Zishen Earnings Call AI Summary | August 5, 2026

I. Q2 2026 Financial & Operational Details

Financial Performance:

• Revenue & Profitability: Second-quarter consolidated revenue reached NT$17.27 billion (up 15.1% quarter-on-quarter), exceeding prior annual growth guidance. Gross margin declined to 14.8% (down 1.1 percentage points quarter-on-quarter, down 1.5 year-on-year). Operating profit was NT$639 million (operating margin: 3.7%), down 0.6 percentage points quarter-on-quarter and 1.1 year-on-year. Net profit after tax was NT$580 million (net margin: 3.4%), with earnings per share (EPS) at NT$1.26 (down 21.3% year-on-year, down 3.1% quarter-on-quarter).

• Reasons for Margin Decline: 1. Unfavorable exchange rate impact (~1.1 percentage points): The RMB depreciated ~5% against the USD (from ~6.72 YoY to 6.86 in Q2), as 30%–35% of costs are RMB-denominated; 2. Unfavorable product mix (~1.7 percentage points): Lower-margin Smart Living segment increased to 25% of revenue; 3. Component price surges not fully or timely passed through.

• Expense Ratio Management: Operating expense ratio decreased to 11.1% in Q2 (from 11.6% last quarter and 12.6% YoY), reflecting active internal cost controls. R&D expenses for the quarter were NT$881 million (5.1% of revenue).

• Balance Sheet & Cash Flow: As of the end of Q2, cash and cash equivalents totaled NT$11.3 billion (down 10% YoY). Inventory rose to NT$12.5 billion (inventory days extended to 76 days), primarily due to proactive safety stock buildup for new AIoT projects amid component shortages and memory price hikes.

Net cash outflow from operating activities in Q2 was NT$750 million; capital expenditures in the first half totaled approximately NT$1.2 billion (full-year CapEx estimated at NT$1.8 billion, including NT$560 million for Thailand plant, NT$730 million for Xinyu plant, and NT$550 million for maintenance). Thailand plant capacity will account for 35% of total output this year.

Revenue Structure by Three Major Product Lines:

• Information Products: Q2 revenue share declined to 44% (up 5.6% YoY).

• Smart Home/Living: Revenue share increased to 25% (up 59% YoY), driven by new project wins and strategic customer acquisitions, although low margins and component headwinds impacted overall profitability.

• Automotive & Smart Mobility / Overall AIoT: Revenue share rose to 31% (up 11.8% YoY), with significant growth in professional acoustics, though some AIoT surveillance customers delayed purchases due to DRAM and other material price increases/shortages.

Outlook for Q3 and Second Half:

• Overall Q3 Outlook: Revenue expected to grow in the mid-teens year-on-year (around 15%). Benefit from strong consumer acoustics and improved AIoT component availability; operating expense ratio expected to be lower than same period last year.

• Information Products (PC-related): Outlook remains conservative and cautious; Q3 revenue projected to see low single-digit sequential decline (-1% to -2%). Mainly due to sharp increases in PCB, MLCC, DRAM, copper, and thermal solution costs, leading to higher end-PC prices that suppress demand.

• Smart Living: New projects (e.g., Partybox and new Asian customers) expected to sustain growth momentum in the second half, though low-margin projects and raw material headwinds continue to pressure gross margins.

• Automotive, Smart Mobility & AIoT: Q3 revenue projected to achieve mid-teens year-on-year growth, with AIoT share continuing to rise. Professional acoustics and smart conferencing systems expected to grow at high double-digit rates annually.

[Full Q&A List from Zishen Earnings Call]

Q1: What is the outlook for gross margin in Q3 and upstream component price pass-through? (Investor)

Answer: Upstream suppliers (e.g., PCB, MLCC, DRAM) have taken a firm stance on price hikes—no acceptance, no shipment—forcing Zishen to absorb initial cost differences before negotiating price adjustments with customers. Few customers are willing to fully absorb these increases, and RMB appreciation and hedging costs add further burden. While higher AIoT mix in Q3 will positively support margins, raw material and currency headwinds remain, placing significant short-term pressure on gross margin. No specific rebound figure can be provided at this time.

Q2: With AIoT component shortages improving in Q3, can this trend continue into Q4? (Investor)

Answer: AIoT will return to year-on-year growth in Q3, but whether Q4 can fully offset component shortage and price hike impacts remains uncertain. AIoT customers lack the pricing power of large PC clients; when spot prices for components are too high, some opt to wait or delay orders, increasing days of strategic inventory held on books.

Q3: What kind of non-operating subsidy mechanisms do customers provide? (Investor)

Answer: Some deeply collaborative customers offer point-to-point subsidies for the financial and interest burdens incurred by Zishen’s early material procurement. These subsidies are typically recognized as non-operating income (e.g., interest subsidies or project-specific compensation).

Q4: How is Zishen responding to competitors’ low-price bidding? (Investor)

Answer: Last year, mainland peers aggressively competed on price, but this year, supply chain price slashing has harmed the industry overall, leading procurement back to Taiwan. The company has instructed divisions to stop accepting unprofitable follow-up orders, redirecting resources toward high-value-added solutions.

Q5: What is your view on end-PC demand in the second half? (Institutional Investor)

Answer: End-PC demand has been suppressed due to sharp cost increases and higher end-product pricing. The company maintains a conservative and watchful stance on second-half PC demand. Quarterly revenue is expected to stabilize around NT$4.8–4.9 billion.

Q6: Progress and product planning for robotics (logistics/service robots)? (Investor)

Answer: Approximately 100 units are currently under testing, with collaborations underway with 2–3 customers. Initial revenue will be classified under Overall AIoT. The Chairman plans to personally present the medium- to long-term strategic development of robotics, AI vision, and sensor fusion during the November-end earnings call.