BMC’s ‘undershipping’ in 2023, BF3 a new catalyst ‘Undershipping’ likely for BMC in 2023F; BF3 upside yet a consensus; competition risk manageable; maintain Buy

Reiterate Buy with TP of TWD3,500; BMC ‘undershipping’ in 2023 offers great entry point We were expecting a share price correction for ASPEED in 2Q23 (report ), but it materialised mainly in 3Q23 driven by surging market concerns on AI budget crowding-out impact (down 17% vs. TAIEX nearly flat since June). However, as discussed in our latest data center semi report ( report ), we expect such an impact to be short-lived (in 2023-24F) and non-AI server semi demand to eventually recover (by 2025F), given our view that GPUs cannot address most of the workload of CPUs in servers. In this report, we conduct a “short-term” analysis of baseboard management controller (BMC) volume trend into 2024F by assuming a BMC ‘overshipping’ in 2022 (or even in 2021-22) and how much of the excess shipping can be digested in 2023. We conclude that BMC could face ‘undershipping’ by 2023F following a 20% yoy server shipment fall, but 50-60% yoy BMC volume correction (Fig. 2 - Fig. 6 ). As such, while we cut our 2023 EPS by 9% on budget crowd-out impact (with our latest assumption of 3Q23/4Q23 sales growth of 5%/21%qoq), we keep our 2024-25 operating income forecasts unchanged (Fig. 9 ). The snapback of BMC volume rebuild (also following the deepest-andlongest data center CPU semi digestion; Fig. 7 ) could possibly drive ASPEED’s BMC volume to nearly double yoy in 2024F even if we assume nearly flattish server volume growth. We have not factored in Bluefiled-3 (BF3) upside from 2024, leaving it as a buffer to any downside from the ongoing budget crowding-out impact. We maintain our Buy rating, and TP of TWD3,500, based on 50x average 2024-25F EPS. We continue to expect ASPEED’s 2023-26F growth to exceed 2018-22 levels (Fig. 11 , when the valuation range was 15-65x) on surging dollar content every year (Fig. 8 )

BF3 upside is not yet a consensus view; manageable competition from Nuvoton We believe we are among the few brokers to flag ASPEED’s exposure to nVidia’s (NVDA US, NR) AI system via BF3 (report ). nVidia, at its latest earnings call, highlighted the importance and success of BF3. Even the newly-debuted lower-end AI chip L40S will have BF3 as one of its interconnects. Given ASPEED has limited information about BF3, we believe this AI-driven upside is not yet a consensus view. Separately, investors are concerned over competition from Nuvoton (4919 TT, NR) at Microsoft (MSFT US, NR) from end-2024. While ASPEED has addressed this topic on its product competitiveness in early-2023 (report ), we believe this risk is manageable, as: 1) Microsoft is only a 6-8% volume customer and any share loss would be only gradual from 2025F when ASPEED’s dollar content is surging; and 2) ASPEED is gaining share from Nuvoton at Google (GOOGL US, NR)