Unimicron revenue beats expectations, but gross margin falls short of JPMorgan’s forecast; earnings growth hinges on product upgrades

Third-quarter revenue beat expectations; why did gross margin lag?

Unimicron’s third-quarter revenue was 52.65 billion New Taiwan dollars, up 23% quarter on quarter, exceeding JPMorgan’s original forecast of 7% and the market consensus of 5%. Gross margin was 28.8%, up about 4 percentage points quarter on quarter, but 2.5 percentage points below the bank’s forecast and still about 1 percentage points above market consensus.
JPMorgan estimates that higher employee bonuses put about 2 percentage points of pressure on gross margin, with roughly half of that impact expected to persist; the ramp-up of new AI high-density interconnect (HDI) boards also weighed on profits.
The bank estimates that third-quarter ABF substrate revenue rose about 30% quarter on quarter and gross margin improved by about 6 percentage points. Combined PCB and HDI revenue rose about 20%, but the incremental margin from optical transceivers was offset by the impact of the AI HDI ramp-up.

Although third-quarter revenue exceeded forecasts and raised the comparison base, JPMorgan raised its forecast for fourth-quarter quarter-on-quarter revenue growth from 5% to 10%, expecting revenue to reach 58.009 billion New Taiwan dollars.
The bank expects fourth-quarter gross margin to rise to 34.3%, about 5.5 percentage points above the third quarter: an improved substrate product mix and higher AI HDI yields will offset part of the impact of increased employee bonuses.
According to the bank’s estimates, fourth-quarter operating profit will be 15.257 billion New Taiwan dollars, about 21% above market consensus. Unimicron currently leads in Rubin compute tray yields, but changes in specifications still present challenges.

JPMorgan believes equipment and raw materials continue to constrain substrate supply, while increases in substrate layer counts and areas for high-performance computing, AI and 5G chips could raise value content by about 50% to 100%.
The bank believes Unimicron’s future earnings growth will mainly depend on higher selling prices per layer per panel for new products and additional long-term agreements in 2027: meeting shipment targets can earn substantial incentives, while the agreements do not restrict price increases. The bank expects the selling price per layer of new products could reach 2 to 3 times the current level by 2028.
Spot price increases remain a secondary factor. To reflect potentially higher raw material costs, JPMorgan expects the company to seek another double-digit percentage price increase in the first quarter of 2027; the company did not actively seek spot price increases for substrates in the second half of 2026.
The board approved an additional 50 billion New Taiwan dollars in long-term equipment purchases, bringing the total to 83 billion New Taiwan dollars. The purchases are expected to occur mainly in 2027 to 2028; the bank believes this signals higher future demand.

JPMorgan raised its 2027 earnings-per-share forecast from 44.47 to about 50.8 New Taiwan dollars, and issued its first 2028 forecast of about 80 New Taiwan dollars. The bank expects a 2027 gross margin of 45.7%, above the market consensus of 36.9%; its 2027 revenue forecast is 8% below consensus, with its higher earnings forecast primarily reflecting higher expected margins.
The bank maintained its overweight rating and raised its December 2026 price target from 1,225 to 1,400 New Taiwan dollars, based on a 2027 forecast price-to-earnings multiple of 27.5 times. The valuation is about 1.5 standard deviations above the average multiple since 2018, reflecting growth in key ASIC projects and the ramp-up of GPU projects.
Factors affecting this assessment include the possibility that alternative packaging technologies such as silicon interposers and 3D ICs could reduce the value added by substrates, and that capacity expansions by Japanese and South Korean peers could exceed demand growth.