At a glance. The earliest Delta call in this collection, and the most honest. Asked to size the AI server opportunity, management refused — the business model was not mature, and hyperscaler spending might not convert into shipments. Two years later Delta would be on NVIDIA's official 800 VDC partner list.
What changed this quarter
The segments were redrawn. From 2024, Delta's three business categories become four, with EV powertrain carved out into a new Mobility group. EV charging stays in Infrastructure. The stated purpose was transparency about a business management considered strategically important. New figures would be disclosed from 2024Q1.
Capex was locked in at a high level. Nine-month capex reached NT$21.2bn, with the full year set to exceed 2022 and following years guided to stay above NT$20bn, funding plants in Taiwan, Thailand, the US, Hungary, India, and Chongqing.
The numbers
| Q3 2023 | Value | Change |
|---|---|---|
| Revenue | NT$107.8bn (~US$3.4bn) | +1% YoY, +7% QoQ |
| Gross margin | 29.6% | from 30.3% a year earlier |
| Operating margin | 11.0% | from 12.7% a year earlier |
| Net income | NT$9.3bn (~US$295m) | −15% YoY, +15% QoQ |
| EPS | NT$3.60 (~US$0.11) | — |
Nine months: revenue NT$301.2bn (+8%), gross margin 28.8%, operating margin 10.2%, net income NT$24.4bn (−1%), EPS NT$9.40.
Operating expense of NT$19.96bn rose 7% year on year, driven by engineer salaries, with R&D growing faster than SG&A. A stronger US dollar added roughly NT$537m of FX gain. Delta Thailand's profit growth increased the non-controlling interest deduction, weighing on income attributable to the parent.
NVIDIA 800V read-through
No 800 V content — this is a year and a half before the architecture existed. What is here is the honest baseline:
Hard to estimate revenue contribution, because the AI business model is not yet mature. Hyperscalers are investing aggressively, but whether that converts into sustained shipments is unknown. AI operating costs are extremely high and very power-hungry; customers need to find a sustainable business model.
Delta was already supplying AC/DC and DC/DC power for AI servers plus air and liquid cooling, and observed that rising thermal density was making cooling a differentiator. It would not put a number on any of it.
Read alongside the later calls, this memo dates the turn precisely. Late 2023: no forecast. Late 2024: 800 V is a possible custom standard. Early 2025: MV DC and solid-state transformers on the roadmap. Late 2025: named by NVIDIA.
Segments that moved
Power electronics was NT$70.4bn, 65% of revenue, up 11% year on year with profit up 8%. EV components, server and data-center power, and energy storage all grew.
Automation was NT$13.2bn, 12% of revenue, down 8% year on year with profit down 43%. Industrial automation was weak, especially in China; building automation slowed sharply in the second half after a good first half.
Infrastructure was NT$24.2bn, 23% of revenue, down 15% year on year with profit down 81%, hit by telecom power, networking equipment, and EV charging against a high base.
Guidance
- Q4 2023 sales momentum similar to Q3.
- 2024 recovery expected across several business areas.
- EV-related revenue about 12% of 2023, higher in 2024. The new Mobility segment targets roughly 15% gross margin — management was explicit that autos are not a high-margin business.
- Consumer electronics decline slowing but no clear recovery; a low base should help 2024.
- Telecom power better in 2024.
- R&D to stay at 8% or more of revenue.
Management Q&A
Q: Tesla, Panasonic and others have flagged softer EV demand. Has Delta seen the same?
A: High interest rates are unfavourable for the whole auto market. The UAW strike had some effect, though most makers had reached tentative agreements with the union. Over the longer term the EV market should keep growing, and falling battery prices should help cut vehicle cost and support demand.
Q: What is the outlook for Q4 and next year, and what are the main growth drivers?
A: Q4 sales momentum is expected to be similar to Q3. Next year, recovery is expected across several business areas.
Q: What is the revenue contribution, order visibility and gross-margin range for AI-server power?
A: A specific revenue contribution is hard to estimate because AI applications still lack a mature business model. Hyperscalers are investing heavily, but whether that converts into lasting shipments is unproven, and AI is extremely expensive to run in both opex and power. Management did not give a margin range.
Q: When does China industrial-automation demand recover?
A: The China IA market has been weak this year, and there is no obvious recovery yet. Labour shortages and other structural factors still argue that the market will recover eventually.
Q: What is the impact of the UAW strike and Tesla's price cuts?
A: US customers said the strike did affect order pull-ins. Tesla's price cuts put pressure on every automaker, and as a supplier Delta has to keep cutting production cost so customers can lower vehicle prices.
Q: What is the effect of automakers adopting Tesla's NACS charging standard?
A: Standardisation is good for the market, comparable to USB-C becoming universal. A friendlier charging ecosystem should help raise EV penetration.
Q: What are the expansion plans, and where do Thailand and India sit today?
A: Expansion is following the existing plan, with new plants under construction in Taiwan, Thailand, the United States, Hungary, India and Chongqing. Thailand and India together are about 30% of capacity, with room to grow. New R&D centres in Thailand, Bangalore and Europe are part of a global talent build-out, not just more bricks.
Q: Why did Q3 gross margin and operating margin improve sequentially?
A: The sequential improvement came mainly from better scale economics, plus some mix improvement.
Q: What is the future R&D-expense guideline?
A: Delta is likely to keep investing at least 8% of annual revenue in R&D. That spend is described as the source of competitiveness.
Q: What are this year's and next year's capex plans?
A: Capex in the first three quarters was already about NT$21.2bn, and the full year is expected to exceed last year. With several new plants and R&D centres under construction, capex in the coming years is expected to stay above NT$20bn.
Q: Have US chip controls on China affected the business?
A: There has been some indirect effect, but no direct hit. That is one reason many companies are expanding capacity outside China.
Q: What is the outlook for building automation?
A: The first half was decent, helped by longer-lead projects booked before the slowdown, but the second half has clearly slowed. Energy efficiency and smarter building management remain long-term drivers, so the business is still viewed positively, with near-term growth capped.
Q: How profitable is the EV-charger business?
A: The product range is wide. Entry-level AC chargers are cheaper and more competitive than DC. China's battery-swap vehicles need fast chargers, which should help the mix upgrade, though prices still have room to fall.
Q: When will the new Mobility segment start reporting financials?
A: The new four-segment split takes effect from 2024Q1. Q4 2023 still reports on the existing three categories. EV chargers stay in Infrastructure; only on-board EV components move into Mobility.
Q: What is EV-related revenue as a share of sales this year, and next year?
A: EV-related revenue is about 12% of sales this year and is expected to be higher next year.
Q: Does the UAW strike hurt EV-business profitability?
A: No. EV profitability is mainly a function of scale. The plants on strike are mostly making conventional vehicles, and high interest rates — from around 1–2% toward 8% — matter much more for demand than the strike.
Q: What is the margin outlook for the Mobility segment?
A: Autos are not a high-margin business. Ideally, Mobility gross margin should be around 15%. The split is meant to make that profile more transparent to investors.
Disclaimer
English notes on Delta Electronics' investor conference of 1 November 2023, covering Q3 2023. Figures are as presented by management and have not been independently verified. USD equivalents are approximate at about NT$31.5 to the dollar. For reference only; not investment advice.