Thank you. Hello, everyone. Welcome to Quanta's Q2 2024 results call. I'm UBS Tech Analyst Grace Chen. It is our pleasure to invite Quanta's top management to join today's call, including Quanta Vice Chairman Mr. C.C. Leung, CFO Mr. Elton Yang, IR team Ms. Carol Hsu, and Alex Chiu. We'll first have Carol to do a presentation of Q2 results and also the guidance for the third quarter. Then we'll have a Q&A session. Without further ado, let's welcome Carol. Carol, please go ahead. Thank you. Thanks, Grace. Today, I welcome to Quanta Computer's second quarter 2024 earnings results conference call. The call is hosted by UBS Securities Taiwan. The presentation material for today's call is available to the public online and on Quanta's website at www.quantatw.com under IR section. This is Carol. I'm joined today by Quanta management, Mr. C.C. Leung, our Vice Chairman and President; Elton Yang, Chief Financial Officer and Senior Vice President; and Quanta IR team. In a moment, we will start with the financial presentation. After that, the management will host the Q&A to share our view about the business and industry outlook. During this call, we will be making forward-looking statements, which are predictions, projections, and other statements about future events. These statements are based upon our current expectations and assumptions that are subject to lots of risks and uncertainties. As such, the actual results could differ materially from our forecast. We undertake no obligation to update or revise any forward-looking statements. Now let's walk through the financials. We are excited to announce another record-breaking quarter in second quarter 2024. Our gross profit, operating profit, and net profit have reached all-time high, with margin ratios achieved unprecedented records in two decades. This strong result underscore our leadership in the AI sector and demonstrate the company's exceptional operational effectiveness. Notebook shipment for the quarter was 11.7 million, up 11.4% quarter-on-quarter, and down 7.1% year-on-year, respectively. The shipment volume was a surprise on the upside, ahead of guidance provided last quarter for single-digit growth sequentially. Revenue for the quarter was TWD 310 billion, representing 19.7 increase quarter-on-quarter, and grew 26.5% from a year ago. Thanks to the improved GPU supply condition, the AI server shipment momentum started kicking in to drive the sales growth. Company's gross profits set a record high at TWD 26.6 billion, reflecting a strong growth for 21.2% quarter-on-quarter and 27.4% year-on-year, respectively. Gross margin for the quarter was 8.58%, up by 11 basis points quarter-on-quarter and 6 basis points year-over-year. The gross margin rate exceeded management's previous guidance of a sequential decline, driven by favorable currency movement and seasonal Chromebook momentum. These factors altogether helped mitigate the margin dilution from higher ASP of AI server shipments. Notebook sales contribution went down to low 30s of total sales in the quarter. We expect the proportion of notebook sales will be further diluted below 30% of total sales from third quarter onwards. Operating profit topped TWD 15.2 billion, making a historical high. It represented a 30% growth sequentially from TWD 11.7 billion last quarter, and jumped by 34.7% from TWD 11.3 billion a year ago. Operating margin for the quarter further expanded and reached 4.91%, growing 39 basis points quarter-on-quarter and 30 basis points year-over-year. The expansion of AI server sales, second quarter OPEX ratio was kept in a healthy level, backed by an improved leverage that helped accommodate the increased operating expenses and bolstered the operating margin rate. The absolute amount of operating expenses came at TWD 11.4 billion for the quarter, grew TWD 1.1 billion quarter-on-quarter, and TWD 1.8 billion year-over-year. The increase was primarily driven by higher selling and R&D expenses associated with the new project ramps. The OpEx ratio was 3.68%, up 28 basis points quarter-on-quarter and 24 basis points from a year ago. Non-operating income for second quarter was TWD 4.4 billion, representing a rise of TWD 1.6 billion from a quarter ago. The primary components drove the non-operating income, included net foreign exchange of TWD 1.6 billion, net interest income of TWD 1.4 billion, dividend income of TWD 375 million, and financial asset gains through fair value to P&L for TWD 204 million. The remaining portion went to equipment disposals. Stepping down the income statement, the net income after tax was TWD 15.1 billion, marked a record high, and increased by 25.4% quarter on quarter, and jumped by 49.4% year- over- year. The net margin after tax was 4.88%, which grew 22 basis points sequentially and 75 basis points year on year. The tax rate for the quarter was 22%, and all the above concluded a record high earnings per share at TWD 3.92 for the quarter, representing a sequential increase of TWD 0.79 from last quarter and a surge of TWD 1.29 from a year ago. Please flip to the next page. For the first six months of 2024, we shipped 22.2 million units of notebooks, down from 23.4 million units a year ago, representing a decline of 5.1% year-on-year. Revenue for first half came in at TWD 569 billion, grew by 11.3% year-over-year. Gross profit for first half reached its record high of TWD 48.6 billion, grew from TWD 38.5 billion the same period last year, supplying 26.3% of year-on-year. Operating profit were TWD 26.9 billion, showing a robust growth of 40.5% year-over-year. The net income after tax was TWD 27.2 billion, representing a surge of 63.8% year-on-year, and EPS for first half was 7.06 dollars. The profit amount and all levels marked all-time highs for the same period. In terms of the margin rate, gross margin was 8.54%, dropped by 101 basis points year-on-year. Operating margin was 4.73%, up 98 basis points year-on-year, and 4.78% net margin after tax, surged by 153 basis points year-on-year. Margins reached record levels in recent two decades for the same period. Turning to the balance sheet. Cash plus short-term investment decreased to TWD 156 billion compared to the end of last quarter. Net cash for quarter was TWD 8.2 billion. The noticeable decrease of cash position was a result of a surge in component inventory, reflecting the upcoming project ramp in the second half. The amount of inventory rose 25% quarter-on-quarter to TWD 185 billion, mainly due to material pull-in, particularly for AI server containing expensive components. We anticipate levels of inventory to keep increasing and stay high in the upcoming quarters, driven by ongoing strong demand for AI server shipments. The shareholders' equity attributed to the parent company was around TWD 186 billion, increased from TWD 169 billion at the end of last quarter. Growing sales of high-ASP AI server racks and the increasing demand for expanding capacity geographically provide localized services, have caused a subsequent surge in working capital needs. In view of extending our financial flexibility, support business growth, and strengthening our balance sheet, the management has thoroughly contemplated for potential fundraising options. Today, board meeting approved a fundraising proposal for the issuance amounted up to $1 billion. Potential dilution for the issuance is expected to be approximately 2%-2.5% if fully dilute, depending on the fluctuation in the share price. The project requires approval from government authorities, and we will make timely disclosures about all the relevant information when updates are available. We are committed to the goal of striving for a balance between investing strategically in our future and providing satisfactory returns to our shareholders. Quanta has a clear picture of our growth path and executed well along the way with solid records. In the meantime, we have established a beneficial cycle where effective investment drives earnings growth to sustain a strong balance sheet and increase dividends. Moving to the CapEx. The second quarter, the CapEx spending amounted to TWD 3.1 billion, and year-to-date CapEx reached TWD 6.1 billion. It fell within the normal range, with spending priorities focusing on AI-related investment and expanding our global footprint. The estimated CapEx for the full year will be around TWD 12 billion. To eliminate customers' concern over political tension and origin risk, Quanta has diligently worked over the years, which gradually diversify its production sites since the beginning of trade war between the U.S. and China in 2018. Nowadays, our layout of production plants across major continents are largely set. This not only allows us to offer production and services options to our customers, but also enhances our manufacturing resilience through improved flexibility whenever a contingency plan is required. For servers, a substantial portion of our server production capacity is also located outside of China. We're well diversified in Taiwan, Thailand, the United States, and Germany, provide service in proximity to 50 global data center deployments. In the same time, we still maintain some capacity in Shanghai for supporting local production and service. Notebooks? Factories in Shanghai and Chongqing resume most of the production due to supply chain cluster resonance and the more direct labor needs. Meanwhile, we offer flexible production alternatives in Southeast Asia on customers' demand. The Vietnam manufacturing site is expected to start its pilot round in late 2024. For auto-related products, to optimize production efficiency and meet the localization demands of the auto industry, we have established operational capacity in key regions. Mexico for America, Germany for Europe, and Thailand and Taiwan for Asia. Additionally, our Shanghai factory is fulfilling the manufacturing and service requirements that customer needs for China market. Next, on to the third quarter outlook. With improved visibility compared to a quarter ago, we expect that notebook shipments for third quarter will be flat to slightly up sequentially. Despite the upside on notebook shipments the first two quarters, we maintain our forecast for single-digit decline for the full year. AI-enabled PC and notebooks are still in their early stages. Choices are limited, and the development of AI application and services for AI PC is yet fully materialized. It will take time to come across various HCI devices and use scenarios. Once the product ramp begins and cost savings enabled by AI PC are realized, the benefits will drive a wave of PC upgrade cycles. We anticipate the blended ASP will rise for notebooks in third quarter due to the off-season for Chromebooks and increasing shipments of mainstream models. However, with server sales growth surpassing other product segments, contribution of notebook sales expected to further decrease to less than 30% third quarter. As more new model across various product segments are about to enter volume shipments, we are anticipating a sequential increase in selling and R&D expenses in third quarter. With the escalating ASP in major product segments, including servers and notebooks, and corresponding higher expenses, we foresee margin of third quarter will decline sequentially from the peak of second quarter. Moving to the server business. With improved GPU supply conditions, the momentum of AI server shipments accelerated and showed strong growth quarter-on-quarter in second quarter. AI server has contributed more than 50% of total server sales for the quarter, which was ahead of our expectation. Moreover, our server sales exceeded a half of the total sales. We are anticipating that the strong momentum of AI servers will continue into the second half for the year, resulting in triple-digit year-over-year growth in AI server sales for 2024. Additionally, we have noticed a gradual rebound in the demand for general compute servers, driven by seasonality. Overall, AI server will still be outgrowing general compute server and leading to an expanding AI server contribution in third quarter, with moderate margin dilution. The recent market noises surrounding our new GPU rollout didn't impact our view on AI server business. Quanta is providing a variety of designs to address CSP's AI server needs. We have clear visibility into upcoming AI projects, and can flexibly adjust our manufacturing to adapt dynamic supply conditions. Generative AI is currently at its beginning of boom, showing no signs of reaching its limitations. CSPs are rapidly advancing their generative AI infrastructure build-out, maintaining robust CapEx plans and steadfast AI roadmaps. Quanta's strong R&D capability and rich product offerings will help customer fulfill their plans and mitigate uncertainties from short-term disruption. Moving to the auto business. We are seeing that the EV market adjustments showing early signs of stabilization, and the visibility of auto business is improving compared to 90 days ago. We remain comfortable to keep our annual sales target for auto business unchanged, with double-digit year-over-year growth in 2024. The automobile industry is undergoing a transformation towards smart cars, especially those integrating AI technologies for safer and more convenient mobility. ADAS technology is the core to smart transportation, and it's also the key area where Quanta has been focusing on. We are providing ADAS systems and AI car computer solutions directly to auto makers, both in the EV market and traditional auto market, and both will benefit from the trend of smart transportation. Auto customer keep adjusting their product roadmap to accommodate evolving market demand, and Quanta's autonomous technology solution continues to gain customer traction. We are encouraged by our progress. In new customer acquisition and excited about the new project wins in the pipeline. Despite short-term setbacks in the EV market for the past few quarters, the long-term growth prospect for smart mobility remains strong. The multi-year project plan and rigorous product engagement process for auto business ensure that we maintain a leadership position in technical innovation. We are also aligning our capacity expansion plans for auto business growth in the coming years. To close, the remarkable results are encouraging for our management team and all our employees. It signifies our ability to formulate precise and visionary strategies, and work is effectively implemented in our operations. Along with the quarterly results, we reported the monthly sales of July for TWD 124 billion this afternoon, which grew 12% month-on-month and 43% year-on-year, indicating an acceleration of AI server shipment is on the road. While the recent market concerns around AI servers, CSPs cap on AI is a strategic investment in their growth roadmap over the next decade, and that won't be affected by short-term product transition cycles. Data center customers keep pouring tons of money into their AI infrastructure. It demonstrates their ambition and commitment to a future central in AI. Due to the complexity of AI server system, effective supply chain collaboration will be crucial than ever. Therefore, CSP comprehensively consider and select partners from many aspects, from R&D and capability, TCO of product offered, experience of successful shipments, to financial strength and the like, to secure the success of their AI investment. Quanta has been dedicating in customized computational design since its inception. We collaborate with all the industry partners to integrate the advancements throughout the supply chain, and then serve as the last mile hub of technology solutions. Our extensive expertise, related over the past decades, perfectly align with CSP customers' needs for AI solutions. On top of that, the diverse of product lineups and proven records help us to navigate supply chain turbulence smoothly while expanding our distinct lead in the market at the same time. In response to the rapid business expansion, we are speeding up strengthening our competitiveness. Fund raising is one of the ways we secure resources to realize our business roadmap. We will maintain prudent and effective investment and keep fine-tuning business operations to optimize returns. Our commitment to financial strength ensures that we can balance investing in our vision with increasing dividend payout, staying a healthy and sustainable growth trajectory. That concludes the review of the second quarter results and business outlook. We will now open the call to Q&A. Please limit your questions to one and one follow-up. Thank you for standing by. Now, may we introduce the first question, please? Yeah, thank you. Thank you very much, Carol, for the presentation. Now let's start this Q&A session. If you wish to ask a question, please use the raise hand function in Zoom and wait for your name to be announced. While we're waiting for the first question from the audience, please allow me to kick off with a few questions first. First, I'd like to clarify in terms of Carol's presentation in terms of AI server contribution. You just mentioned that AI server contributions will be 50% in the third quarter, and in the second quarter - is that for second quarter or third quarter? Just by clarification. And also, you mentioned that that's ahead of expectations. Could you clarify about the comments earlier in terms of AI server, in terms of total server revenue mix? Thank you. Yes. So can we touch on the remarks? AI server contribute to the server total server revenue over 50%, which is ahead of our expectation. In the last earnings call, we guide by year 2024, there were 50% contributed by AI server, but now we have reached the target by second quarters. And we're expecting to keep it accelerate as kind of our quarters. Okay, got it. Then that's amazing, because if second quarter AI server is already more than 50% of total server revenue mix, and your second quarter gross margin and operating margin can continue to go higher. So could you elaborate a bit more about the margin? How do we think about the margin difference between general servers and AI servers? It looks like the AI server margin, even though it's a lot of passive, but seems still quite decent. Yep. We are exciting about the performance in the second quarter for the margins. Despite of the dilution from AI server, our total margin still can keep certain basis point growth due to the favorable currency environment. As still no profitable contribution and less high-en d product contribution, definitely, as well as development cost time effort. So that make our gross margin still can maintain a slightly higher than second quarters. In the first quarter, sorry. Okay, got it. Thank you, Nelson. My next question is about CapEx, because I remember last, last quarter, we guided CapEx will be around TWD 10 billion. In last quarter, we guide about TWD 10 billion-TWD 12 billion. Now we revised up to the top end of the TWD 12 billion for the full years. Okay. Okay, got it. So could you elaborate about what, what drive the difference that we raised our CapEx spending? Which are the key areas that we're gonna spend our CapEx? Yeah, definitely, we are relocating our production sites to tap the EV, AV, EV market and the server market's requirements. So that's why, in our prepared remarks, we have Mexico, the U.S., Thailand, Vietnam, and Germany, all under expansions, okay? To catch up for the EV business and the server business growth. Got it. Okay, my third question is about the auto business you just mentioned. I feel... I just, based on the comment previously, actually we still maintain our 4-year trend, of double digits, and the outlook seems to be better than 90 days ago. Mm-hmm. Any further comments about the auto business? And also, what's our progress in terms of adding new customers for our auto business? As I kind of touched on, it's kind of a long-term certification process to win the orders and the long life cycles kind of business. So we keep, you know, the first thing we need to clarify, we're not only talking about EV customers, more about traditional car maker as well. So our target market actually is small car vehicle instead of EV. So we keep winning the order from traditional car makers, the long processing time. So during that time, we still win the new project, still certified by the new project, certified by new customers. That's why we quite, you know, excited about the development, the kind of long-term, multi-years, marathon kind of business. Okay. Thank you very much, Elton. Let me take a pause here. Operator, can you help us take the questions from the audience? Thank you. Yeah, thank you. We have next question from Howard. Howard, please. Thank you. So my first question is, on AI server definition. Can you please, remind us what is your definition of AI server? Is it, inclusive of just any servers with one accelerator module? Thank you. That's my first question. No, I think we are more richest definition about AI server. All about including Edge, Hopper or Blackwell, we are treating it as AI server, okay? Instead of only GPU. Okay. I see. So, I guess, to clarify, you guys are only defining AI servers as, servers that are equipped with Hopper and Blackwell. I'm guessing, I'm guessing also ASICs as well. But for some of the lower-end, kind of GPUs, like maybe the L40S in the past, are these also considered an AI server in you guys' definition? Yeah, we also have the Edge to kind of AI server from our CSP customer as well. We treat them as AI server as well. Got it. Thank you. And within this AI server business, year to date, so in the first half of this year, between ASICs and GPU servers, is there any color you can help us provide, you know, which, which is a bigger portion of your AI server business today? And how that potentially could evolve going into the second half of the year? Sure. Howard, could you please repeat your question again? Sure. So, within the AI server business, Howard? Howard. Hi, can you guys hear me? Yes, yes. Yes, yes. So within the AI server business, between ASIC and GPUs, in the first half of this year, can you talk a little bit about, you know, what is taking up a bigger portion of your AI server business today? And how, you know, that potentially could evolve going into the second half of the year, whether ASICs are growing stronger or GPUs are growing stronger? Just any color on that? Thank you. We don't break down that kind of label to kind of specific chips. But for the time being, dimension products still come from NVIDIA. Got it. And maybe just one last question from me before I jump back into the queue, is on your margin guidance. So, first of all, I guess, congratulations on the quarter. Forgot to mention that earlier. So very, very strong numbers in Q2. And you guys are guiding margins to be down on a sequential basis. I guess my question is more on a year-on-year basis. So if you, if we look at your kind of server outlook and your notebook outlook, it seems like product mix is going to be a little bit unfavorable on a year-on-year basis versus Q3 of last year. You have more higher ASP products ramping up in Q3 this year. So, from a year-on-year perspective, do you think margins... Is it fair to assume that margins will be down year-on-year as well? Yeah. You know, product mix in the third quarter, we are more high ASP product, including notebook as well as the server. So that's why there's our comment. There are some margin pressure with on our suppliers for the gross margin, as well as operating margin. But operating margin, the magnitude should be less compared to gross margin, due to have a high revenue contribution to provide kind of operating leverage. Got it. Thank you. No more questions from me. Sorry, go ahead. Yeah, sorry. Go ahead. Go ahead. Sorry. No, go ahead. Okay, got it. Okay. Thank you, Howard. Operator, can I have the next question from the audience, please? No other raised hands on the line. Thank you. Yeah. Would you- Oh, sorry. Repeat again the instruction to remind the audience? Yeah, thank you. Yeah, thank you. For our investors, if you wish to ask a question, please press the Raise Hand button and wait for your name to be announced and unmute yourself to proceed with the question. Yeah, we have next question from Yi-Hsiang. Yi-Hsiang, please. Hi, can you hear me? Oh, yes. Great. Thank you for taking on my question. I just have two questions, right? So the first question is, you know, that is about the potential B series delays and of course, the H series potentially having a higher lifespan. Just wondering, what is the management's guidance in terms of the revenue and profit impact in 2025, against their previous expectations? That's the first question. Sorry, could you kind of, could you repeat your question again? Sorry. Yeah, no worries. So I think there are a lot of chatters about how there could be a potential delay in the Blackwell chips and of course, how the H100s chips can have higher lifespan. Just wondering, what is the impact on the revenue and profits in 2025 if we were to play out this scenario, factoring the delays and the, you know, lifespan expectations? First of all, about a delayed case, well, you know, we, we do not comment on rumors and we cannot speak for our, our vendors. What we, let me repeat again, what we witness and realize from customers is that demand remain very strong. CSP habits keep growing and revise, revise upwards. So even, even this event holds true, it might be only product transition schedule to change, okay? But demand remains intact since it's a, it's a total different ASP among the Blackwell against the, Hopper. So the revenue definitely is, lower, small, during the Hopper's, phases, before, migrating into the Blackwell. But other than that, we don't see so much, you know, impact about our, our business. Got it. Got it. Very clear. My last question is, you know, for the GB200A, you know, would it sort of cannibalize your sales from the existing, CSP, or do you think that would be an incremental revenue for your side? You know, we don't have a specific product. We just, we just purely based on the customer's requirement to offer, plus to ship out. So in our product roadmap, you know, we're just following customer's requirements. We cannot foresee whether customer... We don't see any change for the time being for our customers' forecast. So we cannot comment on what GB200A will cannibalize, what other products to be fair. Okay? Okay, got it. Yeah, that's all. Thank you. Thank you. Thank you. We have next question from Anthony. Anthony, please. Hello, this is Albert from JP Morgan. Thank you for taking my question. My first question is, thank you for providing all these AI server contribution colors in first half. Based on your comment, second quarter AI server contribution can be more in like, 25% of total company revenue, right? May I get an update on the AI server revenue contribution on the full year basis, please? Sorry, we don't provide that kind of granularity about AI server for full year. But what we, what we comment is, you know, we foresee starting from third quarter, AI server contribution will, should be, you know, further grow to the total sales, total server revenues. Okay? Understood. Is it fair to say we should see another decent ramp up in August and September sales with continued easing GPU supply? Yeah, so for the time being, we don't guide beyond 90 days. For the current quarter, we expect that to grow smoothly with the GPU supply to help our top line. Understood. And for AI server margin, I think Chris has touched on this. If I look at, for second quarter this year, AI server contribute more than 25% of total revenue, versus almost zero in, say, second quarter last year. But your margin actually stay quite resilient. Year-on-year is, actually up. So that means, your AI server margin should not seem much different versus the recovery level. May I know, is it normal, to... Is it reasonable to expect this kind of margin, to sustain into second half? Or was there any NRE fee or one-off fee in second quarter AI server margin? Thank you. Let me comment about NRE first. NRE kind of, you know, it's kind of thing, you know, we do anything, we'll get a new project, a design, we'll get NRE. So to us, it's kind of, kind of re-regular type of thing instead of one-off. So we don't treat that kind of, you know, one-off event, especially. Secondly, during the past one year, we do lot of effort for the cost down. Meanwhile, among our total portfolio, we also not just a, so we also have a EV, we also have a notebook, and some of the change different about parameters, about the notebook also change a lot. So, so during the one year's time frame, we improving our, you know, to, to, lower down our cost and make sure we are year the same. So we put lot of effort. So we cannot just purely do the comparison, but we do a lot to help our margin, definitely. Okay. Understood. Thank you. For ECB convertible bond, as you suggest, there could be $1 billion. May I know how much this $1 billion can be used for, if you use this $1 billion in working capital, how much can you generate for AI server sales? Is it fair to say your CCC days, 80 days, so mathematically, it can generate, like, $4 billion+ kind of revenue? Is it fair assumption? You know, we don't have an exact number telling how the CapEx convert to how many AI server revenue contributions. But what I can say is that, you know, huge, that's one of the reason why we say we are excited about AI server contribution. That's why we are to fund, do the fundraising to, to procure the key components with this size of amount for the ECB. Okay. The whole purpose for the ECB. Understood. And my last question is in the other non-OP income. There's a huge number in other income in non-OP. May I get some ideas on that? And is it recurring? Because it seems that in every quarter, you Quanta has a lot of, say, other income in non-OP. Okay, as Carol just touched on, in terms of the other non-operating income contributed by, we have, you know, dividend income about TWD 375 million, plus some of the mark-to-market gains from our financial assets in our book about TWD 204 million. The rest goes for the equipment disposal. When we do the relocations, we definitely do some equipment disposals. So this number, again, from that disposal. Okay. Understood. Thank you. I will get back to the queue. Okay, thank you. Next question from Howard again. Howard, please. Thanks. Thanks for having me again. So I just wanted to follow up. I think you were going to talk about the margins, regarding my question on a year-on-year perspective, earlier, and I think it got cut off. So maybe can I just circle back to this question again? So I guess let me reask the question. So my question was, looking at your product mix in Q3 of this year, it seems like we will have a higher percentage of higher ASP products, this year in the third quarter versus last year. So while your guidance was for a sequential basis, on a year-on-year basis, should we also expect margins to decline? I do expecting so as well. Got it. Thank you. And just one clarification from me. And that would be my last question, is on your AI server target. So many days ago on the call, you guys mentioned that you guys are expecting AI server revenues to reach more than 50% of total server revenue for the full year. And you guys have already achieved that in the second quarter. So I don't know if I missed this earlier, but is the implication here or the assumption here that because you guys have already achieved it in the second quarter, that full year target is unchanged, that AI server will still be above 50% of total server revenues? It should be higher than 50%. Higher than 50%. Got it. Got it. Thank you. Thank you so much. Yep. Okay, next question is from Angela. Angela, please. Hi, Elton and, Carol. Thanks for taking my question. Can you hear me? Sure. Okay. I have question regarding to the auto business. As you just mentioned, that your second quarter gross margin basically is helped by some low price from notebook, despite the AI server weighting increase. Can I know that, is that also helped by auto business? As we just want to know that, auto sales in the last two years, probably in the mid-single digit to mid-to-high single digit. And can we know that now, how's the contribution here? And I basically think that the higher margin auto businesses, will that be also another factor to offset the AI server increase, which is diluted in gross margin? So basically, we can expect the overall gross margin is not as sharply declined in the coming future. Thank you. We're not expecting any sharp decline from our EV margins. During the time when we get a design win from our customers, they have more NRE pay in this field, definitely. So we don't foresee any dilution from our EV business. Because our AI server business is growing beyond what we expected, they will further dilute the EV, the revenue contribution to our top line. But we're still confident about double-digit growth for 2024 for the EV business. Oh, yes. Yes, and but let me clarify. I know that the sales from, auto actually will be done by AI server sales expansion, so probably we'll not see the double-digit contribution. But what we know that is that the EV relatively higher gross margin can offset lower AI server, to make the overall gross margin, only very moderate decline in the coming future. Can we expect that this way? Yes. EV business will help with the margin rate of our total- Yes. Margin rate from AI servers. But again, AI servers contribute more. So in terms of weighted average, you know, it's still higher impact from AI servers. Okay, got it. And as you just mentioned that, notebook, actually, the sales will be, will go to below 30% in second half. Can we also, can we know that how much percentage from now notebook, server is the major one, is that right? I mean, can, can we, can we expect, like, overall over 70% of the now notebook sales from server? You know, the simple math is, notebook versus non-notebook is 30-70. Yes, but about that, now notebook 70% more, and can we see that over 70% from server? We just comment about server contribute about 50% of total revenue. AI server contribute over 50% of our total- Oh, okay. Server revenues without saying. Okay, I see. That's for the whole year or for the second half? It's for the second quarter. Oh, second quarter. Okay. Okay, got it. So the second quarter, over 50% from server and over 50% of the server revenue from AI server. Am I right? Exactly. Exactly. Okay, thank you. Okay, thank you. The last question from my side is that about the OpEx. We know that the operating leverage will help the OpEx ratio lower down. Is it better for us to use the absolute value or the ratio as the OpEx in the coming quarters? Thank you. That's my last question. Okay, you know, yeah. The absolute dollar amount, OpEx actually grow. As Carol touched on in our prepared remarks, all attributed to a sales expense as well as R&D expenses. So we're expecting the number to keep grow along with our more business come from AI server, in particular from R&D. So we are expecting full year, although OpEx should be higher than 2023. Okay. Higher than 2023. So, 3% of the OpEx ratio, is that... So, okay, can we use these figures for the whole year, this year? You know, OpEx expenses will become operating leverage due to higher revenue. So even though we've a higher, you know, OpEx expenses, but the ratio could be down further. Lower. This is what I mentioned about. I think the margin pressure from gross margin as well as operating margin, but the magnitude will be less in the OP margins due to the operating leverage. Yes. Okay. So, value will be higher than 2023, but ratio will be lower? Yeah. The absolute dollar amount could be higher, but the ratio could be lower in terms of OpEx. Okay, thank you. That's all my questions. Thank you. We have next question from Brittany. Brittany, please. Hi, can you hear me? Sure. Hi. I'd like to ask, following on with the OP margin as well, you mentioned earlier that the 3Q margin will be lower from a second quarter peak. Can I ask, is this almost an all-time peak, as AI server is likely to be a structural growth driver? Yes. The AI servers are in more high ASP, definitely a more high margin dollar, but the, the top line is so big. So that's why the, the impact of our gross margin as well as OP margins. Understood. My second question is in regards to the inventory increase this quarter. You mentioned that it would likely to continue to increase. I just want to clarify if that is true, that inventory will continue to increase to support the strong AI server shipments to come? Or should I say, what will be the expected level of inventory, either by percentage of sales or days, will we see this stabilize, or what's your, your thought on inventory? Thank you. In the past two quarters, the inventory day kind of quite stable. Not, not partially because of also the higher revenue as well. But inventory pileup, as we touched on in the prepared remarks, is all our preparation for the upcoming new product ramping up. So in terms of total, in terms of total inventory, 65% goes to the material, 5% goes to the WIP, the rest goes for finished goods. The, the 99 share of the total revenue all goes to the inventory. Goes to, goes to material, sorry. Understood. Last question is a little bit of a side topic, but you mentioned that there is, so far, the AI PC and notebook side, there hasn't really been much upside in the third quarter. Can I ask, going forward, when do you see that edge AI or a replacement demand to kick in in the near future? You know, we still... Firstly, we're still expecting all the PC will be AI PC eventually, okay? Along with the, you know, edge PC, you know, plus, the Windows 10 to, you know, the service is going to end of life. Plus, Qualcomm come out with a new CPU, and Intel and AMD come out with new CPU by later of this year. We're expecting that eventually, the AI PC will kick in and initiate the replacement cycle onwards. So we're still exciting about AI PC onwards. When do you think the big jump will happen? Sorry, can I hear from you again? Can you say that again, sorry? When do you think this AI PC shift to replacement to happen? I think the next replacement cycle kick in probably by 2025. Thank you so much. Okay. Thank you, Brittany. Due to time constraints, we still have a few questions from the participants. Operator, can we take two more questions? And for each participant, could you limit yourself to one question, please? We want to accommodate as many questions as possible. Thank you. Thank you. We have next question from John. John, please. Hi. Hello. Thank you for taking my question. Just one quick one on EV. Like, in the opening remarks were mentioned that EV is seeing early signs of stabilization. Can I just ask, like, did you mind to share a bit more, like, what are you seeing here? And given that you say visibility is better, what exactly are you seeing here? Even though that the double digit growth is being maintained, like, as compared to the initial expectation of double digit growth, are we in a better double digit growth environment, or are we... Is it a sequentially better double digit growth kind of environment? Thank you. Let me clarify. Our target market at first, we don't target only EV customers only. We'll also target traditional car makers as well, since everybody want to migrate their design, so-called small car, small vehicle. So we'll earn more, order come from, particularly from traditional makers as well. So that's why we are more, become more confident against the nine days ago. Okay, thank you. Thank you, John, for the question. Thank you. Thank you, John. Sorry, due to time, we'll have to move on to the next question. Please feel free to email us if you have any follow-up questions. Operator, can we get the next question, please? Thank you. The last question is from Alex. Alex, please. Hey, hello, this is Alex. I just wanna have one question. For AI server, because you are using the buy and sell model and bearing inventory for customers, so is it possible for you to charge some finance fee to support your profitability? You know, we don't have that thing, the deal between we and the customers. But we are try our, you know, our daily job is to talk to the vendors, customers, how to make the balance between the mark profit and the effort we did. Okay. So buy and sell sort of things are different customer, different models, but, you know, we are more than happy to deal with the customer with different format, and we will try our best to negotiate with the customer how to level down our burden as well. Okay. I see. That's what- That's our daily life. Thank you. Thank you. Thank you so much. Alex, and I have one last question from the investor want to clarify. Because Q2 AI server revenue was better than expected, is that because of better GPU supply, or are you seeing better demand? On a full year basis, because we have a stronger second quarter, do you expect to see a stronger AI server growth outlook for the year? Thank you. Firstly, let me reemphasize. Demand always there. Demand change, but just concerned by the GPU supply. And the GPU supply getting solved, getting better in the second quarter. This is why we come out with the better than expected expectations, the revenue contribution. In going forward, for the second half, we're expecting more contribution from AI server. That's why we are so more confident about that. Okay. Got it. Thank you. I know there are still many questions, and why we are not able to get to them one by one today. But feel free to contact either me or contact IR, our IR team. Thank you so much, the management, C.C., Elton, Carol, and Alex. And thank you all for your participation. Oh, sorry, one last thing. I forgot to invite C.C. to make a final remarks. C.C., please go ahead. Congratulations on the good results, by the way. Thank you. Thank you. AI actually brings us a lot of good vision into the future. And starting from one and a half years ago, when the ChatGPT came out and people are talking about this type of product, and first one is the server. Because, just because of the server come out and getting more popular, then we'll bring out the business on the AI PC. So at this moment, a lot of cloud companies already focus on the AI server. And because of the supply due to the COVID last year, okay, so that we didn't have enough device to put into the AI server. But this year, I think after gradually the supply situation getting better and better, so that then is the reason why we have a good start on the AI server. But AI PC will come after, because at this moment, only AI PC from Qualcomm, okay? They could name as Copilot+. And this could be move a little bit smoother. But for the Intel and AMD, I think they could only get approved on the speed and the capacity so that they could name it so Copilot+, only starting from around September or November time frame. So that right now, it's only one set that end product came out. So that we are looking forward when the apps is getting more fruitful and AI PC getting more popular. Hopefully, we could look for a good result for the AI PC next year. We hope that both of these two categories could grow continuously. Thank you. Got it. Thank you very much, C.C., Elton, Carol, and thank you all for your participation, and congratulations for the good result and good margin performance, and thank you all for your participation. This concludes for today's call. Thank you. Thank you.