Global Unichip 3Q26 Earnings: A NT$6.0bn Inventory Build Points to a Fourth Quarter Above the Street

Global Unichip (GUC) is a Hsinchu-based custom chip (ASIC) design company listed on the Taiwan Stock Exchange. It earns money two ways: NRE and IP revenue for design work, booked as each project hits its milestones, and turnkey revenue, where it manages production of the finished chip at TSMC and sells it to the customer. TSMC is an investor with significant influence over GUC and is its main supplier. Cloud projects (CPUs, AI accelerators and baseboard management controllers) were 86% of 3Q26 revenue, followed by consumer, edge AI and automotive.

GUC reported 3Q26 revenue of NT$18,755m, up 35% QoQ and 118% YoY, its largest quarter. Gross profit rose 29% to NT$3,861m, operating income rose 52% to NT$2,552m and net income rose 46% to NT$2,272m. EPS of NT$16.95 compares with NT$11.61 in 2Q26 and NT$6.47 a year ago.

GUC gives no numeric guidance, so the useful comparison is with what was expected going in. Net income came in above the NT$1.85-2.15bn range in our preview and EPS above our NT$13.8-16.0. Gross margin of 20.6% beat our 18.5-20.0%, but most of the gap was in costs: operating expenses of NT$1.31bn against the NT$1.36-1.42bn we expected, which put operating margin at 13.6% against our 10.9-12.7%.

Below the operating line, non-operating income was NT$74m against NT$79m, and the effective tax rate rose to 13.5% from 11.4%. Net margin rose 0.9pp to 12.1%; management attributed the gain over a year ago mainly to currency gains this quarter against losses then. Nine-month revenue of NT$44,099m is up 102.8% and nine-month EPS of NT$40.84 is already 45.2% above the NT$28.13 earned in all of 2025.

Turnkey revenue rose NT$5,085m QoQ to NT$16,671m, more than the NT$4,859m increase in total revenue, because NRE and IP revenue fell NT$226m to NT$2,084m. Turnkey reached 88.9% of revenue, from 83.4% in 2Q26 and 66.8% a year ago. 3nm turnkey revenue was NT$9,848m, 7.0x the NT$1,402m of 3Q25, and 59% of turnkey; with 3nm design revenue added, 3nm was 54.8% of the quarter. Nodes of 7nm and below were 77% of turnkey.

Cloud revenue was NT$16,188m, 86.3% of the total against 65.1% a year ago, and management names CPU, AI accelerator and baseboard management controller projects as its sources this year. Consumer revenue fell to NT$1,314m from NT$1,781m and edge AI to NT$439m from NT$835m. Revenue billed to the US was NT$13,894m, 74% of the total, mainly turnkey revenue from cloud projects.

Design revenue is where future turnkey starts, because it is booked as projects move toward tape-out. Nine-month NRE and IP revenue is down 4.1%, with 5nm up 77% to NT$1,991m and 3nm down 52% to NT$1,299m as the 3nm projects of 2025 moved into production. Design revenue is not yet growing with turnkey, so the new projects behind 2027 should show up in this line first; a return to growth in NRE would be the earliest sign of them.

Gross margin fell to 20.6% from 21.5% in 2Q26 and 24.2% a year ago, and management named the higher turnkey share as the main reason. Turnkey carries a lower margin because the TSMC wafer and packaging cost passes through revenue, while design revenue is mostly engineering time. Turnkey's share rose 5.5pp in the quarter and gross margin fell 0.9pp.

For a business moving toward turnkey, gross profit in NT dollars matters more than the percentage, and it rose 29% QoQ to NT$3,861m and 85% YoY. The incremental gross margin on the quarter's added revenue was 17.8%. With operating expenses flat, operating margin rose 1.5pp to 13.6%; operating expenses were 7.0% of revenue, against 9.4% in 2Q26 and 12.0% a year ago.

Management again said 2026 operating expenses will rise significantly over 2025 because of depreciation on its Turing Center. Nine-month operating expenses of NT$3,916m are up 30.6%, well below the 102.8% growth in revenue. Our model implies a 4Q26 gross margin of 20.7%, in line with the third quarter. We think 20-21% should hold while turnkey stays near 89% of revenue; a fourth-quarter gross margin below 19.0%, the 4Q25 low, would mean turnkey margins themselves are falling.

GUC owns no fabs. Nine-month spending on property, plant and equipment was NT$901m and on intangible assets, mostly design IP and tools, NT$365m, a total of NT$1.27bn against NT$4.25bn of operating cash flow. Net PP&E rose to NT$2.18bn from NT$1.35bn in December as the Turing Center was equipped.

Its production capacity is what it can buy from TSMC. Purchases from the TSMC group were NT$14.98bn in the quarter, close to the NT$14.89bn cost of sales, and NT$8.06bn was owed to the group at quarter end against NT$1.92bn in December, NT$7.54bn of it to TSMC North America. Wafer and advanced-packaging allocation at TSMC therefore sets how fast turnkey revenue can grow.

Nine-month revenue of NT$44,099m is 71.6% of our FY26E forecast of NT$61,554m, against a 63.7% nine-month share in 2025. Our full-year number implies 4Q26 revenue of NT$17,455m, down 6.9% QoQ and up 40.8% YoY. Nine-month net income of NT$5,473m is 76.4% of our NT$7,168m, which leaves NT$1,695m for the fourth quarter, 25% below the third.

Current consensus is higher on revenue and close to our number on profit. FY26E revenue of NT$62,398m implies a fourth quarter of NT$18,299m, down 2.4% QoQ, while FY26E net income of NT$7,231m implies NT$1,758m, down 22.6%. That pairing requires a 4Q26 net margin of 9.6%, against 12.1% in the third quarter and 11.2% in the second, even though the third quarter showed operating costs flat as revenue rose.

We expect FY26 to finish above both numbers, for three reasons. 1) Inventory rose NT$6.0bn for subsequent shipments. 2) Customer prepayments rose NT$8.1bn this year. 3) Costs held flat, so margin should stay near the third quarter's. At the third quarter's run-rate FY26 net income would be NT$7,745m, 7.1% above consensus. The third quarter averaged NT$6.25bn of revenue a month; monthly revenue below NT$6.1bn from October would argue for the lower number.

For FY27, consensus revenue of NT$154.5bn, up 147.6%, averages NT$38.6bn a quarter, 2.06x the third quarter. Nothing in the release sizes the 2027 projects, so the FY27 number rests on programs GUC has not yet put in its own disclosures.

GUC does not give revenue or margin guidance. The release documents carry two forward statements: inventory is being built mainly to support subsequent shipments, and operating expenses for 2026 will rise significantly over 2025 because of Turing Center depreciation. At the July conference, press reports had management expecting the second half to exceed the first half's NT$25.3bn, which the third quarter alone has mostly covered: the fourth quarter needs only NT$6.6bn to meet it.

The inventory statement carries more information than the cost one. Inventory days fell to 107 from 119 even as inventory rose NT$6.0bn, so stock is turning faster while it grows, which is what a rising shipment schedule looks like. A rise in inventory days alongside lower monthly revenue in October and November would show the build was for a program that slipped.

Inventory reached NT$20,542m at 30 September, against NT$14,540m at June and NT$9,422m a year ago, 2.2x. Prepayments for purchases added NT$4,126m. On the other side, contract liabilities, which are cash customers have paid ahead of delivery, reached NT$15,485m, up NT$8,146m since December, and payables to the TSMC group reached NT$8,061m. The two together, NT$23,545m, cover 95.4% of the NT$24,668m of inventory and purchase prepayments.

Operating cash flow was negative NT$972m in the quarter as inventory grew, and cash fell NT$1,087m to NT$8,947m. Over nine months operating cash flow was NT$4,251m, against negative NT$825m a year earlier, and NT$2,680m of dividends (NT$20.00 a share) were paid. Short-term borrowings were NT$150m at 2.10%, and there were no bonds payable at quarter end.

In August the board approved a NT$40bn syndicated loan, expandable to NT$50bn over five years, and up to US$800m of zero-coupon five-year overseas convertible bonds for foreign-currency material purchases, as reported by TTV, Knews and Commercial Times. Neither had been drawn or issued by 30 September. At a conversion price near NT$7,640 the bonds would convert into about 3.41m shares, 2.5% of the 134.0m outstanding. A facility of that size against NT$46.3bn of total assets shows management planning for working capital to keep growing well into 2027.

At NT$7,640, the 29 October close before the results, GUC trades at 141.6x the street's FY26E EPS of NT$53.96 and 60.0x FY27E EPS of NT$127.39. On reported earnings for the four quarters to September, NT$49.49 a share, the trailing P/E is 154.4x, and the third quarter annualized, NT$67.80 a share, gives 112.7x. The comps table uses FY26 as GUC's forward year.

The peer forward median is 36.4x, and Alchip, the closest listed peer, trades at 26.0x. At the peer median multiple the share price would need EPS of NT$209.9, above the street's FY28E of NT$188.83; on that FY28E number the shares trade at 40.5x. The price therefore already capitalizes earnings two years out, so FY27 and FY28 consensus revenue matters more to the shares than the fourth quarter does.

We do not rate GUC and carry no target price. The third quarter bears on value through one number: FY27 consensus revenue of NT$154.5bn, 2.06x the third quarter's annualized rate, rests on projects that have not yet reached GUC's revenue lines, and the design-revenue line is where they would appear first.

Concentration. Cloud was 86% of revenue, US customers 74% and 3nm 55% in the quarter, so revenue rests on a few US cloud projects at one node. A delay in any one of them would show up quickly in turnkey revenue, and the release does not name the customers.

Shipment timing. September revenue of NT$7.15bn was the highest month of 2026, and some of it could have been pulled from the fourth quarter. The inventory build argues against that, but the monthly revenue releases from October are the test.

Inventory. Inventory of NT$20.5bn equals 1.38 quarters of cost of sales. If a project slips, GUC holds the stock; customer prepayments of NT$15.5bn reduce but do not remove that exposure.

Margin and dilution. Gross margin was 19.0% in 4Q25 at an 83% turnkey share, so a mix shift toward lower-margin turnkey projects could take the margin below 20%. The convertible bonds, once priced, would add about 2.5% to the share count at the current price.