Citi: SG Micro’s third-quarter revenue beats expectations, supported by networking and computing growth

Why did third-quarter revenue beat expectations while profit fell short of Citi’s forecast?

SG Micro reported third-quarter revenue of 1.709 billion yuan, up 74% year on year and 14% quarter on quarter, 6% above Citi’s forecast of 1.614 billion yuan. Networking and computing, industrial and energy, and automotive businesses grew by more than 130%, more than 120%, and nearly 110% year on year, respectively.
Net profit was 319 million yuan, up 124% year on year but below Citi’s forecast of 352 million yuan; the company booked an inventory provision of 57 million yuan during the quarter. Gross margin was 51.8%, broadly flat with 52.0% in the previous quarter.

Non-consumer applications accounted for 70% of third-quarter revenue, with networking and computing contributing 25%–30%, up from 15%–20% a year earlier. The consumer business’s share fell to about 30%; management expects this to lessen the impact of the consumer electronics slow season on the fourth quarter, with revenue flat or down quarter on quarter.
Management maintained its target of 35% revenue growth in 2027, citing continued strong industrial and computing demand; the target excludes Sensylink’s revenue contribution. Citi’s model forecasts 2027 revenue of 7.747 billion yuan, up approximately 30% year on year.
The company continues to target a gross margin of approximately 50% and will adjust prices to reflect rising input costs.

Management said the value of analog chips ranges from a few dollars to 10 dollars per optical module and from 1000 to 2000 dollars per server; the company currently serves only part of this market. This means expanding the range of products it can supply is an important source of growth.
DrMOS and power controllers have been qualified, with a design-in cycle of 1–3 years, which Citi believes can support sustained growth. The bank also expects gains in market share from greater scale, an improved product mix and localization of China’s supply chain.

Citi raised its revenue forecasts for 2026 and 2027 by 5% and 6%, respectively, to 5.978 billion yuan and 7.747 billion yuan. However, lower gross-margin forecasts and inventory provisions led it to cut its 2026 earnings-per-share forecast by 4% and raise its 2027 forecast by only 1%.
Citi maintained its Buy rating but cut its target price from 150 yuan to 130 yuan, mainly because the 2027 forward price-to-earnings multiple it applies fell from 67 times to 57 times. The bank identified price competition, pressure on gross margin from efforts to gain market share, and inventory write-downs as the main downside risks.