ASUSTeK Computer Inc. (OTC:AKCPF) Q2 2022 Earnings Conference Call August 11, 2022 4:00 AM ET
Company Participants
Nick Wu – Chief Financial Officer
S.Y. Hsu – Co-Chief Executive Officer
Samson Hu – Co-Chief Executive Officer
Conference Call Participants
Operator
Hello and welcome to ASUS’ 2022 Second Quarter Investment Conference. Today’s conference will be hosted by Mr. S.Y. Hsu, Samson Hu, and Nick Wu.
First CFO, Nick Wu will give a review of this quarter’s financial results, then our Co-CEOs will talk about our strategy and outlook. Then there will be a Q&A segment. Any questions can be asked through the web interface and will be answered at the end of this conference.
Thank you. So, now let’s welcome Mr. Wu, our CFO.
Nick Wu
Hello, everybody. Please look at slide five. This is our profit and loss for the ASUS brand for the second quarter of 2022. As you can see, this quarter had many unfavorable factors for our industry, including our supply chain and logistics issues, lockdowns in China, geopolitical conflicts in Europe, et cetera. There were also unfavorable macroeconomic factors, such as rising inflation and the subsequent response in terms of interest rates and monetary policy.
Looking at our second quarter results, April and May were greatly affected in terms of sales. So, looking at monthly revenue, April and May saw contractions of 10% to 20% year-over-year. But after the supply chain and lockdown challenges were overcome, in June, revenue returned to growth of 14% year-over-year, so this was a return to positive growth.
Overall, our brand revenue for the second quarter was NT$115.2 billion, in line with our corporate targets. Quarter-over-quarter, this was a decline of 10% and year-over-year, this was a decline of 4%.
Due to these logistics and sales challenges, the overall industry as well as ASUS underwent inventory adjustments for the second quarter. So, you can see there were some — this was reflected in operating expenses and profits.
The margins and profits were both suppressed. So, our gross margin for the second quarter was 12.2% and operating margin was 1.7%. However, we believe that the second quarter will be the lowest point for 2022.
In the following quarters, we forecast that our business will expand and grow. And with this growth, we believe that our profits will improve from the second quarter. For the second quarter, our net profit was about NT$1.89 billion and EPS was NT$2.6.
Please look at slide six, our non-operating items. Our investment income for the second quarter was NT$562 million, about NT$1 million loss for Askey and NT$564 billion income for other items. So, we can see that Askey has returned to a relatively stable performance, it was about flat for the second quarter. Askey has set an internal target of reaching profit by the second half of this year.
In terms of exchange gains and losses, we saw a loss of NT$699 million for this quarter, primarily due to the strength of the U.S. dollar in this quarter. As a brand, ASUS has relatively high holdings in non-USD foreign currencies such as the euro and the renminbi, so there was an exchange loss for this quarter.
Please look to slide seven, our grand balance sheet. As I said earlier, due to logistics and supply chain issues, our inventory was about NT$206 billion, about 7% higher than the first quarter. In terms of our accounts payable, due to our chip procurements being paid out at the end of the second quarter, our accounts payable declined to about NT$65 billion.
For our cash conversion cycle date, we are using reported numbers for the second quarter revenue and costs. So, — because we’ve reached a low point in terms of revenue for the second quarter, the number of days for the cash conversion cycle is inflated.
Looking ahead to the third and fourth quarters, we believe that we will continue to grow and expand. So, this will mean that our inventory and our cash conversion cycles will be adjusted and the number of cycle days will go down.
Please look at slide eight, this is our product mix in terms of revenue for the second quarter. PCs accounted for 67%, components and AIoT accounted for 33%. As for our phone business, because it is in a transitional period for our product cycle, phones accounted for a fairly low share of our product revenue less than 1%.
As for our regional mix, due to the geopolitical conflicts in Europe, the sales — our sales and demand in Eastern Europe and parts of Western Europe declined. So, you can see that Europe’s share shrank quite significantly to 25% of our revenue. China and Asia — the Asia-Pacific accounted for 50% and the Americas accounted for 25%.
In slide 10, we have our business outlook for the third quarter. Overall, we believe that right now, there are many negative factors affecting the industry. But ASUS will continue our aspirational or aggressive growth targets from the end of last year.
Looking back at our performance for the first half of the year, ASUS’ sales and revenue growth have been significantly higher than the industry as a whole. So, looking ahead to the third quarter, we have also set aggressive but confident targets for positive growth.
For PCs, we have a target of 15% to 20% growth year-over-year and for components we have a target of 0% to 5% growth quarter-over-quarter. Combined PCs and components, we are targeting either flat or slight positive growth year-over-year.
If we compare that to the industry forecasts, which are being adjusted downward, we believe that this is a relatively aggressive target that nonetheless we are confident that we will be able to meet.
Next, we have our Co-CEOs to talk about our strategic outlook. Thank you.
S.Y. Hsu
Good afternoon to our friends, investors and media, I am S.Y. Hsu and next me and Samson will talk about our strategy and outlook. The second quarter was definitely a time of change for our industry. As we know at the end of the last — at the end of last year, investors made forecasts for this year’s performance. Most investors were not quite as optimistic as 2021, but most were forecasting relatively a small amount of growth for this year.
However, this year, the conflict between Russian and Ukraine broke out and there were lockdowns in China in the second quarter that affected the Chinese — the supply chain. The conflict in Russia and Ukraine also affected the European economy as a whole. So, you can see that many companies now have adjusted their PC — their growth outlook for the PC market downwards to a double-digit contraction.
So, how does ASUS respond to these conditions and this kind of uncertainty? We need to respond to these rapid changes, but at the same time, we still need to consider the demands for long-term growth through three key objectives. In terms of one ASUS, we have three major business units and they are going to — have a unit by team to leverage their collective synergy and wisdom and achieve success.
We will also continue to foster innovation. So, internally, we will incubate innovations and creativity and focus on new technologies that will help our industry. We will also continue to build new ecosystems.
In terms of aspirational targets, in our previous Shareholders’ Meeting, we said that we will continue to set targets that are higher than the industry as a whole. So, right now, our target is that our market growth will exceed that of the industry as a whole by 10 percentage points. We have reached this goal for the first half of the year and we will continue to work toward this target for the second half.
So, facing the headwinds and the economic situation of the first half of 2022, many companies are looking at a 10% to 15% decline in the PC market. So, overall, for the first half of the year, ASUS actually did reach our goal of significantly higher performance in the market as a whole.
So, year-over-year, ASUS’ market grew by 5%, while the overall market saw a decline of 10%. So, we beat the market by 15 percentage points. As we pursue aggressive growth and expansion, we are looking to become a long-term growing brand by next year with strong with strong profits.
So, in this slide, we are comparing the market as a whole with the performance of ASUS. So you can see that from IDC numbers, in the first quarter, the overall market shrank by 6% and ASUS grew by 18%. So, we outperformed all other PC brands.
In the second quarter, the overall market contracted by 15% and ASUS declined by 5%. So, this was again, a double-digit outperformance of the market. Right now, our third quarter outlook is that the market as a whole will be about — we’ll see a decline of 15%, while ASUS is targeting a small positive growth or a small contraction.
So, when we were setting our 2022 targets, we had an internal consensus that we need to deliver margins that are in line with market expectations, while continuing to grow our market share because the PC market is quite mature at this point. So, if we don’t have the scale, this will be bad news for our long-term growth and long-term development. So, in the future year or two, we will continue to look to expand our business — expand our market share, while still delivering reasonable profit margins.
In terms of our three major business groups, we have a — these execution strategies. For system products, we believe that this will be a year of transition for the industry. So, we need to respond to the headwinds. We will have a disciplined and optimal response and I think the best way is to execute on our innovation and leverage our marketing. And right now, we see that revenue was up 5% for the second quarter, which is a significant outperformance of the industry.
For open platform products, we are looking to solidify our market leading position through our strong R&D and innovation capability. So, this will increase customer loyalty and market share.
For AIoT, we will continue to invest in the ecosystem, as well as technologies and talent in order to expand our market and optimize our core competency. Through this, we will be able to enter in our new age for AIoT.
In addition, ASUS has set the — in addition to the target to outperform the market, we are also setting aggressive targets for ESG. We will continue to use digital data and scientific management to make sure that we can meet these targets. Samson, I believe, will talk a little bit more about this issue in his presentation.
So, we talked about our responses to market changes and we believe that continuous innovation is a key to growing our business. So, in terms of innovation, we have three major strategies; the first is to incubate innovation and creativity, the second is to focus on innovative technology, and the third is to build novel ecosystems.
In terms of incubating innovations, we actually have an internal platform for innovative proposals where we encourage our employees to advance their ideas. Right now, we are planning to open this platform up to external sources as well. So, if there are any good proposals that come up through this platform, we will provide the resources, so that these innovative ideas can be turned into real businesses.
In terms of focusing on innovative technology, we continue to focus on new — on how technology is changing and we are engaging with partners to provide these new developments. Based on our strengths from the PC industry, we are leveraging mobile computing, AIoT, et cetera, to foster smart solutions in retail, healthcare, et cetera.
In terms of building novel ecosystems, ASUS is working with international partners to expand new businesses in all — through all kinds of methods in hopes of building more comprehensive ecosystems. We actually had seen some of these efforts bear fruit, but the time is not quite right to talk about them yet. Once it is the right time, we will certainly be presenting them to our friends from the investment world.
So, next is our AIoT business. The AIoT business unit actually saw revenue growth of 25% year-over-year for this quarter. So, we can talk about some major projects. We had a — we have a three-year partnership with Tan Tock Seng hospital in Singapore for blood diseases as well as colon cancer to push forward their diagnostics and care.
Our VivoWatch ECG app has also now been certified for the Taiwan government. This is the first such solution to be certified which shows our edge in terms of the technology.
In terms of our strategic drivers, we will continue to increase investment in AIoT and of course, we will need to work together with many partners to build up these new AIoT ecosystems.
So, now let me talk a little bit more about our partnership with Tan Tock Seng Hospital in Singapore. So, we developed a blood film analysis software in collaboration with this hospital, which improves the precision and efficiency of blood analysis.
So, you can see that the accuracy of white cell blood cell analysis which is 91.4% and for platelets, it’s 85.3%. And user feedback shows that 95% of blood samples can be analyzed by the AI system. So, only 5% of samples will require human analysis. Obviously, this makes for a great improvement in efficiency as well as a reduction in errors for the hospital.
So, next, let’s welcome my Co-CEO Samson Hu.
Samson Hu
Okay, thank you, S.Y. Good afternoon. I am Samson Hu and next I will talk more about our Q2 performance and future outlook. So, although the economic environment is not very positive and we are still facing headwinds in the industry, as S.Y. said, ASUS will continue to use our brand triangle strategy as well as our segmented product strategy in order to improve the value of our products.
For our system business group, we saw a revenue growth of 5% year-over-year for the second quarter. For the high value products such as OLED laptops, ASUS was the number one brand with a market share of over 65%. We are leading in almost every regional market in the world.
Another high value segment which is creator laptop, ASUS is also the number one brand with a market share of over 28%. In Europe and the Middle East, as well as the Asia-Pacific regions, we are the leading brand.
So, look at — please look at the next slide. If we break down the growth by segment in this quarter, you can see that for regular PCs, revenue grew by 5% year-over-year. Notably, in the Asia-Pacific region, we saw 40% year-over-year growth, with strong gains in markets as diverse as Japan, Korea, India, Vietnam, Thailand, and Malaysia.
For the gaming PC segment, we saw year-over-year revenue growth of 10%. In Europe, in the Asia-Pacific and in China, we saw rising market share. As in fact, for the global market ex-China, we reached number one in the market.
As for the commercial PC segment, as you all know, the Chromebook market is currently declining, but for this segment ex-Chromebook, thanks to our hard work over the past few years, we were able to achieve 30% year-over-year growth in this quarter for commercial PCs excluding Chromebook.
As for our open platform business group, mostly motherboards and graphics cards, we saw a decline of 10% year-over-year for this quarter. This is a decline, but we still outperform the market as a whole. So, in terms of market share, we actually saw mid-single-digit growth year-over-year.
For graphics cards, as we know, the cryptocurrency market has been declining for a time now, but in the gaming market, we continue to lead. So, the average sales price still saw a level of growth compared to the first quarter.
So, overall, for motherboards and graphics cards, we are still seeing strong growth momentum. We are continuing to implement our market segmentation and differentiation strategy. For example, leveraging our AI technologies in motherboards to achieve, for example, dynamic calibration.
We are also expanding the ecosystem for our open platform business through various collaborations and partnerships, so that the power of our brand can be maximized. This is our main strategy.
Now, please look to the next slide. For our gaming brand, we continue to work on our triangle of brand, products, and community to improve the competitiveness of all of our products and build a strong community. Over the past few years, we have also focused on cross — disciplined crossfield collaborations to improve our brand positioning.
So, please look to the next slide. Looking at our ROG gaming portfolio, we continue to use design thinking and innovation to bring new products and applications to the market in order to satisfy the needs of — the all of the needs of the gaming users. As I said previously, overall, our gaming portfolio now accounts for over 40% of our in-house revenue share.
So, next, let me talk about a few examples of how we’re looking to keep driving this momentum forward. In terms of collaborations, we talked about — in addition to the laptop products that we talked about, we are also looking toward collaborations for our open platform products such as motherboards, graphics, cards — motherboard, monitors, and routers, et cetera.
So, after — in 2021, our ROG collaborated with Gundam, which caused a worldwide sensation. And this year, we are continuing our collaborations with classic anime. So, this year, we worked with Intellian, a classic anime. We began — we launched a collaboration that was announced this year on May 15 — 14th and our first batch of products sold out very quickly across Asia and soon we will be launching in the European and North American regions and we anticipate another sales sensation, which will help with our open platform segment in the third and fourth quarters of this year.
Our ROG Phone 6 series is equipped with Qualcomm’s latest Snapdragon 888 Plus processor, and it is the ultimate gaming phone. It has it is also equipped with our GameCool 6 cooling system, a six-layer design for cooling, which can serve all kinds of users, no matter how long they spend on their home — on their phone gaming.
So, this product was announced globally on July 5th and this created a lot of buzz compared to our competitor’s product which was announced the day before, we were able to create 25% more engagement.
On May 17th, we also announced two new ROG laptops. The first is our new thin and light laptop with a 360 degree rotating screen, the ROG Flow X16. And we also have our highest performing laptop ever, the ROG Strix SCAR 17 SE, the ultra-gaming flagship.
We are also continuing our collaboration efforts with the ROG laptop brand, which has been very well-received by our users. All of this helps us achieve higher mindshare and create sales momentum for the ROG brand.
So, please look to the next slide. Finally, I would like to talk a little bit about our ESG efforts, including our Net Zero efforts. ESG and Net Zero are now very important for all businesses. So, on the market, the government, our corporate partners, and our consumers, all care very much about Net Zero efforts. So, ASUS, as we grew over the years, we have always placed great importance on ESG commitments and our core strategy is to utilize our key competitive edge, which is our data and our scientific management practices.
So, in 2020, we set Sustainability 2025 targets, focusing on four major aspects; climate action, circular economy, responsible manufacturing, and value creation. These are our four major aspects and we have seen these efforts bear fruit.
For example, in 2021, the carbon emissions from operational electricity consumption actually dropped nearly 16% year-over-year. Also in 2021, eco-friendly products now account for 86.6% of our product revenue.
For our laptops, the average and energy efficiency have actually exceeded ENERGY STAR standards, which is the industry standard for energy efficiency. So, all of — so these — this kind of performance has also won worldwide recognition.
For example, ASUS was named as One of the Climate Leaders for the Asia-Pacific in 2022. This was based on our performance in greenhouse gas emissions by over 94%, from 2020 — from 2015 to 2022. So, we were named a Climate Leader.
Within Taiwan, we were named One of the Most Thoughtful Employers by the government of Taipei. The key metrics for this award include the physical and mental well-being of employees as well as our paid time-off policy, our creation of a relaxing work environment, as well as our work-life balance initiatives. So, our work in these fields were recognized by the government of Taipei City.
This wraps up my presentation. Again, we are facing headwinds and challenges for this industry as a whole. However, we are able to rapidly respond to manage these risks, while still looking to the future to focus on delivering innovation for products and services as well as achieve green sustainability.
So, all of this is in preparation of seizing the opportunities once the economy recovers, so that we can continue to expand our business and create more value. Thank you.
Question-and-Answer Session
Operator
Thank you to our Co-CEOs and CFO. Now, is our Q&A segment. [Operator Instructions] Thank you.
Nick Wu
Okay, so the first question is from Morgan Stanley. And the question is, what is the outlook for ASUS for the more profit margin for the third and fourth quarters?
Samson Hu
I’m Samson Hu I think I’ll answer this question. I know that everybody pays a lot of attention to profit margins and internally, this is also very important to us. But to answer this question, we will again have to return to the overall operating environment. So, in the short-term, through to the end of 2022, we believe that market demand will continue to be suppressed. You all know the reasons, they include inflation and the resulting problems with consumer confidence as well as geopolitics.
So, we do forecast that there will need to be several quarters of adjustment. So, by the first half of next year or perhaps the third quarter of next year, we forecast that we will be able to be — we will be on more stable ground. In the meantime, we will need to respond to market changes cautiously to ensure a — our level of performance.
But as our CFO said, we do anticipate that the second quarter will be the lowest point for our company’s performance. And in the future, we will actively — in fact, we are working actively with our upstream suppliers and our downstream retailer partners to improve our performance.
Of course, our margins were suppressed for the second quarter, but with our aggressive expansion targets for the second quarter, whilst remaining cautious about market demand, we do set in our operating margin target of — to rise in the third and fourth quarter. So, the second quarter was 1.7%, but for the third and fourth quarters, we hope to reach 3% to 4%. So, for the next two quarters, we are targeting 3% to 4% for operating margins. That is our target for the second half of this year. Thank you.
Nick Wu
Our second question is from JPMorgan. So, for the third quarter, ASUS sets a growth target for PCs and components that is significantly higher than the market as a whole. So, where do you see this momentum coming from? And how do you see inventory adjustment for the third quarter?
The next question is, as the industry faces headwinds, can a company like ASUS optimize their part purchasing costs and supplier costs perhaps being able to lower these costs?
And one final question is what — how much of ASUS’ inventory can be used in Intel’s new generation platforms?
Samson Hu
Okay, these are all very important questions and going to answer them one-by-one. So first, why do we forecast stronger growth than the market as a whole for the third quarter? Well, first, of course, we have to talk about the products themselves. As we’ve said many times before, ASUS is very active in innovation, as well as our segmentation strategy. So, for example, for consumer laptops, we focus on high value segments such as OLED laptops and creator laptops in order to achieve our growth strategy.
So, we are very proactive in terms of innovation and improving our experiences. And we have received very positive feedback from consumers and retailers alike. So, for our forecast, these two product lines are very important.
For the gaming segment — for the gaming product line, although the overall environment is negative, we actually still see fairly strong growth for the gaming segment. Of course, for gaming, our products, our portfolio, and our overall brand image and our regional presence are all very strong. So, we are definitely very optimistic for the gaming product line in the second half of this year.
For the commercial product line, as I mentioned, the Chromebook segment is definitely declining, but for the other commercial product lines, ASUS has built up a pretty good portfolio over the past two years. And in some regions, for example, Taiwan, China, and the Asia-Pacific, due to our strength in the consumer segment, we are all actually seeing strong momentum for commercial as well. So, looking at the products across the consumer, gaming, and commercial segments, we all — we see positive growth for all three.
As for your question about inventory, as we mentioned, for the third quarter, we are quite confident relative both to the second quarter and relative to the market as a whole, we do forecast relatively strong growth. So, this will help reduce inventory.
As well — as for our engagement with suppliers and clients, we have run comprehensive simulations. And more specifically, we have set clear targets for inventory both for the third and the fourth quarter. So, in terms of monetary value, we anticipate our inventory to be reduced by NT$20 billion to NT$30 billion for the third quarter and by a further NT$20 billion to NT$30 billion for the fourth quarter. In other words, from the end of the second quarter to the end of the fourth quarter, we are looking at a target of NT$50 billion in inventory reduction.
So, currently, the overall supply chain is still facing a period of transition and adjustment because we are no longer facing shortages. We have — no, we don’t have an IC shortage anymore. In fact, we are facing an IC oversupply. So, in the face of this oversupply, upstream supplier partners must all work together to face this reality, to face this adjustment. So, we do believe that the costs will be lowered through this process.
Your final question is about how much of the inventory can be used for Intel’s Next Generation Rapid Lake platform. Well, logic ICs and peripherals like modules, these are platform-agnostic. The ICs that are tied to platforms are more the power supply ICs. So, with the exception of power supply ICs, I believe most of the remaining components, probably 80% to 90%, will continue to be useful for the next generation. I hope this answers your question.
Nick Wu
Okay, our next question is on what is the inventory composition for the second quarter? How much is parts and how much is products?
The second question is now, ASUS has set targets that are higher than the industry, but for investors, profits and margins are more important, will ASUS’ pursuit of higher sales and higher revenues affect the profits, for example, through procuring more parts on the market? So, can you talk about your strategic thinking on this issue?
Samson Hu
Okay, this is a very important question. Well, overall, our strategy is that in a mature industry such like PCs, scale is very important, volume is very important and that’s why last year, we set a fairly aggressive growth target for 2022 in an effort to achieve higher scale.
And I believe, because of this strategy, we will be able to create long-term value and bring our brand to a stronger position long-term. But of course, in the short-term, in particular, in 2022, we’ve encountered many geopolitical challenges as well as, for example, a black swan event in the form of the lockdowns in China. These are risks that we need to take into account, but we were still very active in our response to these risks.
So, under these strategy, brand value and profits are both important to us. So, we do not focus on the brand or on that revenue over profit. But it is true that due to short-term challenges, we have we have created a burden, for example, through our inventory.
But as I said earlier, we are working very actively on this issue. So, in the third and fourth quarters, we have set aggressive growth targets and we hope that through our competitive products, as well as cooperation with upstream and downstream partners, we will be able to increase our profits compared to the second quarter and return to an operating margin of 4% to 4% in the next two quarters.
As for the composition of our inventory, let me say a few words. As our CFO said, our inventory was NT$206 billion for this quarter, about half of them are products and half of them are components and for the components, a large share is high price components such as CPUs, panels, memory, et cetera, these are high price components. And as I said earlier, in the third and fourth quarters, we are fairly optimistic that we will be able to reduce the inventory. Thank you.
Nick Wu
Okay, the next question is from Suisse Credit. It seems that in 2022, ASUS’ profit is encountering challenges, so next, will there be an adjustment to the dividend policy for the next year?
I think I’ll take this. So, ASUS is still focusing on our long-term expansion and long-term value strategy. And of course, 2022 is a time of change and transition in the industry, but we will continue to stick with this strategy to increase our — the value of our brand and to create value for our shareholders.
So, for our dividend policy, we will stand by our commitment to shareholders, namely that — for our dividend payments and yields, we will maintain them at a level that is higher than the industry as a whole. So, looking at our outlook for 2023, we are very confident that we will have the financial resources to maintain this dividend policy. Thank you.
The next question is from the Industrial Times. So, ASUS’ sales prices for graphics card, your numbers show that they have been stable or there’s even been a slight growth, but we see news of retailers cutting prices on graphics cards, and sometimes even selling them under MSRP. What is ASUS’ response to this and how are you going to manage this going forward?
Samson Hu
Okay, I think you are asking this question because of NVIDIA’s forecasts, which show that their income from graphics cards is falling. But looking at our internal business unit numbers, our sales volume for this year will actually be fairly similar to that of last year or perhaps we might even see slight growth. As for revenue, we are forecasting single-digit growth compared to last year.
Of course, as you all know, last year, due to the cryptocurrency trend, many high level graphics cards were bought up by miners and very — not a lot of graphics cards made it to the hands of high end PC consumers. So, the share of high end graphics cards were relatively low. But now the demand for crypto is lower, so we have adjusted our mix of high end and low end graphics cards. So, that’s why even though on the market, we see some graphics cards being cut in price even — and being sold lower than MSRP, ASUS’ internal numbers are still showing growing revenue for graphics cards.
I think the main reason is because we have adjusted our mix of high and low end graphics cards. I believe that this is a fairly smart strategy in the face of changing demand because obviously, demand is limited. But by adjusting the mix, we can achieve continued revenue growth.
But in terms of profits, of course, the demand through cryptocurrency miners last year was honestly irrational or abnormal. So, our profits can — will probably not reach the highs of last year, but we believe that they will remain at a reasonable level. Thank you.
Nick Wu
[Operator Instructions] Thank you. Okay, we have a question from BofA Merrill Lynch. So, ASUS says that the PC industry is facing headwinds for 2022, but other companies when they talk about long-term, they believe that the PC market will remain at 300 million units in the future. So, what is ASUS’ long-term goal and profit target?
I think I’ll take this. ASUS is — for the medium and long-term is optimistic for the PC industry. We believe that the pandemic has caused structural changes in how we work and how we live. So, we believe that for this transition, the PC is actually an essential device for productivity.
So, in addition, due to the pandemic over the past two years, we believe that the install base for PC has expanded. This expansion if you look at the digital transformation for industries and for individuals, we actually believe that the expansion is not finished yet. We believe that there is still unfilled demand.
Of course, this year due to inflation, due to geopolitics, due to the lockdown in China, the demand has been suppressed, which means that the install base expansion has halted for the time being, but we are still optimistic that after a few quarters of adjustment, after this time of transition, depending on how the geopolitical issues and how inflation issues can be resolved, we do believe that by 2023, particularly, the second half of 2023, the install base for PCs will continue to expand, and of course, the new users for PCs will look to upgrade their devices as well.
So, we are optimistic about the medium and long-term development of the PC industry. And again, that’s why as we said, at the end of last year, ASUS set aggressive — set a strategy of aggressive expansion.
As for profits, as we said earlier, under our strategy of aggressive expansion, we are still — profit is still important to us. But due to the numerous environment — due to the numerous issues with the macroenvironment in the second quarter, our profits have been suppressed.
But as I said, in the second half of the year, we will look to bring our operating margins back to 3% to 4%. In the medium to long-term, we believe that the industry will continue to be driven by the digital transformation worldwide and the momentum will be maintained. So, we believe that our operating margin will actually eventually reach higher than pre-pandemic levels. This is our target for the long-term. Thank you.
Nick Wu
Okay, we have addressed most of the questions. So, it is time that — we are out of time now, so we will end this virtual investors conference. And let’s have our Co-CEOs deliver some closing remarks.
S.Y. Hsu
Okay. We see that many of our investors and friends from the media are very focused on our inventory and profit for this quarter. And of course, this is an important issue for ASUS as well.
As Samson said, we have set very aggressive targets to make the necessary adjustments in the next two quarters. Right now, we are seeing that the numbers are trending in a positive direction and we do believe that we will reach these third and fourth quarter targets. So, I — there is no need for concern. All of our team members will be very focused on delivering a great performance for our investors and shareholders. Thank you.
Samson Hu
I would like to thank you all for joining our investors conference today. We definitely see from the questions asked that inventory management and the market demand will be important issues for us here at ASUS. And for the future, R&D for new products will continue.
So, the short, the medium, and long-term are all important for us and revenue and profit are both very important as to us as well. So, even as we pursue our expansion, our growth in revenue, and growth and scale, we will also be pursuing a level of profit that can deliver value to our investors and shareholders. Thank you.
Nick Wu
Okay, thank you and thank you all for coming.
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