Goldman Sachs: Fositek’s third-quarter revenue missed expectations, while liquid-cooling products lifted gross margin

Why did third-quarter revenue miss expectations while profit largely met them?

Fositek’s third-quarter revenue was 4.502 billion New Taiwan dollars, 22% below Goldman Sachs’ forecast and also 1% below the Bloomberg market consensus. Operating profit was 1.46 billion New Taiwan dollars, broadly in line with Goldman Sachs’ forecast and 3% above the market consensus.
The key was product mix: the server business’s share of revenue rose from 55% in the second quarter to 81% in the third quarter, lifting gross margin to 38.0%, 6.4 percentage points above Goldman Sachs’ forecast and 1.5 percentage points above the market consensus.
Expenses were also below Goldman Sachs’ expectations: third-quarter operating expenses were 252 million New Taiwan dollars, compared with Goldman Sachs’ earlier estimate of 376 million New Taiwan dollars.

Goldman Sachs forecasts fourth-quarter revenue of 5.305 billion New Taiwan dollars, up 18% quarter over quarter and 33% year over year; gross margin is expected to reach 39.1%, up 1.1 percentage points sequentially. The bank believes growth will mainly come from the server business and the ramp-up of the Vera Rubin platform.
Liquid-cooling quick-connect fittings (QDs) are products that link this growth with profitability. Goldman Sachs expects overall QD usage for Vera Rubin to be more than 25% higher than for GB300, and Fositek’s QD products will also expand to compute trays. The bank estimates QD gross margin at about 40%.
Goldman Sachs also expects QD shipments to a major ASIC customer to accelerate in the fourth quarter, with new ASIC customers contributing revenue starting in 2027. The company’s current monthly QD capacity has risen from 3 million units last quarter to 4.5 million units, an increase of 50%.

Goldman Sachs lowered its revenue forecast for 2026 by 18%, but raised its full-year earnings forecast by 1% after incorporating third-quarter results. With the server business accounting for a greater share and an improved product mix, the bank raised its earnings forecasts for 2027 and 2028 by 14% and 23%, respectively.
Goldman Sachs expects server-related businesses to increase from 50% of total revenue in 2025 to 94% in 2028, while the company’s overall gross margin rises from 26.3% to 37.2% over the same period. This view depends on continued growth in contributions from AI-related products; slower-than-expected adoption of foldable phones and increased supplier competition will also affect the outlook.

Goldman Sachs maintained its Buy rating and raised its 12-month price target from 2,082 New Taiwan dollars to 2,390 New Taiwan dollars. The target price uses an unchanged 22.6x forecast P/E for 2027; the increase reflects improved earnings forecasts.