Creative (3443) held a press conference on the 28th, announcing a downward revision of this year's revenue and profitability and outlook, with estimated revenue growth falling to single digits. As soon as the news came out, Creative's stock dropped to $1,635 on the 31st, down $180, with more than 2,100 orders lined up for the downturn and at the market price. The company's second-quarter consolidated revenue was NT$6.587 billion, up 0.8% quarter-over-quarter and 22.4% year-over-year. Gross margins fell to 29.1% from 31.9% in the first quarter due to a lower share of commissioned design (NRE) results. After 10 quarters, the gross profit margin fell below 30% again. Consolidated revenue for the first half of the year amounted to NT$13.115 billion, an annual increase of 32.5%.

Profitability was affected by the decline in gross profit margin. Net income attributable to owners of the parent company in the second quarter amounted to NT$838 million, a decrease of 10.2% quarter-on-quarter and an increase of 10.2% year-on-year, and the net income per share was NT$6.26, the low point of the last four quarters. In the first half of the year, net income attributable to owners of the parent company amounted to NT$1.772 billion, an annual increase of 35.7%, and net income per share was NT$13.23, which was better than that of NT$9.74 in the same period last year.

• Overall revenue is expected to rise slightly in the third quarter.

Chien Pei-lun said that the third quarter revenue is estimated to be slightly higher than the previous quarter, in which the NRE results increased by double-digit percentage, but the volume of industry results will decline slightly, the growth rate is not as high, the overall gross margin should be the same as in the second quarter; Creative revision of this year's revenue and profit estimates, the original estimate of double-digit percentage increase in annual revenue was revised to a single-digit percentage increase in profit from the original estimate of the growth into a recession.

• For the future outlook, the corporation is still optimistic about the momentum of AI.

The company expects that Creative's AI-related products are still at an early stage this year, and it is expected to make significant contributions next year and the year after. However, the corporation is not pessimistic about the future outlook. Creative works closely with TSMC, and Creative's employees even go into TSMC's factory to help, thus gaining an advantage in wafer foundry wafer casting and advanced packaging production capacity. Creative's unique 2.5D and 3D multi-chip APT platforms continue to be favored by customers, and will benefit even more from the AI explosion next year.

• Customers More Interested in ASICs After Generative AI Demand Soars

Creative expects to develop a 5nm AI ASIC project for a major U.S. customer, with mass production expected in early 2024; it is also discussing a substrate design project (TK2 project) with several customers, with a high likelihood of entering mass production in the future; Creative is also cooperating with an automotive HPC customer, but it will take a while for the company to realize revenues given the system-level demand. The company also observed that customers are more interested in ASICs after the demand for generative AI has surged. Overall, the two foreign investors remain bullish on the long-term outlook for front-end ASICs, especially since the company's integrated front-end advanced design services and back-end APT solutions put it in a good position to capitalize on the AI trend.

Ji-Pu's point of view.

In the second quarter of 2023, Creative's after-tax net income was $338 million. Although President Dai Shangyi emphasized that Creative would not call itself an AI company, because of Creative's rush to develop high-bandwidth memory, it has been regarded as an AI concept stock by outsiders, and the impact of its revenue and profit on the AI concept stock has been a matter of concern for investors. Although Creative has revised its financial forecast for 2023, Creative's long-term outlook remains unchanged. Creative is still a key player in the AI ASIC (customized chip) industry and is expected to play an important role in the AI ecosystem supply chain, and it is estimated that Creative will still be able to benefit from the AI wave, so Creative is still optimistic about its long-term development.