Market Overview - Diamond Hill Capital reported a rebound in markets after a downturn in early April, with the Russell 3000 Index showing an approximate increase of 11% [1] - Large-cap stocks experienced the highest growth, rising just over 11%, while small-cap and mid-cap stocks gained around 8.5% each [1] - The Select Strategy portfolio returned 7.31% (net) for the quarter, underperforming compared to the Russell 3000 Index's return of 10.99% [1] Company Focus: Coherent Corp. (NYSE:COHR) - Coherent Corp. is highlighted as a significant contributor to the portfolio, benefiting from increased demand for optical transceivers in data centers [3] - The stock of Coherent Corp. saw a one-month return of 22.97% and a 52-week gain of 21.59%, closing at $107.97 per share with a market capitalization of $16.822 billion on September 29, 2025 [2] - Coherent Corp. was held by 66 hedge fund portfolios at the end of Q2 2025, an increase from 61 in the previous quarter [3] Investment Insights - While Coherent Corp. is recognized for its potential, the company suggests that certain AI stocks may offer greater upside potential with less downside risk [3] - The investor letter indicates a focus on undervalued AI stocks that could benefit from Trump-era tariffs and the trend of onshoring [3]

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **AI datacenter connectivity sectors** in China, specifically highlighting **copper connectors**, **optical transceivers**, and **PCBs** [1][13] - The analysis identifies **Luxshare**, **Innolight**, **Eoptolink**, **TFC**, **Victory Giant**, and **Sinoma** as key players in their respective segments [1][4] Copper Connectivity - **Copper solutions** are expected to dominate in-rack connectivity due to their cost-effectiveness and low latency for short-reach applications [2][15] - **Luxshare** has experienced a **50% YoY growth** in its communication segment in 1H25, contributing **9%** to corporate revenue [2][22] - The company is projected to gain market share from **Amphenol** for the **GB300 backplane copper connector**, which could positively impact EPS estimates for 2026 [2][23] - **Co-Packed Copper (CPC)** technology is being developed to enhance performance and reduce costs in copper connectivity [24] Optical Transceivers - The demand for **optical transceivers** is driven by the broader adoption of **ASIC chips** and the need for high-speed communication in AI datacenters [3][38] - The market for **Ethernet optical transceivers** is projected to grow at **30-35% annually** in 2025 and 2026, with AI applications increasing from **55% to 65%** of the market by 2030 [38][42] - **Silicon photonics (SiPh)** technology is expected to capture **40% market share by 2025** and **60% by 2030**, contributing to margin improvements for companies like **Innolight** [39][41] - Risks include geopolitical tensions and lower-than-expected ASIC adoptions, which could impact stock performance [3][64] PCB and HDI Market - The **PCB market** is expected to grow at **5% CAGR** over the next two years, with the server/storage sector outpacing this growth at **11% CAGR** [84][88] - The **HDI market** is projected to reach **US$14B** in 2025, with server demand increasing from **5% to 18%** of the market [85][90] - **Victory Giant Technology** is expanding capacity to meet rising demand for HDI, while **Sinoma** benefits from the booming AI demand for PCB materials [4][84] Investment Implications - **Luxshare** is rated **Outperform** with a target price of **RMB 59**, reflecting its strong growth potential in the AI connectivity market [10][31] - **Chroma ATE**, **Unimicron Technology**, and **Delta Electronics** are also rated **Outperform**, indicating positive outlooks for these companies [6][7][8] Additional Insights - The **global connector market** is valued at approximately **US$85B**, with **Luxshare** holding a **4% market share** as of 2022 [21][25] - The transition to **hybrid solutions** combining copper and optical technologies is anticipated to become the norm in the mid-term [16] - The **PCB market** is capital-intensive and cyclical, posing long-term risks despite current growth trends [4][84] This summary encapsulates the key insights and projections regarding the AI datacenter connectivity sectors, highlighting the competitive landscape and potential investment opportunities.

Summary of HG Tech Conference Call Company Overview - **Company**: HG Tech (000988.SZ) - **Industry**: Communications and Electronics Devices Key Points and Arguments 1. **Positive Outlook on Demand**: HG Tech is expected to benefit from a resilient demand trend for transceivers, driven by a diversified AI chip strategy among cloud customers [1][2][5] 2. **Upcoming Catalysts**: Potential catalysts for HG Tech's stock include: - BABA's Apasara Conference (September 24-26) - Cloud customers' procurement tenders in 4Q25 - Overseas shipment delivery in 4Q25 [1] 3. **800G Migration as Growth Driver**: The migration to 800G technology is anticipated to be a significant growth driver, with an estimated 2.4 million shipments expected in 2026, compared to 110,000 in 2025 [3] 4. **Overseas Expansion Potential**: While not currently factored into estimates, HG Tech plans to start shipping 800G transceivers overseas in 4Q25. Successful execution could lead to a potential 25% net profit upside in 2026 [4] 5. **Revised Financial Estimates**: The net profit estimates for 2026-27 have been revised upwards by 2%-5%, with a new 12-month target price set at Rmb92, reflecting a stronger growth outlook [8] 6. **Revenue Projections**: Revenue estimates for 2025E, 2026E, and 2027E are Rmb18,027 million, Rmb22,397 million, and Rmb27,810 million respectively, indicating a growth trajectory [9] 7. **Profitability Improvement**: The shift towards high-end optical transceivers (800G and 400G modules) is expected to enhance margins and accelerate net profit growth in 2026-27 [17] 8. **Risks Identified**: Key risks include slower ramp-up in optical transceiver shipments, lower-than-expected margins, and geopolitical tensions affecting supply chains [23] Additional Important Information - **Historical Performance**: The company’s current valuations are at the lower end of its historical trading range, which is considered attractive for investors [17] - **Net Profit Mix**: The networking segment's contribution to net profit is expected to rise significantly in 2025-26 [12] - **Market Position**: HG Tech supplies optical transceivers, sensors, telecom equipment, and laser tools, positioning itself well within the communications and electronics sector [17] This summary encapsulates the essential insights from the conference call, highlighting HG Tech's growth potential, financial outlook, and associated risks.

Summary of Eoptolink's Keynote at TGS 2025 Industry Overview - **Industry**: Optical Transceivers - **Company**: Eoptolink (300502.SZ) Key Takeaways from the Keynote 1. **Silicon Photonics (SiPho) Technology**: - SiPho is highlighted as a central technology for achieving higher integration levels and lower power consumption, supporting next-gen line rates of 400G/lane [1][11][12] - Eoptolink is well-positioned to benefit from advancements in SiPho technology [1] 2. **400G per Lane Development**: - 400G per lane is essential for enabling 3.2T pluggable transceivers, with modulation technology being a key factor [2] - The industry is likely to continue using PAM4 modulation for 400G due to its established ecosystem, although PAM6 and PAM8 are under development [2][4] 3. **Technical Feasibility**: - 400G per lane has been proven feasible in optical links using EML, silicon photonics, and TFLN technology platforms with PAM4 [3] - In electrical links, the development of 400G DSP is ongoing, with no consensus on modulation standards yet [4] 4. **Bandwidth Upgrade**: - AI workloads are driving the need for higher bandwidth, leading to a trend towards upgrading optical transceivers to 400G per lane and beyond [5][8] - The industry is also focusing on increasing channel counts, with developments in higher density connector form-factors [9] 5. **Power Consumption**: - Lower power consumption can be achieved through advancements in DSP technology, modulation platforms, and the use of LPO and co-packaged optics [10] - For example, an 800G LPO consumes 8.5W compared to 15W for a DSP-based transceiver [10] 6. **Advantages of SiPho**: - SiPho offers several advantages over conventional EML technology, including lower power consumption, higher yield, and greater production efficiency [11] - Eoptolink's 1.6T transceivers utilizing SiPho technology are ready for mass production [12] Investment Thesis - Eoptolink is positioned to benefit from the ramp-up of 800G/1.6T optical transceivers driven by customer deployments in AI infrastructure from 2025 to 2027 [13] - The stock is rated as a "Buy" with a 12-month target price of Rmb398 based on a 27x 2026E P/E ratio [14] - Key risks include slower-than-expected ramp-up, geopolitical issues affecting the supply chain, and increased competition leading to price erosion [14] Additional Insights - The keynote emphasized the importance of optical transceiver technology in supporting AI workloads and the ongoing evolution of modulation technologies [1][5][8] - Eoptolink's advancements in SiPho technology position it favorably in a competitive landscape, with expectations for significant growth in the coming years [13][14]

Summary of HG Tech Conference Call Company Overview - **Company**: HG Tech (000988.SZ) - **Industry**: Communications and Electronics Devices - **Products**: Optical transceivers, sensors, telecom equipment, laser tools Key Points Industry and Market Dynamics - **CSP Capex Strength**: Recent capital expenditures (capex) from local Cloud Service Providers (CSPs) such as Alibaba (BABA) are expected to positively impact HG Tech's optical transceiver demand, alleviating previous concerns regarding demand sustainability due to foreign AI chip constraints [1][2] - **Transceiver Demand Outlook**: The demand for HG Tech's optical transceivers is projected to strengthen, particularly for 400G and 800G modules, driven by customer capex trends [1][2][17] Financial Performance and Estimates - **Shipment Growth**: HG Tech anticipates a 41% quarter-over-quarter (QoQ) growth in 400G transceiver shipments for 3Q25E, up from a previous estimate of 18% QoQ growth, aligning with the company's capacity of 800,000 units per month [2] - **Revenue and Profit Estimates**: Revenue estimates for 2025E-2027E have been revised upward by 2%-6%, and net profit estimates have been increased by 3%-8% due to improved shipment sustainability [9][17] - **Target Price Update**: The 12-month target price (TP) for HG Tech has been raised to Rmb81 from Rmb71, based on a revised P/E multiple of 29x for 2026E [1][18] Procurement and Growth Catalysts - **Procurement Tenders**: The upcoming procurement tenders in 4Q25 are viewed as significant catalysts for HG Tech's stock, as they will set the demand outlook and product mix for the following year [3] - **800G Migration**: The inclusion of 800G transceivers in procurement volumes is expected to indicate the pace of migration to 800G technology, which is a key driver for growth in 2026E [3][7] Segment Contribution and Profitability - **Net Profit Mix**: The networking segment is expected to significantly increase its contribution to net profit in 2025-2026E, reflecting HG Tech's focus on high-end optical transceivers [14][17] - **Margin Improvement**: The transition to higher-end products like 800G and 400G modules is anticipated to enhance margins and accelerate net profit growth in 2026E-2027E [17] Risks and Challenges - **Downside Risks**: Key risks include slower ramp-up in 400G/800G shipments, lower-than-expected margins, and potential geopolitical tensions affecting supply chains [20] Conclusion - **Investment Rating**: HG Tech is rated as a "Buy" due to its favorable growth prospects driven by strong customer demand and strategic product transitions [1][17]

Summary of HG Tech Conference Call Company Overview - **Company**: HG Tech (000988.SZ) - **Industry**: Communications and Electronics Devices Key Points Optical Transceiver Segment - **Strong Momentum**: Optical transceiver shipments are expected to ramp up to 800k-900k units per month in 3Q25, primarily consisting of 400G products [2] - **Revenue Contribution**: Datacom transceivers generated Rmb2.2 billion in revenue in 1H25, with expectations of Rmb1.7 billion to Rmb2 billion in sales for 3Q and 4Q25E respectively [2] - **Profitability Improvement**: The optical networking segment's net margin improved to 7.4% in 2Q25 from 5.3% in 1Q25, driven by a better product mix and scale benefits [3] Laser Equipment Segment - **Revenue Decline**: Laser equipment sales decreased by 3% YoY in 1H25, attributed to the lumpiness of revenue recognition, particularly in project-based sales [4] - **Shipbuilding Orders**: New orders from the shipbuilding industry reached Rmb1 billion year-to-date, indicating potential for future revenue growth despite current declines [4] Financial Performance - **Net Profit Estimates**: The networking segment's net profit is projected to reach approximately Rmb600 million and Rmb976 million in 2025 and 2026 respectively, compared to Rmb30 million in 2024 [3] - **Revenue Growth**: Revenue estimates for 2025E-2027E have been raised by 7%-12% due to stronger-than-expected performance in the networking segment [9] Investment Thesis - **Expansion into High-End Products**: HG Tech's focus on high-end optical transceivers (800G and 400G modules) is expected to drive margin improvement and accelerate net profit growth in 2025E-2026E [15] - **Valuation**: Current valuations are at the lower end of historical trading ranges, making it an attractive investment opportunity [15] - **Target Price**: The 12-month target price is set at Rmb62, based on a 24x 2026E P/E [16] Risks - **Key Risks Identified**: Potential risks include slower ramp-up in 400G/800G shipments, lower-than-expected margins, and geopolitical tensions affecting supply chains [16] Additional Insights - **Profit Mix by Segment**: In 1H25, the profit mix was 26% from laser tools, 29% from networking, and 45% from sensor/imaging [8] - **Future Outlook**: As customers transition to 800G technology in 2026, further profitability improvements are anticipated [3] This summary encapsulates the essential insights from the conference call, highlighting HG Tech's current performance, future outlook, and investment considerations.

Core Insights - Celestica reported Q2 2025 earnings with GAAP revenue of $2.89 billion, surpassing analyst expectations of $2.68 billion, and adjusted EPS (non-GAAP) of $1.39, exceeding the $1.24 estimate, reflecting year-over-year growth of 21% in revenue and 54% in adjusted EPS [1][5][2] Financial Performance - Revenue for Q2 2025 was $2.89 billion, a 21% increase from $2.39 billion in Q2 2024 [2] - Adjusted EPS (non-GAAP) reached $1.39, up from $0.90 in the same quarter last year, marking a 54% increase [2] - Operating margin (GAAP) improved to 9.4%, up from 5.6% year-over-year, while adjusted operating margin (non-GAAP) was 7.4%, compared to 6.3% in Q2 2024 [2] - Free cash flow (non-GAAP) was $119.9 million, an 82.8% increase from $65.6 million in Q2 2024 [2][8] Segment Performance - The Connectivity & Cloud Solutions (CCS) segment generated $2.07 billion in revenue, a 28% increase, with Hardware Platform Solutions (HPS) revenue reaching approximately $1.2 billion, up 82% year-over-year [6] - Advanced Technology Solutions (ATS) reported revenue of $820 million, a 7% increase, with segment margin improving to 5.3% from 4.6% in Q2 2024 [7] Strategic Focus - Celestica is focusing on high-value programs, including data center hardware and next-generation networking equipment, emphasizing technological innovation and strong supply chain management [4][3] - The company is diversifying its customer base to mitigate risks associated with customer concentration, where the top ten customers accounted for 73% of revenue in 2024 [11] Future Outlook - Full-year 2025 guidance was raised to revenue of $11.55 billion and adjusted EPS (non-GAAP) of $5.50, with an expected adjusted operating margin of 7.4% [13] - For Q3 2025, projected revenue ranges from $2.875 to $3.125 billion, with adjusted EPS (non-GAAP) between $1.37 and $1.53 [13]

Investment Rating - The investment rating for HG Tech is "Buy" with an updated 12-month target price of Rmb56, revised from Rmb53, based on a 22x 2026E P/E [1][2][14]. Core Insights - HG Tech pre-announced its 2Q net profit range of Rmb480 million to Rmb540 million, with a mid-point of Rmb510 million, representing a 52% year-over-year increase and exceeding expectations [1]. - The strong profit performance is expected to alleviate investor concerns regarding the profitability of optical transceivers, with key catalysts anticipated in the second half of 2025, including progress in penetrating US markets and domestic demand outlook [1][14]. - The company is positioned for robust long-term growth driven by the AI infrastructure cycle, overseas expansion, and new market penetration [1]. Revenue and Profit Estimates - Revenue estimates for 2025-2026 have been revised upward by 3% to 4.6%, leading to a net profit estimate increase of 4% to 8% [2]. - New revenue projections for 2025, 2026, and 2027 are Rmb15,815 million, Rmb19,233 million, and Rmb22,971 million respectively, reflecting a 4.6% increase for 2025 and 2026, and a 3.0% increase for 2027 compared to previous estimates [6]. - Net income estimates for 2025, 2026, and 2027 are Rmb1,830 million, Rmb2,579 million, and Rmb3,130 million respectively, with increases of 8%, 6%, and 4% compared to prior estimates [6]. Business Segments and Growth Drivers - HG Tech's business segments include optical transceivers, sensors, telecom equipment, and laser tools, with a focus on high-end optical transceivers (800G and 400G modules) expected to drive margin improvement and net profit growth [14]. - The revenue mix for 2024 is projected to be 34% from laser tools, 3% from networking, and 63% from sensors, with shifts expected in 2025 and 2026 [13][11]. - The company is expected to benefit from the increasing attach ratio of optical transceivers, supporting better growth sustainability [1].

Investment Rating - The report upgrades Sumitomo Electric Industries (SEI) to Buy from Neutral, and Furukawa Electric to Neutral from Sell [1][39] Core Insights - The industrial electronics sector is experiencing increased demand for optical products driven by generative AI and data centers, leading to significant capacity expansion investments [2] - The report highlights the shift towards medium-distance data center interconnections (DCI) due to land and power constraints, creating additional demand for optical fiber products [17] - SEI is expected to see a substantial increase in profit contribution from its infocommunications business, which is projected to rise from 6% in FY3/25 to approximately 20% in FY3/28 [41][43] Summary by Sections Market Trends - Demand for optical products is significantly exceeding supply, prompting companies to invest in capacity expansion [2] - The emergence of projects like Stargate in the US, Japan, and UAE is expected to sustain high levels of investment in data center construction [2] Company Performance - SEI's operating profit estimates for FY3/26-FY3/28 have been raised by 11%/11%/12% due to increased demand for optical products [51] - Furukawa Electric is expected to benefit from marginal profit growth due to rising demand for its products [1] Financial Estimates - New sales and operating profit estimates for SEI show a 4% increase in sales for FY3/26, FY3/27, and FY3/28 [11] - The target price for SEI has been raised to ¥4,300 from ¥2,800, reflecting the expected growth in the infocommunications segment [54][55] Competitive Landscape - SEI holds a significant market share in ultra-high density optical fiber cables, estimated at around 50% globally [48] - The report notes that Fujikura and SEI are leading in ultra-multi-core optical fiber cables and optical connectors, while Furukawa Electric is attempting to catch up through acquisitions [9]