Earnings call transcript: Tuya Q2 2025 sees steady earnings, slight revenue beat

Tuya Inc ADR (TUYA) reported its Q2 2025 earnings, meeting earnings per share (EPS) expectations at $0.03 and slightly surpassing revenue forecasts with $80.1 million compared to the anticipated $78.75 million. The company’s stock responded positively, rising 3.13% to close at $2.56, with further aftermarket gains of 0.78%. According to InvestingPro analysis, Tuya currently trades near its Fair Value, with a market capitalization of $1.43 billion and impressive YTD returns of nearly 50%.

Key Takeaways

• Revenue for Q2 2025 reached $80.1 million, marking a 9.3% year-over-year growth.
• EPS met expectations at $0.03, with no surprise deviation.
• The stock price increased by 3.13% following the earnings release.
• Tuya’s AI integration continues to drive product innovation and market interest.
• The company maintains a strong cash position with a net cash balance above $1 billion.

Company Performance

Tuya’s performance in Q2 2025 reflects steady growth, particularly in its revenue, which saw a 9.3% increase compared to the same period last year. The company continues to leverage its robust AI capabilities, with 93% of its product categories now AI-enabled, contributing to its competitive edge in the market. Despite global trade uncertainties, Tuya’s diversified product portfolio and strong developer community have helped maintain its growth trajectory.

Financial Highlights

• Revenue: $80.1 million, up 9.3% year-over-year
• Earnings per share: $0.03, meeting analyst expectations
• Gross Margin: 48.4%, consistent across business segments
• Operating Cash Flow: Over $18 million
• Net Cash Balance: Just above $1 billion

Earnings vs. Forecast

Tuya’s Q2 2025 earnings per share of $0.03 aligned with forecasts, while revenue slightly exceeded expectations by 1.75%, reaching $80.1 million against the projected $78.75 million. This minor revenue beat, while modest, signifies the company’s ability to navigate market challenges effectively.

Market Reaction

Following the earnings announcement, Tuya’s stock rose by 3.13% to $2.56, with aftermarket trading showing an additional increase of 0.78%. This positive movement reflects investor confidence in the company’s steady financial performance and strategic focus on AI innovation. The stock remains within its 52-week range, with a high of $4.629 and a low of $1.28.

Outlook & Guidance

Tuya’s forward guidance suggests a challenging Q3, with potential improvements anticipated in Q4. The company remains committed to its growth strategies, focusing on deepening customer relationships, seizing regional opportunities, and accelerating AI innovation. Revenue forecasts for the upcoming quarters are set at $83.82 million for Q3 and $86.19 million for Q4.

Executive Commentary

CFO Alex Yang highlighted the company’s strategic priorities, stating, "We remain focused on the long term, executing three major growth strategies." Yang also expressed confidence in the company’s growth potential, emphasizing the importance of AI capabilities: "93% of Tuya’s shipped product categories were equipped with AI capabilities."

Risks and Challenges

• Global trade uncertainties could impact supply chains and consumer electronics demand.
• Tariff pressures may necessitate shifts in retail strategies.
• Market saturation in certain regions could limit growth opportunities.
• Currency fluctuations and geopolitical tensions may affect international operations.
• The competitive landscape in AI-driven products remains intense.

Q&A

During the earnings call, analysts inquired about Tuya’s margin strategies and the impact of tariffs on product categories. Executives addressed these concerns, emphasizing the company’s adaptability and focus on maintaining shareholder returns amidst global supply chain shifts.

Full transcript - Tuya Inc ADR (TUYA) Q2 2025:

Conference Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Tunya Inc. Second Quarter twenty twenty five Earnings Conference Call. Currently, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.

As a reminder, we are recording today’s call. If you have any objections, you may disconnect at any time. I will now like to turn the call over to Ms. Regina Wong, Investor Relations Senior Manager of Tunya. Regina, please go ahead.

Regina Wong, Investor Relations Senior Manager, Tuya: Thank you, operator. Hello, everyone. Welcome to our second quarter twenty twenty five earnings call. Joining us today are our Founder and CEO of Tuya, Mr. Jerry Wang our Co Founder and CFO, Mr.

Alex Yang. The second quarter twenty twenty five financial results and webcast of the conference call are available at ir.tuya.com. A replay of this call will also be available on our IR website in few hours. Before we continue, I refer you to our Safe Harbor statement in our earnings press release, which applies to this call, as we will make forward looking statements. With that, I will now turn the call to our Founder and CEO, Mr.

Jerry Wang. Jerry will deliver his remarks in Chinese, which will be followed by a corresponding English translation. Jerry, please. Hello, everyone. Thank you for joining Twiat’s earnings call for the 2025.

Let me start with a brief overview of our performance. In the 2025, Twilio generated revenues of approximately US155 million dollars representing about 15% year over year growth. Revenue in the second quarter reached around US80.1 million dollars an increase of 9.3% year over year. During the quarter, global trade uncertainties intensified with U. S.

Tariff policy significantly disrupting the global discretionary consumer electronics industry. As a result, downstream retail channels, brands, importers and exporters delayed or adjust their order pace and planning. Nevertheless, 2YAR remains resilient, delivering positive outcomes across multiple fundamentals, including revenue growth, gross margin and profitability as well as AI products and ecosystem development. In terms of profitability, we maintained a blended gross margin of around 48% for both the second quarter and the first half, with all three business segments achieving stable gross margins, both sequentially and year over year. On the operating profit side, despite the seasonal softness in the first half and global external challenges, we still achieved a 10% non GAAP operating margin and 25% net margin.

Notably, non GAAP operating profit grew approximately 127% year over year, highlighting the operating leverage embedded in Twia’s business model, which remains sustainable even in a complex environment. Opportunities and challenges from both AI adoption and the global trade environment are driving higher market penetration. We are also engaging our developer platform to deliver high value and next generation experiences. At the end of the second quarter, the number of global developers on our platform has reached over 1,510,000. We will remain committed to long termism, leveraging initiatives such as TUYA Open and our AI agent development platform to broaden access to AI developer tours and build a business existence that supports 2YAS and the industry’s long term growth.

Now let me turn the call over to our Co Founder and CFO, Alex Yang, who will share more details about our financial performance and business progress.

Alex Yang, Co-Founder and CFO, Tuya: Hello, everyone. This is Alex. I will now provide more details on our second quarter results. Please note that all figures are in U. S.

Dollars and all the comparisons are year over year based. Let’s start with the financial performance. In the 2025, TUYA delivered revenue of about US80 million dollars representing 9.3 year over year growth. By segment, PAS leveraged its diversified products ecosystem to capture essential consumption demand in home appliances, delivering year over year growth of 7%. Smart solutions supported by focused hardware offering and differentiated solutions tailored to various customer segments withstood macro pressures and achieved year over year of 16.7%.

SaaS and others revenue was about US11 million dollars up 15.6% year over year, driven by the continued increase in recurring revenue, which exceeded 6% in Q2. From a regional perspective, leading long term customers in Europe achieved double digit growth in niche categories such ambient lighting and home appliances, including air conditioners and airfires. New customers, top Turkish solar storage companies and leading HVAC manufacturers in Austria and other regions too, who began corporations on energy saving production lines. In Asia Pacific, various rollouts progressed as expected. Several Southeast Asian telecom customers starting with the Cube platform deployment to enter the larger scale delivery space, while smart home and realistic products in Singapore advanced into implementations contributing meaningful revenue across both hardware and software in the future in the now quarter and the futures.

In North America, our flagship AI solutions, the SmartBird feeder, saw strong momentum and demand reflecting consumers’ sustained willingness to pay for emotional driven experience by AI. In China, AI toy solutions gained positive feedback in Q2 with plans to expand IP collaborations and target diversified audience. Admittedly, even since shifting tariff policies introducing global trend uncertainty, stakeholder across this regional consumers electronics value chain and had become acting in their own interest, significantly pursuing offline retail system overseas. Nevertheless, TUIOS diversified products ecosystem and software technology capability enabled us to take targeted approaches to withstand their pressures demonstrating our structural resilience. On margins, Q2 blended gross margin was 48.4%.

Past gross margin reached a historical height of 48.7%, while Smart Solutions and SaaS and others delivered gross margin of 22.572%. Considering that two years gross margin reflect the outcome of a platform based business model combined with a rich hardware ecosystem. Q2 margins was aligned with our management expectation, maintaining stable, robust margins in a foundation for achieving strong operating leverage. On the expenses side, we maintained disciplined execution. Since early twenty twenty four, after rightsizing our team, we have managed to meet operational needs, including upgrading AI capability, increasing investment in R and D cloud and AI technology, building our AI developer community and hosting creative events, while keeping non GAAP net operating expenses stable.

So we have remained across US30 million dollars per quarter for six consecutive quarters. Additionally, in May, we achieved a distinct victory in the various class actions lawsuit initiated in 2022, successfully defending the rights of Tueya’s stakeholders. This also marked as a conclusion for the related expenses and emanate future risk for potential losses. As a result, our operating leverage improved significantly, and we delivered nearly an 11% non GAAP operating margin in Q2. On net profit, we achieved 25.1% non GAAP net margin and 15.7% GAAP net margin in Q2, with GAAP margin expanding over 11% points.

While interest rates cut up absorbed part of the net margin increase, this was offset by a decline of over 50% in our accounting share based compensation expenses, further amazing accounting profitability. In terms of cash flow, we generated strong operating cash flow of over US18 million dollars in Q2 and paid out our second cash dividend of about US37 million dollars Net cash balance stood at just above US1 billion dollars at quarter end. Looking ahead, we will continue to exploring ways to deploy excess capitals to support our business. Next, let me share the quarter’s updates on our AI developer ecosystem. So 2A has always been at the forefront of the AI hardware and application deployment, and we remain fully committed to advance the AIoT ecosystem.

So our goal is to continually lower the development threshold of AI devices products and promote their broader AI innovations and adaptors. So first of that, let me highlight two data points. As of 06/13/2025, 93% of 2YAR’s shipped products categories were equipped with AI capabilities. Meanwhile, 2Ya AI developer platform delivered AI agent services that supported 150,000,000 AI interactions per day globally across scenarios such as AI nodes, AI translate, AI health, AI energy, AI pet care, AI trendy play, AI dimming, AI safety guard and robotics. So in light of this, we also seen strong enthusiasm and rapid expansion across our developer ecosystem infrastructures.

Over the past quarter, many AI developers activated to their open cloud services and commercial AI. Developers collectively created 9,372 AI agents across categories including toys, pet, appliances, electronic devices and securities. These numbers reflect the growing penetration of AI into households and industrial smart devices. The AI as a two year open, open sources community also gained strong tractions across discourse, Reddit, WeChat groups and other platforms. Our global developer base suppresses 27,000 for the AI stuff with documentations reaching 55 countries and regions.

Open source code contributions exceeded 2,300,000 lines and the core contributors steadily emerging at the ecosystem scales. While driving developer engagement, we also emphasized co creations within the ecosystem. Since Q2, we have partners with ecosystem collaborators to host multiple hack and throw events across online and offline channels generating hundreds of markers, AI devices, prototypes and with the commercial potentials. Those events spend universities, embedded engineering communities, maker spaces, incubators, cloud developer communities and a cultural IP developers groups, continuous streaming way to bring AI into millions of households worldwide. For example, in Nature Night, we co host a mega hackathon, Adventure X twenty twenty five, and attracting over 800 young developers and makers globally over five days.

Participants create a range of original projects through our team works and collaborations with the drew management feedbacks from developers and broad media coverage reaching over 10,000,000 of people watch this episode. More importantly, we are exploring pathways for Mako’s projects to commercialization. For example, the community initiative OTA robot projects has entered commercialization with distribution partners fueling its marketing and promotion. It has also driven adoptions of Twilio T5 developer board across the developer ecosystem. Another category of AI patent products, which won award in hackathon competition, attract interest from the celebrity agency and the consumer market, drawing incubation attentions from multiple commercial partners.

In addition, our collaborations with the open dev community is bringing AI hardware development into university and invent and developer certain realm, enable developers to practice AIoT applications during their study. So looking ahead, we’ll continue our effort in two directions. The first one, future lower the threshold of AI developers, leveraging the 2S AI developer platform, AI agent platform, AI coding tools and scenario based teaching to help more developers to get started quickly with AI hardware development. Secondly, accelerating the commercialization of more AI hardware innovations through collaborations within the developer community, co creation mechanism and ecosystem partners to bring excellent products to market and create commercial opportunities. So to conclude, while faced macro challenge in Q2, the company maintains strong profitability in the first half of this year and made solid progress in smart solutions, AI devices and developer ecosystem.

Looking ahead, we remain focused on the long term, executing two major growth strategy a three major growth strategy to offset near term macro challenges, while strengthening our foundation for sustainable growth. So the three major direction will be the first, we’ll continue deepening relationship with the core customers. We’ll meet the different needs of both new and non standing customers with differentiated approaches, providing tailored product solutions and the technology support to help them to maintain competitiveness in their respective market. Second, we’ll boldly seize regional opportunities. In Europe, we’ll focus high demand fix on high demand categories such as AI driven energy saving and air conditioners.

In Asia Pacific, we’ll promote smart fixation of residents, building and compacts through its integrated AIoT platform combining hardware and software. In North America, we will focus on the consumer scenarios, expediting strong willingness to pay such as pet or aviant entertainment. And in China, we’re deep in partnership with major companies, gradually building consumer awareness through e commerce and pursue industry penetration via realistic growth channels. Third, we’ll accelerate AI innovation among developers, covering new AI driven hardware application as well as agent intelligence building on hardwares, driving the industry wide shift of the smart products towards the AI agent enabled hardware. And finally, based on our current financial performance, our Board has approved a cash dividend totaling about US33 million dollars regularly dividend payment reflects 2EOS commitment to returning value to the capital market and our shareholders.

They also underscored our enduring confidence in the company’s industry perspective, products portfolio, competitive positions and long term growth potential regardless of the market conditions on the macro side. So thank you all, operators. I think that’s all we’d like to present today. We can begin with the Q and A session.

Conference Operator: Thank you. Our first question is going to come from the line of Yang Liu with Morgan Stanley. Your line is open. Please go ahead.

Yang Liu, Analyst, Morgan Stanley: Thanks for the opportunity to ask a question. Two questions from my side. The first one is regarding the growth outlook. Given the changing trade global trading environment in the second quarter and the third quarter, what is the management expectation of the business growth going into the third quarter or the rest of the year? Should we see some acceleration in top line or the past shipment growth?

The second question is regarding the FX impact. Could management update us what is constant currency growth for top line in second quarter? And to help us to understand what is the FX impacts to the P and L? Thank you.

Alex Yang, Co-Founder and CFO, Tuya: Yes. So I’ll answer the first one first. So yes, for Q3 and the rest of this year, we’ll see that the uncertainty on the tariff situations continues, because till now we still don’t have the conclusion or we don’t have the agreement between countries. So the rest of this year, we’ll see that and consumer electronics categories recovering right now still under pressure. And also, the shipment for the Q2 for those products that being tariffed And we will have to meet the products trying to sell, but retail price is trying to impact it.

So we will have to close an eye to witness what’s going to be the end demand reflects looks like. And as far as we know that right now for the major retailers for the North America and the brands and the importers and manufacturers, so they all have the concern that the demand was trying to have the risk of the decline after the price retail price raising. So for this year, we already see that for the promotion seasons like Christmas, Black Friday, back to school. And so all the new product planning and the promotion forecast, so those buyers, they have the they would really show this kind of conservative mindset, so instead of too optimistic. And like so some of the orders, they shift from the higher value of the Smart One into some lower value and with entry level one.

And even including Europe that they have the same type of uncertainty as well. So those kind of buyers, they’re not too optimistic. So they will have very they are very conscious to review all the reflects on the end users in a very short term demand domestically. And also, we are facing a very long supply chain. So from the core components into the manufacturing, the logistics internationally and into the retails.

So we have more growth on the supply chains. We have more noises from the for the uncertainty. Typical stuff is that while the retail price are facing pressure to risk. And then so from the retailer size into the importer size, into the brands, into the manufacturers, every people are renegotiating how to absorb those kind of a risk cost. And that kind of negotiation across multiple roles, multiple entities takes longer.

So what we see that in the past couple of months, those kind of negotiations trying to took in places and didn’t end. Typical example, what we see that is that on the offline retailers and e commerce, those price impact and trying to reflect very directly. Like some of the robotic vacuum, we can see here is that some of the fast growing robotic vacuum brands from China, their gross margin and profit declined so much. That’s kind of because of the tariff and bargain impact. So for TUYA, that what we see that the tariff impact exist and also in the same time that last year we did quite good for the energy saving incentive program for France and that incentive policy is trying to reduce a little bit.

And so we will see that for Q3, yes, there’s still pressure, but it should be getting better in Q4. So that’s for the first question, Leo. And for the second question is that, yes, there is some pressures on currency as well. But right now, what we see is kind of stable. So there’s pressure, but it’s under control.

That’s all. Thank you.

Conference Operator: Thank you. And one moment for our next question. Our next question will be from the line of Timothy Zhao with Goldman Sachs. Your line is open. Please go ahead.

Timothy Zhao, Analyst, Goldman Sachs: Great. Thank you, management for taking my question and congrats on the very solid results. Also two questions from my side. One is really on the competitive landscape in the IoT PaaS segment. Just wondering how management see the competitive advantage when I think the whole industry moving from the traditional say IoT path to IoT and what are our ways to maintain such kind of competitive advantage globally?

Secondly is on your shareholder return policy. I think it’s very pleased to see the dividend declaration announcement from this quarter. Just wondering if management can provide us more structural way in terms of understanding the shareholder return policy for the years ahead. Thank you.

Alex Yang, Co-Founder and CFO, Tuya: Yes. Thank you, Timothy. So for the first one, what we see that we are doing a lot of things to push the not push it to motivate those developers from the existing or from the historical IoT applications into the AI applications. So like I described that we’re doing a lot out of different webinars, trainings and events that to grab all those kind of ideas, innovative plans from the developer sites that they have anything that they can think on that how it can bring AI into the new user experience together. And data I already shared is that so for the first half of this year, 93% of the products that’s building with the Twilio platform for the first half of this year already come with AI capability.

So we’re really doing quite good penetration of the combined new AI feature set into the existing Twilio developer ecosystem and customer base as well. So that’s the first one. But we’ll continue to do more because a very exciting opportunity we see is that coming on with through the AI stuff, we have more categories that this technology will be able to cover. And so like the toy, like this kind of emotional driven entertainment. So without the large language models, those type of category doesn’t exist or doesn’t seem the opportunity how you can turn that into smart thing.

But right now, it is. So we’ll continue to do that. So have more of my existing developers to start to try out the AI feature set and understand those kind of AI technology and also to exchanging the ideas of creativity. So that’s be one thing. And also another thing is that whilst we find out those kind of great ideas or great prototypes, so we’re using our networks, using our marketing resources to incubate and helping our developer to commercialize.

So that’s what we continue to do. And so we’re looking forward to have more, I would say, AI essential applications be built out in the future for the long run. So that’s one. And the second part for the dividend or for shareholder return. So like we said for the two quarters before, so we will consider the dividend as a regular policy or two or solutions that we offer for the shareholders return besides any other things.

And the dividend is based on the stable profitability of the company, the stable business model and growth and also a very healthy net operating cash flow. So our dividend will be based on that and we’re offering as a regular solution for the shareholders. That’s all. Thank you.

Timothy Zhao, Analyst, Goldman Sachs: Great. Thank you.

Conference Operator: Thank you. Our next question comes from the line of Cai Zhao with CICC. Your line is open. Please go ahead.

Cai Zhao, Analyst, CICC: Okay. Thank you, management. And I have two questions as well. My first question is on your gross margin. So with this quarter, your gross margin has steadily expanded with margin in particular is rising spot.

So my question is, what are the key drivers for the gross margin going forward? And in particular, how would the AI related revenue affect your overall gross margin mix? So that’s for the gross margin question. And my sixth question is on the SaaS and smart device solutions. So could you share the primary growth engines for the two sectors and what’s your outlook going forward?

Thank you.

Alex Yang, Co-Founder and CFO, Tuya: Okay. So the first one, think that the gross margins represent okay, the gross margin represents the I think the competitiveness of the technology to our provider and also the value propositions for us in the entire industry. So right now, the customers will really see my gross margin. I think that will be as a public company. But they continue to satisfy with what we’re offering, no matter is on the technology, is on the services, is on what we can offer to help them to transit from a legacy device maker into a smart device maker, from a device reselling business model into more like the software services, AI services based recurring model.

So I think that will the gross margins represent that. And for us is that we manage the three business model separately. So for the past, we’re offering. So we’re satisfied with the gross margin range so far. And for the SaaS, the key part is that it’s a regular software based.

So the gross margin above 70% will be a regular based. So we’re not looking forward to push that up like the into 80% or 90% because that’s not realistic. But we’re looking for to scale that faster. As you can see here is that starting from Q2, we really see the SaaS trend growing faster than the past. And because we’re starting to acquire or transit more end users to those kind of SaaS offering as a premium features as a recurring model and we have more stickiness on the recurring side.

So that’s for the SaaS. And for the solutions we’re looking for the long run is that because it’s a software and hardware combined and essentially we have more and more portion come from the hardware side. So for that part is that above 20% of the gross margin for the solutions already represent that we’re taking a higher value proposition for that part. And so that’s I think that’s what looking forward to see that to maintain above 20% gross margin for the solutions is what we’re looking forward to come along with our scalability. And I think that’s a key part.

So we feel comfortable about the current position so far, because we’re ready to hit the higher values on the existing what we have in the industry. So we continue to push more scalability. I think that’s for that part. And the second part is about the solution, right. And so So I think that’s for the solutions.

For the solutions on the strategy side is that the solutions are not open for everyone kind ofly. So the solution will more focus on the key customers or the top tier customer in their own prospective market, either in their own region or in their own vertical industry. So the solution are providing differentiated offerings for those customers to help them to provide a higher value products to the market. So those key customers either they have a better position that they can offering higher pricing products or they have the better position to provide our differentiated products. So we will not facing very brutal competitions on the commodities.

So we don’t offer the commodities. So I think that’s the first one. And then so through that part, we’re kind of working along with those key customers to making a product roadmap six to twelve months ahead. And then we kind of become their key suppliers for all their most advanced products or flagship products for the long term. So I think that’s what we are driving forces for the long run.

So the more we start to delivering for those customers, the more opportunity we have to working along with those customers for the long run and the more opportunity we can take in more portion of their business for any type of smart devices for the long run. So I think that’s a key part. And what do we see a very good trend here is that starting with Q2, finally, we’re starting to offering the AI solutions. So not only the smart bird feeders, that’s what we try out for last year, but also for this Q2, we’re starting to deliver the AI toy. And with two significant leaders for the toy industry in China.

So one is Heizhuang and other one is IP from NetEase. And so those feedbacks from the customer side and from the end user side become very positive. And then we’re to scale that kind of new totally new vertical categories that we don’t have before. So while we have more and more AI essential, AI empowered solutions offering, where we see that, yeah, we’re starting to open more doors. And for the second half of this year and our shipment for AI based energy solution we’re starting to complete this and we’re looking to have that grab that opportunity as fast as we can as well.

So I think that’s for the solution part.

Cai Zhao, Analyst, CICC: Thank you, Alex.

Conference Operator: Thank you. And one moment for our next question. Our next question comes from the line of Matt Ma with Jefferies. Your line is open. Please go ahead.

Matt Ma, Analyst, Jefferies: Hello. Good morning, management. Thank you for taking my question. I have two questions. So the first one is also related to The U.

S. Tariffs. Are we observing a shift of China based supply chain to overseas for our brand customers? If so, what are the impacts on TUVIA? And should we expect to see incremental costs, for example, in module logistics?

And the second question is related to margins. We are seeing that for Smart Solutions, its gross margin is 22.5 percent in the second quarter, which is relatively lower than previous quarters. Just wondering what is the reason behind that? And also, given our business model can enjoy a very strong operating leverage, Over the next three to five years, what kind of margin profile do you expect to see the company to achieve? Thank you.

Alex Yang, Co-Founder and CFO, Tuya: Okay. Yes. So the first one is that, yes, after the tariff situations, every people talking about the shift in the supply chains globally. And but that kind of topics is not been discussed this year, because that first tariff raise is starting to come places in 2018. So what we see here is that just for those products manufactured and so to United States, different categories react in different way.

So for those categories require a less component and less rely on very diversified supply chain. So some simple stuff like the plugs, maybe LED bulbs. So those type of categories, not only this year, I think that is four or five years ago that many manufacturers trying to relocate it in other countries like Mexico like Vietnam, Thailand, including India. So those manufacturers already relocated somehow. But some categories super rely on their key components supplying like the air conditioner.

So they have way more complicated supply chain. It’s not easy to move that out entirely. So the major air conditioner manufacturers still they have to produce in China. So different categories right now be impacting in different level. But those shifting supply chain already took in place for years.

So for us is that we just follow the flow is that wherever the customer want to produce their finished products, we just deliver our modules to their location. So I think that’s the first one. But the pressure come from that, in Q2, as we can see that those tariff policy, I mean, challenge is that United States or President Trump tried to raise the tariff almost every other country, including Mexico, including Japan, including Vietnam and China. So for the short term, that the importers don’t know where is the safest place to produce or where is the stable place to do that. So I think that’s where the shape comes from.

But what we see for the long term is that anyhow, this is a negotiation across multiple entity, across multiple nations. The negotiation is going to work out with a deal. So once there is a deal, there’s a price that how people have to pay that and then there will come a conclusion. So all the merchants, they know that how they can reprice that and just trying to sell that on a steady level, even with a higher price. So that’s what we’re looking forward to, to wait and find out.

So those negotiations seems to progress somehow and seems to have a conclusions maybe in the next couple of months, right, where we see we extend it twice, but we’re looking there should be a conclusion. So we’re looking for half that. So that’s first one. So for the short term, there’s no easy option for the manufacturing for the manufacturers because almost everyone be tariffed at a different price. But for the long run, that’s as long as there is a price and then people will figure out how to continue to do the business because we’re not cutting off.

Yes, think that’s about tariff. And second one about the gross margin, I already shared part of the parts on the previous questions. So we’ll review the gross margin split it three sections because either the pass or the SaaS or the solutions they come in two different value proposition and facing different type of competitions. So we’ll more review those gross margins to see that whether we take the higher value proposition. For the solutions, maybe we’ll take a higher value proposition versus their in house design team versus any other solution providers.

And for the past, we view as whether we can really offering as a past company or as a platform company. And for the SaaS, it’s whether we are really running a SaaS based business. So for that part, the value propositions to show the competitiveness for us as a different role. So as I shared before that in the past, the range was so far between 47% to 48% was satisfied with that. For the SaaS, about 70% as a regular SaaS company, we’re good with that.

And for the solutions, our higher proposition is above 20%. I think that is good. So I think that’s a key part we managed it. And one of the reasons for the solutions, as you see can the solution margin declined slightly declined in Q2. Reason being that solution is more supply chain business more supply chain related.

And in Q2, we started offering some new solutions like the AI toys like I explained. So at the starting point of some new products or the new solutions and we have the space to come along with the scalability. So we’re offering at the lower margin, we think it’s fine. But to come along with our scale of the business, so we have more space that can free the cost. So I think that’s a key part.

So the most important thing for us is that to proven those solutions really worked out come along with the right end user demand and come with the competitiveness that we can help the customer to facing any falls. In the same time that’s come along with the scalability, we’ll be able to increase the operating leverage and the margin performance for the long run. I think that’s how we run that. You.

Matt Ma, Analyst, Jefferies: Thank you, Alex. That’s very helpful.

Conference Operator: Thank you. Seeing no more questions in the queue, let me turn the conference back over to Regina Wong for closing remarks.

Regina Wong, Investor Relations Senior Manager, Tuya: Thank you, operator, and thank you all once again for joining us today. If you have any further questions, please feel free to contact IR team of TUYA. Goodbye and see you next quarter.

Conference Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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