Driven by strong AI-related demand and significantly reduced expenses, Universal Scientific Industrial (Shanghai) Co., Ltd. (环旭电子) has posted a near 30% increase in its half-year net profit. According to the company's recent semi-annual performance preview for 2026, while revenue edged up by just 0.45% year-over-year in the first half, net profit attributable to shareholders jumped by over 28%. Among its core business segments, AI smart cards and other cloud storage products emerged as the primary engine for this growth.
The company is now deeply integrating into the core AI computing power supply chain. In recent investor briefings, management disclosed that its optical communication and CPO (co-packaged optics) operations are accelerating, with dual production bases in Chengdu and Vietnam steadily expanding capacity. Key products like the ELSFP are expected to enter mass production in the second half of 2027.
Revenue Growth is Modest, but Profitability Sharply Improves
On July 28, 2026, the company released its semi-annual performance preview, reporting total revenue of 27.336 billion yuan for the first half of 2026, a slight 0.45% increase year-over-year. Within this, revenue from cloud and storage products surged 48.79% year-over-year, primarily due to the expansion of AI smart card production and increased shipments, alongside a significant rise in the procurement costs of storage materials. Revenue from industrial products rose 10.96% year-over-year, driven by new orders. However, automotive electronics and communications products saw revenue declines of 35.31% and 13.78% year-over-year, respectively, impacted by changes in the consolidation scope, reduced customer demand, and intensified market competition.
Profit performance significantly outpaced revenue. For the first half of 2026, the company achieved an operating profit of 939 million yuan, up 25.08% year-over-year; total profit reached 939 million yuan, up 28.04%; and net profit attributable to shareholders was 822 million yuan, up 28.85%. This characteristic of "modest revenue growth but significant profit increase" is largely attributed to the company's successful focus on high-value-added products and strict cost control measures. The substantial reduction in total expenses was a key driver of profit growth. Total selling, administrative, R&D, and financial expenses fell to 1.565 billion yuan in the first half, a 23.92% decline year-over-year. Notably, financial expenses plummeted by 96.33% due to lower interest expenses from convertible bond conversions and reduced foreign exchange losses. Administrative, selling, and R&D expenses also decreased by 13.82%, 13.35%, and 15.41%, respectively. As a result, the expense ratio dropped from 7.56% of revenue in the same period last year to 5.73%.
Core profitability, measured by recurring net profit, grew strongly. Recurring net profit attributable to shareholders reached 789 million yuan in the first half, a 36.46% increase year-over-year, outpacing the overall net profit growth. Non-recurring gains were 33 million yuan, down 27 million yuan year-over-year, mainly due to reduced realized gains from foreign exchange hedging and lower restructuring costs for overseas subsidiaries. This indicates a substantial improvement in the quality of earnings from the company's main operations.
Based on the performance preview, the company's second-quarter 2026 revenue was 13.987 billion yuan, up 4.78% quarter-over-quarter and 3.11% year-over-year. Operating profit was 454 million yuan, down 6.39% quarter-over-quarter but up 27.17% year-over-year. Net profit attributable to shareholders was 405 million yuan, down 2.88% quarter-over-quarter but up 33.66% year-over-year. The second-quarter operating profit margin was 3.2%, an increase of 0.6 percentage points year-over-year.
Compared to the company's earlier guidance for "mid-single-digit year-over-year revenue growth in Q2 and an improved operating profit margin," the actual Q2 revenue growth was slightly below expectations. The company attributed this to several factors: "1. The impact of the RMB appreciation. Compared to the same period last year, the RMB appreciated by nearly 5% against the USD. Since most of our revenue is denominated in USD or EUR, this had a negative impact on the revenue growth rate in the RMB-denominated financial statements. 2. The impact of rising raw material prices on revenue. Prices for some key raw materials, especially storage-related materials due to supply-demand tightness, have risen significantly compared to last year. This has contributed positively to the revenue scale. 3. Revenue deferrals due to material shortages. Persistent supply chain tightness and shortages of key components have delayed the shipment of some products, affecting certain cloud storage and AFG subsidiary operations. The deferred revenue amounts to approximately USD 40 million."
Looking ahead, the company expects Q3 2026 revenue to grow 15%–20% year-over-year, with the operating profit margin improving by about 0.5 percentage points quarter-over-quarter. The company noted that its Q3 revenue target considers the continued rise in raw material prices, especially storage materials. Excluding the impact of exchange rate changes, revenue growth could reach 20%–25%. However, removing the effect of rising raw material prices, the real business volume growth is estimated to be in the high single digits. The company stated that rising raw material prices do not materially impact gross profit or operating profit, but they do dilute the operating profit margin as revenue is inflated by higher material costs.
Revenue Engine Shifts, Innovative Businesses Build New Growth Pillars
As a leading global provider of electronic design and manufacturing services, particularly in SiP (System-in-Package) modules, the company's product portfolio includes communications, consumer electronics, industrial, cloud and storage, automotive electronics, medical, and other products. Over recent years, total revenue has been relatively stable, fluctuating slightly from 60.792 billion yuan in 2023 to 59.195 billion yuan in 2025. However, the structure of core business revenue has shifted significantly. While communications, consumer electronics, industrial, and automotive electronics have long been the main revenue drivers, their combined share of total revenue has been steadily declining, from 89.41% in 2023 to 87.47% in 2025, and further down to 81.26% in the first half of 2026.
Offsetting the decline in these core businesses, the company's strategically focused innovative business, cloud and storage products, has seen its revenue share rise from 8.85% of total revenue in 2023 to 10.28% in 2025, and jumping to 15.93% in the latest performance preview. In the second quarter of 2026, revenue from cloud and storage products reached 2.30 billion yuan, a 52.9% year-over-year increase, accounting for 16.44% of total revenue. Despite this growth, the company's gross margin declined in Q2. The gross margin for cloud and storage products fell 25.9% year-over-year, with the gross profit rate dropping 11.9 percentage points. The company explained that this was partly due to a one-time compensation for material price differences received from a client in the same period last year, coupled with a sharp rise in current storage material costs.
Regarding the rapid growth in cloud and storage revenue, the company attributed it to increased shipments of AI smart cards and a significant rise in storage material prices due to shortages. The company is confident about the product's future growth momentum. "The AI accelerator card business drove over 50% revenue growth in the cloud and storage segment in the first half. Even excluding the impact of storage price increases, the year-over-year growth rate remains substantial. We had two production lines for this product at the end of last year, expanded to four in Q2 2026, and plan to add a fifth line in Q3, with another line expected by the first half of next year to meet customer demand. Key customers are requesting continuous capacity expansion in Taiwan, China, and we have initiated a search for a new factory there. We are also considering placing some customer demand in Vietnam and Mexico to utilize those capacities."
Diving into Core AI Computing Supply Chain, Optical Communication and CPO Capacity Accelerates
Through capacity deployment and technological advancements, the company is deeply embedding itself into the core AI computing supply chain. During a recent investor briefing on July 28, 2026, attended by institutions like UBS, Macquarie, and JPMorgan, the company's management team, including President Wei Zhenyan, CEO of Optical Innovation Xu Yuanzhong, and VP of Finance Wu Xinyu, disclosed the latest progress on innovative businesses like optical communication, NPO/CPO (near/co-packaged optics), and server power distribution units (PDU).
In the optical communication business, the company completed its investment and control of Guangchuanglian (Optical Innovation) earlier this year, holding a 67.6688% stake. Guangchuanglian focuses on developing high-speed photoelectric integrated components and optical engines and is a strategic partner for several top global optical module companies. According to Xu Yuanzhong, the Chengdu facility currently has a 40K/month capacity for 800G silicon photonic optical engines, which are undergoing final process and reliability verification. The company is expanding its factory space by 3,400 square meters, including 1,800 square meters of Class 10,000 cleanrooms, aiming to add 100K/month capacity, targeting a total optical engine capacity of 120K/month by October. The company plans to further expand capacity to 220K/month by Q1 2027 and 320K/month by Q2 2027, depending on customer demand and project progress. "We are actively sourcing materials to start mass production and supply of optical engines through channel markets. For a key North American customer, we expect to start volume production and shipment in Q4 of this year, securing orders on the scale of 200K/month by Q1 2027."
In a previous briefing from May to June 2026, the company mentioned its continuous investment in new optical communication capacity. The capacity already put into use and verified in Chengdu included 20K/month for 800G/1.6T optical engines and 100K/month for 100G-400G optical engines. The planned capacity for 800G/1.6T optical engines in Chengdu has been further increased by 100K/month. The company's near-term focus remains on the mass production of 800G products, with the 1.6T product expected to complete final design in the third or fourth quarter.
Beyond Chengdu, the company is also advancing overseas optical engine capacity. In Vietnam, the company established a 10K/month capacity for optical engines by June 2026, which is expected to expand to 100K/month for OE/OT (optical engine/optical transceiver modules) by October 2026, and to 200K/month by Q2 2027.
In the closely watched NPO/CPO field, the company is leveraging the advanced packaging capabilities of its parent company, ASE, to build an end-to-end solution. ASE will focus on advanced packaging and chiplet integration, while the company will concentrate on optical solution capabilities. The company is currently prioritizing the development of D-FAU (detachable fiber array unit) and ELSFP (external laser source for co-packaging) products. The ELSFP product has entered the late stages of design verification. The company has partnered with several leading customers for the mass production of D-FAU and ELSFP, estimating that the NPO market will scale up earlier than CPO. The company stated that ELSFP is one of Guangchuanglian's most competitive products and a key focus for the next phase of expansion. It is expected to enter small-scale or volume production in the second half of 2027, with a preliminary planned capacity of 100K/month in Chengdu. A new factory in Vietnam has also been initiated, with mass production capability anticipated by the first half of 2028.
From a CPO mass production perspective, multi-channel coupling for FAU (fiber array unit) is a major challenge that can impact yield. However, the company has previously engaged in multi-channel coupling, having shipped products with 32 channels (16 transmitters and 16 receivers), building a solid technological foundation. It is also developing and patenting related technologies. Additionally, the company's unique advantage in D-FAU lies in its self-developed automated coupling equipment.
In the AI server PDU business, the company is collaborating with its parent company and power chip partners to develop a PDU lite product tailored to current customer process needs. This product is planned for initial sample delivery in August and is expected to achieve mass production by 2028.
In a recent research report, Huachuang Securities noted that the company's AI business pull is strengthening, making cloud and storage the primary driver of revenue growth. Backed by the ASE Group, its optical communication business has moved from capability building to capacity construction and customer validation. The SiP main business is entering a new innovation cycle, with AI glasses further opening up growth potential. The firm recommends the stock, citing its growth potential in AI smart cards, optical communication, and SiP, assigning a 20x PE for 2027 and a target price of 35.41 yuan, maintaining a "Strong Buy" rating.
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