Morgan Stanley: Delta Electronics’ third-quarter profit under pressure: fourth-quarter improvement expected as supply constraints slow growth outlook

Why did profit decline despite third-quarter revenue growth?

Delta Electronics reported third-quarter revenue of NT$197.059 billion, up 8% quarter on quarter and 31% year on year, but 2% below Morgan Stanley’s forecast and 5% below market consensus.
Gross margin fell 1.6 percentage points quarter on quarter to 34.1%, 2.1 percentage points below market consensus. Operating profit nevertheless rose 7% sequentially, but non-operating income fell 76%, and net profit consequently declined 7% to NT$23.495 billion.

Management expects revenue to grow quarter on quarter in the fourth quarter of 2026, with improvement across most businesses, particularly power-supply-related and cooling products. Tight supply of components could, however, affect the extent of growth.
Management expects gross margin to recover quarter on quarter, supported by a possible reversal of some inventory write-downs, the gradual effect of price increases, a better product mix and increased scale. Morgan Stanley forecasts fourth-quarter revenue growth of 10% quarter on quarter and a gross margin increase of 1.4 percentage points to 35.5%.
Supply constraints have also changed the medium-term model: the bank cut its revenue forecasts for 2026–2028 by 3%, 6% and 8%, respectively, and its net profit forecasts by 5%, 6% and 8%, respectively.

The company expects to begin shipping high-voltage direct-current power products in the fourth quarter of 2026, primarily solutions using ±400 volts DC, but their revenue contribution will remain low through at least the first half of 2027. Morgan Stanley sees the next-generation server power architecture reference design, planned for launch in the second half of 2027, as key to the solution’s adoption in AI clusters.
Management believes adoption of DC/DC modules for power supplies will expand and that the company can grow through expansion with existing customers and potential new customers. Regarding its legal dispute with Vicor, management said it is confident in its technology and patent portfolio and expects near-term shipments to be unaffected.

The bank believes AI server power supplies, data-center power-supply management and cooling solutions will drive long-term growth, while product mix and economies of scale could lift margins. Its model forecasts net profit of NT$157.857 billion in 2027, above the NT$60.108 billion recorded in 2025.
Morgan Stanley maintained its Overweight rating but lowered its price target from NT$2,500 to NT$2,300. Its valuation continues to use a price-to-earnings multiple of 30 times average forecast earnings per share for 2027–2028. The bank’s downside scenario includes a drag on profit from legacy products, a smaller contribution from high-margin businesses or higher operating expenses.