Winway Technology (6515.TW): 1Q26 In-Line Results Mask Stronger 2Q Setup from AI and Smartphone Share Gains; Maintain Overweight

Core Conclusion

Winway Technology’s 1Q26 results matched expectations, but the positive earnings surprise was suppressed by near-term MEMS ramp margin headwinds. The underlying growth trajectory is stronger than the headline suggests, driven by accelerating MediaTek smartphone share gains, next-gen AI GPU/CPU socket ramps, and robust Cobra VPC probe card momentum. We expect 2Q revenue to grow ~20% Q/Q as these forces converge, with margin improvement materializing in 2H as Cobra VPC mix rises. The current risk/reward remains favorable for long-term investors.

The Market Likely Underappreciates the 2Q Revenue Acceleration and 2H Margin Inflection

Near-term margin compression from MEMS probe card ramp in 1H is masking the strength of Winway’s core growth engines. The 1Q26 GM of 43% was 4ppt below our estimate solely due to unfavorable MEMS mix — not a structural deterioration. As Cobra VPC ascends in the mix during 2H, we expect GM recovery. More importantly, the 2Q revenue trajectory is being powered by three concurrent drivers that together create a step-change in volume: MediaTek’s AP SoC share gains (via RF/plastic sockets), next-gen AI GPU/CPU coaxial sockets, and sustained Cobra VPC orders from BlueField DPU and next-gen AI CPU.

Evidence Chain

1Q26 Revenue Momentum Confirms Broad-Based Demand Acceleration. Revenue grew 33% Q/Q and 30% Y/Y to NT$2.0bn, driven by three distinct product categories. RF/plastic sockets surged 151% Q/Q, tied directly to MediaTek’s AP SoC share gains and the Google CPU Axion 2 ramp. Coaxial sockets rose 12% Q/Q from next-gen AI GPU/CPU deployments. Cobra VPC probe cards posted exceptional 378% Q/Q growth, fueled by next-gen AI CPU and applications like BlueField DPU. The breadth of growth — spanning compute, connectivity, and test — signals end-market pull rather than one-time factors.

EPS In-Line Despite GM Miss, Reflecting Strong Operating Leverage. 1Q26 EPS of NT$19.54 beat consensus by 2%, even though GM (43%) came in 4ppt below our estimate due to MEMS probe card mix. Operating margin still expanded 4.8ppt Q/Q, though missed our estimate by 2ppt because of higher hiring costs. This suggests underlying margin power is intact once the MEMS headwind abates.

2Q Outlook Is Driven by Smartphone Share Gains and AI Ramp. We forecast ~20% Q/Q revenue growth in 2Q, fueled by MediaTek’s share gains (which are likely to accelerate given handset OEMs’ aggressive adoption) and the key customer’s next-gen AI GPU/CPU volume ramp. Both are multi-quarter tailwinds with visibility extending into 2H26. The company will provide additional CPO (co-packaged optics) details on May 14 and May 26, which could act as a valuation catalyst.

Margin Trajectory: 1H Pain, 2H Recovery. MEMS probe card ramp will continue to pressure gross margin through 1H26. However, as Cobra VPC (higher-margin) increases as a percentage of the mix in 2H, we expect gross margin to inflect upward. The sequential improvement is structural, not cyclical, because Cobra VPC is tied to long-lifecycle AI CPU and DPU programs.

Key Risks

• MEMS Ramp Execution: If MEMS volume ramps faster than anticipated, it could further compress GM in 1H26 and delay the 2H margin recovery timeline.
• Customer Concentration: Winway’s revenue is heavily tied to MediaTek and a key North American AI customer. Any share loss or order pushout would materially affect 2H26 revenue.
• AI Demand Cycle Risk: A slowdown in next-gen AI GPU/CPU demand (e.g., from hyperscaler capex moderation or technology transition delays) could reduce the order intensity for coaxial sockets and Cobra VPC.
• CPO Monetization Timing: CPO is a long-term thematic, but near-term revenue contribution is likely negligible. Over-optimism around CPO could lead to valuation downside if details disappoint.

Valuation and Trading Implications

Winway trades at 103x current-year P/E (FY26e EPS NT$103.9) and 54x FY27e — a premium to historical levels but justified by the 80%+ EPS CAGR over the next three years (FY25-FY28: NT$46.6 to NT$347.54). The residual-income-derived price target of NT$12,000 implies 12% upside from NT$10,700. Long-term investors should view any MEMS-driven weakness as an entry opportunity, given the visible growth algorithm and improving margin profile. The 2Q revenue acceleration and CPO catalyst flow should support near-term share price momentum. We maintain Overweight.

Appendix Data Summary