Compal Earnings Call AI Summary - August 13, 2026

I. Compal (2324-TW) Q2 2026 Financial and Operational Details

1. Second Quarter and First Half Financial Performance

Non-PC Business Delivers Strong Contribution: Non-PC revenue accounted for 35% of total revenue, a 5 percentage point increase year-on-year. This growth was primarily driven by accelerated expansion in AI services, continuing progress toward the 40% target.

Gross Margin Pressured by Rising Costs: Q2 gross margin stood at 4.6%, pressured by rising component costs, particularly memory. Despite this, gross profit amount increased 4% quarter-on-quarter and 4% year-on-year due to continuous optimization and improved operational efficiency.

Profitability Growth: Operating profit rose to NT$2.8 billion, up 8% QoQ and 9% YoY, outpacing gross profit growth. Q2 net profit reached NT$3.1 billion, up 59% QoQ, with EPS at $0.73 (USD or TWD), partly benefiting from unrealized gains on financial assets at fair value.

Strong First-Half Performance: H1 2026 net profit reached NT$5.1 billion, up 91% YoY, with EPS at $1.18 (USD or TWD), reflecting benefits from consumer business growth, product mix improvement, and corporate transformation.

Healthy Balance Sheet: Cash balance at quarter-end was approximately NT$83 billion. Debt ratio slightly increased to 71% due to business expansion but remains healthy. Book value per share rose to $31.3 (USD or TWD).

2. Business Transformation and Segment Performance

AI PC and Server Growth Momentum Strong: The company is fully prepared to capture the AI PC replacement super-cycle. Q1 2026 AI server revenue equaled the full-year 2025 total and now accounts for over half of the server product portfolio. Higher proportion of premium AI PCs has driven both revenue and gross margin growth.

Non-PC Business Expansion: Non-PC revenue grew 52% YoY, with market share increasing by 5 percentage points, on track to achieve the 40% target by year-end. This growth was primarily driven by AI servers, supported by contributions from 5G, Medtech, and Physical AI.

Notebook Market Outlook: Notebook revenue increased 20% QoQ but shipments declined 13% YoY due to supply chain bottlenecks. Product mix shifted toward premium and AI PCs, lifting average selling price (ASP). The market is expected to decline 15% to 17% in H2 2026.

Global AI Infrastructure Deployment: Secured consecutive AI cloud orders across Europe, Asia, and the U.S., expanding growth momentum. New facilities in Taiwan and the U.S. are gradually ramping up, offering end-to-end solutions including full-rack L11 integration, closely aligned with customer needs.

[Complete Q&A from Compal Earnings Call]

Q1: What is the PC market competition landscape and memory inflation strategy for 2027?

Answer: We are not blindly chasing shipment volume with low margins but instead focusing on higher-margin product lines and targeting AI PCs. In H1, AI PCs accounted for about 50% of shipments, and due to higher ASP, they contributed up to 60% of notebook revenue.

Q2: How do you respond to price competition from traditional and Chinese ODM players?

Answer: We break away from rigid bill-of-materials structures and propose alternative multi-sourcing solutions to customers to reduce costs. In 2025, UPPH (units per person-hour) across our nine global sites increased by 28%, significantly lowering operating costs and enhancing RFQ competitiveness.

Q3: What is the downward trend in the PC market in H2 2026 and how is Compal performing?

Answer: The overall market is estimated to decline about 15% in H2 2026 compared to H2 2025. Compal’s Q3 shipments remain stable, demonstrating resilience, and we may even gain some market share.

Q4: What is the contribution and future mix of emerging cloud (Neocloud) customers to AI server business?

Answer: Server revenue share increased to high single-digit percentage in Q2, with 70% driven by AI servers—Neocloud being the main growth driver. Our target of 10% server revenue share of total revenue is on track. Looking ahead to 2027, with new plants in Texas and Taiwan coming online, customers will expand to include Neocloud, Tier-1 hyperscalers, and at least one major enterprise client, forming a diversified and balanced structure.

Q5: What is the CapEx guidance for 2026 and 2027?

Answer: We maintain the 2026 CapEx guidance at NT$18 billion, with about NT$9 billion already spent in H1 (of which NT$6–7 billion was for servers). No specific number for 2027 yet, but due to strong server demand, both this and next year are capacity expansion years. We will continue investing in facilities in Taiwan, Vietnam, and the U.S. in H2.

Q6: What caused the OpEx ratio decline and what are future cost control targets?

Answer: The Q2 expense ratio decline was mainly due to operating leverage from revenue expansion. We manage expenses by 'absolute amount'—H1 OpEx increased only ~3% YoY. The annual goal is to keep the YoY growth rate of absolute OpEx amount in single digits.

Q7: Will Agentic AI drive demand for traditional servers?

Answer: Currently, less than 1% of future compute demand has been deployed globally. When software scales from managing one agent to 50–100 continuously running agents, compute capacity will be severely insufficient. This will create massive opportunities for inference compute, agentic compute, and other data center infrastructure.

Q8: What are the product forms (L6 vs. L10/L11) of AI servers and the generational transition timeline?

Answer: From a product structure perspective, 70% of AI server revenue in H1 came from L10, primarily Taiwan-produced B300. Product transitions are extremely fast with no stagnation or overlap. Strong B300 demand will last throughout 2026. With new CPUs, we will rapidly transition to the next-generation platform. Large racks (e.g., NVL72) are scheduled to begin volume production ramp-up in Q1 2027.

Q9: What are the server revenue targets for 2027 and changes in PC’s revenue share?

Answer: We expect server business (mainly AI servers) to account for 30%–40% of total revenue in 2027. As servers, automotive, medical, and smart devices grow rapidly, PC’s share of total revenue will indeed drop below 50%. Compal is formally transforming into a diversified ODM player.

Q10: What are the funding and financial structure plans amid rapid server expansion?

Answer: The current situation is healthy, with a debt ratio of 71% (better than industry average), ample bank facility access, and operating cash flow sufficient to support current growth. For future large-scale rack-level funding needs, we remain open to options like overseas convertible bonds (ECB) or equity issuance, to be flexibly evaluated based on business progression.