Summary of Semiconductor Industry Conference Call Industry Overview - The semiconductor industry in Greater China is experiencing solid demand, with notable growth in integrated circuit (IC) production and import/export values. [1][2] Key Metrics - **IC Import/Export Values**: - IC import value increased by **13.9% YoY** in November 2025, compared to **10.2% YoY** in October 2025. [1][14] - IC export value rose by **34.2% YoY** and **10.5% MoM** to **US$18.5 billion** in November 2025. [10][25] - **Production Growth**: - IC production volume grew by **17.7% YoY** in October 2025, reaching **42 billion units**. [4][28] - **Revenue Growth**: - Total semiconductor revenues in October 2025 were up **20.6% YoY**, amounting to **US$19.5 billion**. [5][19] - Taiwan's semiconductor revenue growth was **18.4% YoY** in November 2025. [5][29] Market Dynamics - The increase in IC import average selling price (ASP) was **11.5% YoY** in November 2025. [1] - The days of inventory (DOI) in China's electronics sector was **55 days** in October 2025, above the average of previous years. [1][17] - The semiconductor sector is supported by advancements in generative AI, RISC V technology, and local suppliers gaining market share. [2][4] Investment Recommendations - Analysts recommend a "Buy" rating for several companies, including: - **Kematek** - **SMIC** (Target Price raised to **HK$134**) - **Hua Hong** (Upgraded to Buy) - **AMEC**, **VeriSilicon**, **Horizon Robotics** (Target Price raised to **HK$15.3**) [3][50] Equipment and Bidding Trends - Recent bidding activities from semiconductor manufacturers indicate a positive outlook for capital expenditures (capex) in the coming years. [11][41] - Specific equipment bids include photoresist stripping and inspection equipment, reflecting ongoing investments in production capabilities. [11] Additional Insights - The semiconductor test equipment import value decreased by **32.4% YoY** to **US$41.6 million** in October 2025. [9][34] - The lithography import volume saw a significant decline of **42% YoY**, while the ASP increased by **225% YoY**. [9][32] This summary encapsulates the key points from the conference call regarding the semiconductor industry, highlighting growth metrics, market dynamics, investment recommendations, and equipment trends.

Financial Data and Key Metrics Changes - The company reported record revenue of $268 million for Q2 2026, representing a 20% sequential growth and a 272% year-over-year increase [6][19] - Non-GAAP gross margin was 67.7%, with non-GAAP net income reaching approximately $128 million, marking the strongest quarterly results in the company's history [7][21] - Non-GAAP operating income was $124.1 million, with a non-GAAP operating margin of 46.3%, reflecting significant leverage from revenue growth [21][22] - Cash flow from operations was $61.7 million, and free cash flow was $38.5 million, with cash and equivalents at $813.6 million [22][23] Business Line Data and Key Metrics Changes - The Active Electrical Cables (AEC) product line continued to be the fastest-growing segment, with revenue driven by increasing customer diversity, including four hyperscalers contributing over 10% of total revenue [8][19] - The Integrated Circuit (IC) business, including retimers and optical DSPs, also showed strong performance, with expectations for significant growth driven by 50 gig and 100 gig per lane deployments [10][11] Market Data and Key Metrics Changes - The company is experiencing a significant expansion in the AEC market, with a fourth hyperscaler ramping up and a fifth starting to contribute initial revenue [9][19] - The total addressable market (TAM) for AECs is expected to grow as customers increase the scale and density of their networks [10][17] Company Strategy and Development Direction - The company is focused on expanding its product offerings with three new growth pillars: Zero-flap Optics, Active LED Cables (ALCs), and OmniConnect gearboxes, each representing multi-billion dollar market opportunities [12][15][16] - The strategy includes maintaining a vertically integrated supply chain to ensure control over the entire system solution, similar to the approach taken with AECs [70] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued revenue growth through fiscal 2026 and beyond, driven by the core AEC and IC businesses, as well as new product ramps [17][24] - The company anticipates revenue in Q3 2026 to be between $335 million and $345 million, reflecting a 27% sequential increase at the midpoint [24] Other Important Information - The company is well-capitalized with a cash buffer to invest in growth opportunities while managing operating expenses, which are expected to increase year-over-year by approximately 50% in fiscal 2026 [23][24] - The company is addressing potential supply constraints in the semiconductor market, particularly regarding wafer demand, but does not foresee issues with AEC production capacity [56][59] Q&A Session Summary Question: Expansion of the AEC market and ALC market potential - Management indicated that the ALC market could be double the size of the AEC TAM, driven by both unit growth and ASP increases [27][29] Question: Customer revenue contributions - The largest customer contributed 42% of revenue, followed by 24%, 16%, and 11% from the other hyperscalers, with management noting variability in customer ramping [34][35] Question: Focus on system-level products - The company is committed to expanding its portfolio at the system level, with both ALCs and ZF optics being key areas of focus [38][39] Question: Applications for AECs - AECs are currently used in front-end network connections, scale-out opportunities, and switch racks, with further penetration expected in scale-up networks [50][51] Question: Supply constraints and manufacturing strategy - Management does not foresee concerns regarding AEC production capacity but acknowledges potential discussions around wafer supply constraints in the broader market [56][59] Question: Future growth expectations - Management expects mid-single-digit sequential revenue growth through fiscal 2027, with a focus on maintaining operational efficiency [91][94]

Summary of Semiconductor Industry Conference Call Industry Overview - The conference call focused on the semiconductor industry in Greater China, highlighting the trends in integrated circuit (IC) production, imports, and exports during September and October 2025 [1][2][4]. Key Points IC Production and Import Trends - IC production in China showed a positive year-over-year (YoY) growth of **5.9%** in September 2025, compared to **3.2%** in August 2025, with a total production volume of **44 billion units** [4][13][20]. - The import value of ICs increased by **10.2%** YoY in October 2025, down from **14.1%** in September 2025, indicating a slight slowdown in growth [1][15]. - The import volume of ICs rose by **4.9%** YoY in October 2025, compared to **11.7%** in September 2025, suggesting a decrease in the growth rate of imports [1][18]. Export Performance - IC export value reached **US$16.7 billion** in October 2025, reflecting a **26.9%** YoY increase but a **12.3%** month-over-month (MoM) decline [10][28]. - Year-to-date (YTD) export value for 2025 reached **US$161.9 billion**, representing a **23.2%** YoY increase [10]. Semiconductor Revenue - Total semiconductor revenues in China were reported at **US$18.7 billion** in September 2025, marking a **16.5%** YoY increase and a **6.0%** MoM increase [5][22]. - Taiwan's semiconductor revenue growth was **12.5%** YoY in October 2025, with a **6.4%** MoM increase [5][31]. Inventory and Market Dynamics - The days of inventory (DOI) in China's electronics sector stood at **49 days** in September 2025, above the average levels of previous years [1][18]. - The ongoing demand for semiconductors is supported by advancements in generative AI and automotive technologies such as Advanced Driver Assistance Systems (ADAS) [2][4]. Investment Recommendations - Analysts recommended a "Buy" rating for several companies, including Kematek, SMIC, Hua Hong, and others, based on strong company-specific drivers and market trends [3][50]. Equipment Imports - The import value of semiconductor test equipment surged by **31.9%** YoY to **US$56.7 million** in September 2025, indicating robust demand for testing capabilities [9][36]. - The import value of semiconductor production equipment (SPE) increased by **35.3%** YoY to **US$5.8 billion** in September 2025 [9][26]. Bidding Activity - Continuous bidding activity from Chinese semiconductor manufacturers was noted, indicating a positive outlook for capital expenditures (capex) in the coming years [11][42]. Conclusion - The semiconductor industry in Greater China is experiencing solid growth, driven by technological advancements and increasing demand. The trends in production, imports, and exports reflect a dynamic market environment, with significant investment opportunities identified in key companies within the sector.

Summary of Semiconductor Industry Conference Call Industry Overview - **Industry**: Semiconductor Industry in Greater China - **Key Metrics**: - IC import/export value increased by +14.1% YoY and +32.7% YoY respectively in September 2025 [1][10] - IC import volume rose by +11.7% YoY in September 2025, compared to +2.1% YoY in August 2025 [1] - IC production growth was +3.2% YoY in August 2025, down from +15.0% YoY in July 2025 [4][12] Core Insights - **Demand Trends**: - The semiconductor demand in the China market is increasing, supported by advancements in generative AI and automotive technologies [2][4] - Positive growth in IC production and import values indicates a recovery trend in the semiconductor sector [4][21] - **Production and Inventory**: - China's electronics sector had an average of 58 days of inventory in August 2025, lower than previous years (67/57/60 days in August 2024/2023/2022) [23] - The production volume of ICs was 43 billion units in August 2025, reflecting a month-over-month decline of -9.4% [4][12] Financial Performance - **Revenue Growth**: - Total semiconductor revenues in August 2025 were up 13.9% YoY to US$17.6 billion, compared to +12.0% YoY in July 2025 [5][21] - Taiwan's semiconductor revenue grew by +23.8% YoY in September 2025 [5][31] - **Investment Recommendations**: - Companies recommended for investment include Kematek, SMIC, Hua Hong, AMEC, and others, indicating a bullish outlook on these stocks [3] Additional Insights - **Equipment Imports**: - SPE (semiconductor production equipment) import value increased by +8.3% YoY in August 2025, while semiconductor test equipment imports saw a significant decline of -41.3% YoY [9][25][36] - Lithography machine imports showed a decrease in volume (-2% YoY) but an increase in average selling price (+57% YoY) [34][39] - **Bidding Activity**: - Continuous bidding activity from semiconductor manufacturers in China suggests an upward trend in capital expenditures, with several companies placing orders for advanced manufacturing equipment [11][42] Conclusion - The semiconductor industry in Greater China is experiencing a positive growth trajectory, driven by technological advancements and increasing demand. The financial performance of key players is robust, with significant year-over-year revenue growth. Investment in specific companies is recommended based on their strong market positions and growth potential.

Investment Rating - The report upgrades the investment rating for several companies, including Cambricon, SMIC, AMEC, and VeriSilicon to "Buy" [3][70]. Core Insights - The semiconductor demand in the China market continues to grow, supported by advancements in generative AI, RISC V technology, and local suppliers gaining market share [2][4]. - Integrated circuit (IC) production in China showed a year-on-year growth of 4.0% in April 2025, while the import value increased by 8.9% year-on-year in May 2025 [4][22]. - The total revenue for semiconductors in China was reported at US$16.2 billion in April 2025, reflecting a 14.1% year-on-year increase [5][38]. Summary by Sections IC Production and Imports - IC production volume in April 2025 was 42 billion units, with a year-on-year growth of 4.0% [4][39]. - IC import volume increased by 9.9% year-on-year to 50 billion units in May 2025, while the import value rose by 8.9% year-on-year to US$34 billion [11][32]. - The average selling price (ASP) of IC imports decreased by 1% year-on-year in May 2025 [11][24]. Revenue Growth - The semiconductor sector's total revenue in April 2025 was up 14.1% year-on-year, indicating sustained growth in the industry [5][38]. - Taiwan's semiconductor companies reported a revenue growth of 25.3% year-on-year in May 2025 [9][42]. Inventory and Market Dynamics - The days of inventory (DOI) for China's electronics sector was 59 days in April 2025, lower than the historical average, indicating a healthy inventory level [28][9]. - Increased capital expenditure (capex) plans from local suppliers are expected to drive further market share expansion in the semiconductor sector [4][15].

Investment Rating - The report upgrades the investment rating for several companies in the semiconductor sector to "Buy," including Cambricon, SMIC, AMEC, and VeriSilicon [2][62]. Core Insights - The semiconductor industry in Greater China is experiencing a positive trend, driven by increased market demand, particularly in advanced technologies such as generative AI and ADAS [3][4]. - The report highlights a significant year-over-year growth in integrated circuit (IC) production and imports, indicating a recovery from previous weak seasons [1][3]. - The overall semiconductor revenue in China showed a 9% year-over-year increase in March 2025, reflecting a steady recovery from earlier months [4][27]. Summary by Sections IC Production and Imports - IC production volume in March 2025 increased by 9.2% year-over-year, reaching 42 billion units, compared to a 4.4% increase in January and February 2025 [1][25]. - IC import value rose by 11.1% year-over-year to US$35 billion in April 2025, while import volume increased by 7.6% year-over-year to 50 billion units [9][19]. - The average selling price (ASP) of IC imports increased by 3.3% year-over-year in April 2025 [1][21]. Market Demand and Revenue - The report indicates that the semiconductor market is benefiting from strong company-specific drivers, including new product launches and market share gains [2][3]. - Taiwan's semiconductor revenue grew by 34.1% year-over-year in April 2025, with foundry revenues up by 43.7% year-over-year [7][8]. - The total revenue for China's semiconductor sector reached US$15.4 billion in March 2025, marking a continued growth trend [4][27]. Inventory and Supply Chain - The days of inventory (DOI) for China's electronics sector was reported at 53 days in March 2025, consistent with historical averages [1][17]. - The report notes a healthy inventory level, suggesting stability in the supply chain for semiconductor manufacturers [4][17].