Nomura Orient International: Allwinner Technology’s third-quarter profit falls quarter on quarter as R&D spending weighs on earnings forecasts

Why did third-quarter results grow year on year but weaken quarter on quarter?

In the third quarter of 2026, the company reported revenue of 909 million yuan, up 10.4% year on year and down 6.9% quarter on quarter; net profit was 169 million yuan, up 44.1% year on year and down 41.1% quarter on quarter.
Nomura Orient International attributed part of the quarter-on-quarter weakness to rising storage component and packaging costs, as well as possible adjustments in downstream demand following product price increases.
Revenue for the first three quarters was 2.798 billion yuan and net profit was 659 million yuan, up 29.5% and 136.8% year on year, respectively, but both were slightly below the firm’s forecasts.

Gross margin for the first three quarters rose 10.4 percentage points year on year to 43.2%, exceeding Nomura Orient International’s forecast. The firm said product price increases and the improvement in product mix driven by new products entering mass production were the main supports.
However, third-quarter gross margin was 43.4%, up 10.8 percentage points year on year but down 2.5 percentage points quarter on quarter. Over the same period, R&D expenses as a percentage of revenue rose 7.2 percentage points year on year and 6.8 percentage points quarter on quarter; investment in advanced process platforms and new product development affected profitability.

Citing uncertainty about downstream demand after the price increases, Nomura Orient International cut its revenue forecasts for 2026 through 2028 by 1.5% for each year, to 3.718 billion, 4.653 billion and 5.608 billion yuan, respectively.
The firm raised its gross margin assumptions in light of gross margin performance and an improved product mix, but also raised its expense ratio assumptions because R&D costs were higher than expected and investment was continuing. It ultimately cut its net profit forecasts for the three years by 5.9%, 0.5% and 3.0%, respectively, to 816 million, 1.003 billion and 1.136 billion yuan.
Nomura Orient International maintained its buy rating and lowered its price target from 39.3 yuan to 35.3 yuan. It changed its valuation basis from 45 times forecast earnings for 2026 to 35 times forecast earnings for 2027. The firm is optimistic about expansion in edge AI, industrial control and automotive electronics, as well as the mass production of multiple products.