Bank of America: Delta Electronics’ third-quarter deliveries and profit under pressure; BofA cuts price target but remains positive on AI power supplies

Why did third-quarter growth still fall short of expectations?

Delta’s third-quarter revenue was NT$197.059 billion, up 31% year over year and 8% quarter over quarter, but 4% and 5% below BofA’s forecast and market consensus, respectively. Component shortages and recent issues with data-center construction affected deliveries.
The profit shortfall was larger: operating profit was NT$32.62 billion, 14% and 16% below BofA’s forecast and market consensus, respectively; net profit was NT$23.495 billion, down 7% quarter over quarter and 20% and 21% below the two forecasts, respectively.
The third-quarter gross margin was 34.1%, below BofA’s expectation of 36.4%, mainly because of an NT$3.9 billion inventory write-down, equivalent to about 2% of revenue. Over the past two years, the company’s quarterly inventory write-downs typically amounted to 0% to 1% of revenue; management expects the write-down may be reversed after shipments.

Management expects fourth-quarter 2026 revenue to exceed the third quarter’s, and the operating margin may also rise. To reflect cost pressures from price increases across most components this year, the company plans to raise customer prices starting between the fourth quarter of 2026 and the first quarter of 2027.
However, near-term shipments and deliveries continue to face component shortages; power supply issues and macroeconomic uncertainty are also affecting data-center construction globally. The company’s inventory has risen for several consecutive quarters, forming an important part of the context for delivery improvements.

Management expects AI-related businesses to account for 50% of total revenue in 2026, with thermal management accounting for 13% of total revenue. BofA is positive on the company’s position in server power supplies and inductors, as well as its custom thermal management projects for major cloud providers.
In high-voltage direct-current power supply, the company began delivering its ±400-volt solution in the third quarter of 2026; adoption of the 800-volt solution promoted by Nvidia has been slower among cloud providers. Sample testing of solid oxide fuel cells has begun, and the company plans mass production in 2027.

BofA cut its earnings-per-share forecasts for 2026 through 2028 to NT$37.54, NT$56.57 and NT$79.92, respectively, about 7% to 8% below its previous forecasts, to reflect third-quarter results and the latest outlook.
The bank lowered its price target from NT$2,500 to NT$2,250 and maintained its Buy rating. The new target uses a price-to-earnings multiple of 30 times forecast earnings per share for the fourth quarter of 2027 through the third quarter of 2028, down from 31 times previously, because recent delivery disruptions have lowered margin expectations.