Quanta expects server contribution to reach 90% next year; US AI customers will not adjust orders

Quanta (2382), a major AI server OEM, is optimistic about its operating prospects next year. It predicts that the proportion of server business in overall revenue will rise to 85% to 90% in 2027, of which AI servers are expected to account for more than 80% of server revenue. In response to changes in data center construction policies after the U.S. election and market concerns about cloud service providers (CSPs) reducing capital expenditures, Quanta has not yet seen customers adjust orders, and AI demand remains strong.

Quanta's third-quarter revenue was 1.115545 billion yuan, a quarterly increase of 7.6% and an annual increase of 125.2%; gross profit margin was 4.75%, a quarterly decrease of 0.27 percentage points and an annual decrease of 2.1 percentage points; operating profit margin was 2.89%, a quarterly decrease of 0.41 percentage points percentage points, an annual decrease of 0.82 percentage points; net profit attributable to owners of the parent company was 28.422 billion yuan, a quarterly decrease of 0.8%, an annual increase of 73%; earnings per share was 7.08 yuan, lower than 7.43 yuan in the second quarter, and higher than 4.26 yuan in the same period last year.

Quanta Chief Financial Officer Yang Junlie pointed out that restrictions on data center construction in some U.S. states existed before the election and were not a new incident that occurred after the midterm elections. So far, even though the election has attracted market attention, Quanta has not had any customers adjust orders because of it. Judging from the recent legal briefings of major CSP players, there has been no reduction in capital expenditures, indicating that demand for AI infrastructure is still supportive.

Quanta's AI server business growth this year is better than its original doubling target. It is estimated that AI servers will account for approximately 60% to 65% of the company's total revenue throughout the year. Looking forward to 2027, both AI servers and general-purpose servers are expected to maintain double-digit annual growth, driving the server business to further increase the proportion of overall revenue. AI servers will still be the main growth driver.

Regarding the shipment of new generation AI servers, Quanta pointed out that the fourth quarter is in the transition stage between old and new product platforms. Although the shipment volume of high computing power density AI cabinets may be slightly lower than that in the third quarter, thanks to the increase in unit prices of new products, AI server revenue is still expected to continue to increase. Yang Junlie further explained that each customer's new platform introduction schedule is different, some are advanced and some are delayed. It is expected that a larger number of shipments will be ushered in in the first quarter of 2027.

In response to the continued expansion of AI demand, Quanta is simultaneously advancing its global production capacity layout. It is estimated that the scale of AI production capacity by the end of this year will double compared with the end of last year. Capital expenditures in 2027 are planned to be between 40 billion and 45 billion yuan, slightly higher than this year. California and Thailand in the United States are the main production expansion bases. Despite the previous termination of the acquisition of AU Optronics Huaya Factory, the global AI server production capacity construction plan in 2028 remains unchanged, and it will respond to customer demand by expanding overseas investment.

As for the outlook for the fourth quarter, Quanta predicts that as the unit price of new-generation AI cabinets continues to increase and the scale of notebook shipments shrinks, the single-quarter gross profit margin is expected to be slightly lower than that of the third quarter, while the operating profit margin will strive to remain flat. The company emphasizes that the increase in the proportion of high-unit-price key components will have a structural dilution effect on gross profit margin, but it does not mean that the profitability of the industry has deteriorated. The absolute amount of operating profits and return on capital should be simultaneously observed.

On the other hand, Quanta predicts that notebook shipments will decrease by 15% to 20% this year and will continue to decline next year. The proportion of notebook computers in the company's total revenue is expected to drop to single digits for the first time. As the AI ​​server business continues to expand, Quanta's operating structure is further transforming towards AI and cloud infrastructure.