Delta Electronics: Riding the AI Wave, But Risks Linger
Bangkok – KGI Taiwan’s research team is bullish on the global server industry, projecting strong growth in 2024 and 2025, fueled primarily by the increasing demand for AI servers. This surge in demand is attributed to two main factors: increased capital expenditure by US cloud service providers (CSPs) and the transition to more powerful "Blackwell" GPUs.
“We remain positive on DELTA’s outlook, expecting the company to benefit from increased passenger demand,” the report states.
The projected growth in the server industry is good news for Delta Electronics, a major player in the field. Since server sales account for roughly 30% of Delta’s total revenue, the company stands to reap significant benefits. KGI Taiwan anticipates that AI server revenue for Delta will jump from 6% of total revenue in 2023 to 12-13% in 2025.
This growth in AI server demand is expected to positively impact Delta Thailand, a subsidiary of Delta Electronics, due to increased orders from Delta Taiwan.
Keeping with this optimistic outlook, KGI Taiwan has revised its earnings estimates for Delta.
“We are revising our earnings estimate […] because we see the increased sales from Delta Taiwan-related activity requiring upward adjustments of 3-4% in sales, around 10-20bps in gross profit margin,” the report continues.
This bullish assessment translates to a projected increase in profits for Delta’s core business, with a 12% year-on-year rise anticipated in 2025 and 14% in 2026.
However, KGI Taiwan cautions that there are potential risks to watch out for.
“There are some risks to watch out for, including: i) higher costs in terms of royalty fees; and ii) the risk of tax rates rising in line with the global minimum tax rate scheme (tax rates of DELTA are around 3-5% as it gets tax benefits from BOI).”
Should Delta face higher global corporate tax rates (rising to 15%), KGI Taiwan estimates that the company’s projected annual profits for 2026 could decrease by approximately 10%.
Despite the positive outlook for Delta and the server industry overall, KGI Taiwan maintains a “Sell” recommendation for Delta, with a target price of 111.00 baht.
“We raise our target price for 2025 to 111.00 baht from 102.00 baht based on a PER of 58.0x (average in the past + 0.5 SD) even if we gave a premium to reflect the good position of the company. But the latest closing price remains another downside is 26% to our target price, so we maintain our ‘Sell’ recommendation," KGI Taiwan explains.
The report concludes with a list of potential risks facing Delta Electronics, including natural disasters, factory closures, customer defections, raw material shortages, and a strengthening Thai baht.
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2024-12-02 08:50:00
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## Delta Electronics: Riding the AI Wave,But
**Expert Interview with Dr. Emily Chen, Professor of Electrical Engineering adn AI, University of California, Berkeley**
**(World Today news Exclusive)**
**Introduction:**
Delta Electronics, a global leader in power and thermal management solutions, has made notable strides in integrating artificial intelligence (AI) into its products and services.This shift towards smart ecosystems promises to revolutionize industries ranging from manufacturing to electric vehicles. Though, navigating the complexities of AI implementation comes with its own set of challenges. World Today news speaks with Dr. Emily Chen, a renowned expert in electrical engineering and AI at the University of California, Berkeley, to gain insights into Delta Electronics’ ventures in the AI space, the potential benefits, and the hurdles that lie ahead.
**World Today News:** Dr. Chen, Delta Electronics has been making headlines with its AI-powered solutions. What are your thoughts on their strategy of integrating AI into their core offerings?
**Dr. Chen:** Delta Electronics’ foray into AI is a promising move aligned with the broader trend across industries. AI has the potential to considerably enhance efficiency, optimize performance, and unlock new possibilities in power management and automation.Their focus on developing AI-powered solutions for smart grids, renewable energy systems, and electric vehicles demonstrates a commitment to tackling pressing global challenges.
**world Today News:** What are some of the key advantages that Delta Electronics can leverage through their AI integration?
**Dr. Chen:** AI can empower Delta Electronics with several advantages:
* **Predictive Maintenance:** AI algorithms can analyze operational data to predict equipment failures, minimizing downtime and maintenance costs.
* **Optimized Energy Consumption:** AI-powered systems can dynamically adjust energy consumption based on real-time demand, contributing to energy efficiency and sustainability.
* **Enhanced Automation:** AI can automate complex processes, leading to increased productivity and reduced human error.
**World Today News:** While the potential is immense, are there specific challenges Delta electronics might face in implementing AI effectively?
**Dr. chen:** Yes, there are some significant challenges:
* **Data Quality and Accessibility:** training effective AI models requires large datasets of high-quality data.Ensuring the availability and accessibility of such data within Delta Electronics’ operational environment can be a hurdle.
* **Algorithm explainability:** The “black box” nature of some AI algorithms can make it tough to understand their decision-making processes. This lack of transparency can raise concerns regarding accountability and trust.
* **Ethical Considerations:** As AI systems become more autonomous, it’s crucial to address ethical considerations related to bias, fairness, and responsible use. Delta Electronics needs to establish clear ethical guidelines for its AI deployments.
**World Today News:** Looking ahead, what are your predictions for Delta Electronics’ future in the AI landscape?
**Dr. Chen:** I believe Delta Electronics has the potential to become a leader in the AI-powered solutions market. Their strong engineering foundation, coupled with a strategic focus on AI integration, positions them well for success. However, continuous investment in research and progress, addressing ethical concerns, and fostering collaboration with academic and industry partners will be crucial for sustained growth and innovation.
**World Today News:** Dr. Chen, thank you for sharing your expert insights.
**Conclusion:**
Delta Electronics is undoubtedly riding the AI wave, but navigating its complexities requires a careful and strategic approach. By addressing the challenges associated with data access, algorithm explainability, and ethical considerations, Delta Electronics can leverage AI to achieve its vision of a smarter, more sustainable future.
