investing in AI infrastructure to capture growth opportunities [9][10] Other Important Information - The company reported strong cash flow from operations of $1.2 billion, the highest in the past eleven quarters, and a free cash flow of $751 million [20] - The company is focused on building a comprehensive AI ecosystem, including partnerships with major tech firms to enhance its AI offerings [72] Q&A Session Summary Question: Trends for PC in Q3 and Q4 2025 - The company expects continued strong performance in the PC market, with good order visibility and a positive outlook for shipments [36] Question: Update on Middle East business progress - The company is ahead of schedule in building a manufacturing facility in the Middle East and expects to capture additional market share through local partnerships [39] Question: Drivers behind strong growth in SSG - The shift from CapEx to OpEx models is driving strong growth in Device as a Service and Infrastructure as a Service across all geographies [44] Question: Impact of tariff uncertainties on supply chain - The company has not seen significant impacts from tariff uncertainties due to its competitive business model and diversified manufacturing footprint [46][48] Question: Explanation of margin decline despite operating profits - The decline in gross margin is attributed to the growth of the ISG business, particularly in AI servers, which have lower margins compared to other segments [55] Question: R&D investment growth outlook - R&D remains a strategic priority, and the company plans to continue investing in innovation to drive growth across all business segments [60] Question: Market share gains in PCs and smartphones - The company has achieved significant market share gains in both segments, driven by innovation and operational excellence [61][66] Question: Hiring investment in ISG AI capabilities - The company is investing in expanding its AI product portfolio and sales coverage to capture revenue opportunities in the AI infrastructure market [70][72] Question: Key growth drivers for AI server sales - Growth is driven by demand across all segments and geographies, with a notable hypergrowth in China related to AI [75] Question: Strategy to gain share in AIPC market - The company aims to leverage its comprehensive product offerings and innovation to gain market share and expand margins in the AIPC market [80]