Nomura: Chroma revenue beats expectations as gross margin falls; Nomura looks to testing demand in 2027

Why did gross margin fall despite third-quarter revenue beating expectations?

Chroma’s third-quarter 2026 revenue was NT$17.926 billion, up 32.5% quarter on quarter, 19.3% above Nomura’s forecast and 9.2% above the Bloomberg market consensus.
Gross margin was 57.5%, down 3 percentage points from 60.5% in the second quarter and below both Nomura’s forecast of 61.9% and the market consensus of 61.6%. Nomura attributed the decline mainly to a higher revenue contribution from the cell turnkey business, which diluted the overall gross margin.
Revenue growth nevertheless lifted operating profit for the quarter to NT$7.167 billion, 13.8% above Nomura’s forecast. Net profit was NT$5.647 billion, roughly in line with the market consensus of NT$5.663 billion. Management plans to negotiate prices with customers in response to rising input costs and urgent demand.

The company expects strong growth visibility for system-level testing (SLT) and co-packaged optics (CPO) testing in 2027. Nomura believes that, beyond opportunities related to Nvidia and Google, Chroma could pursue more concrete SLT collaboration with other custom chip suppliers.
For photonics testing, the company said growth year to date in 2026 came mainly from optical transceivers, which grew fourfold. Nomura expects CPO testing demand to emerge in 2027, with Chroma shipping some production equipment used in the 3rd and 4th CPO testing stages from the first quarter of that year.
Taking these sources of demand together, Nomura forecasts Chroma’s semiconductor and photonics testing revenue will grow 69% year on year in 2027. This growth trajectory depends on the pace of capacity expansion in advanced packaging and back-end testing, AI chip customers’ product upgrades and demand for AI servers.

Chroma expects orders from power-supply testing customers to continue into 2027. Nomura believes upgrades to AI server power-supply architectures will generate related testing demand, from which the company could earn revenue.
Delta, an important customer of the automated test systems business, began shipping small volumes of DC power-supply products above 400 V in the third quarter of 2026. Nomura believes the project could ramp up more visibly from late 2026 to early 2027.
Delta also plans to build a large base in Penang over the next five years, comparable in scale to its operations in Thailand. Nomura expects subsequent equipment purchases to drive growth in Chroma’s automated test systems revenue after 2028.

Nomura raised its 2027 revenue forecast from 76.106 billion to NT$80.805 billion and its net profit forecast from 27.871 billion to NT$29.108 billion, but cut its gross margin forecast for the same period from 62.4% to 61.5%.
The bank maintained its Buy rating and cut its target price from 2845 to NT$2660. Although it raised its earnings forecasts, it reduced its valuation multiple from 38 times to 34 times average earnings per share for 2027–2028, based on its latest assessment of the AI cycle. The new target implies upside of approximately 36.8% from the 29 October 2026 closing price of NT$1945.