Local analog chip designer Richtek Technology Corp (立錡) yesterday said its sales grew 78.78 percent to a record high of NT$1.095 billion (US$34.5 million) last month from a year earlier and that it expected sales this quarter to increase by between 7 percent and 18 percent to between NT$2.91 billion and NT$3.21 billion from the first quarter because of rising market demand.
In the January-to-March period, Richtek said it saw net income of NT$525 million, or NT$3.69 in earnings per share, on a revenue of NT$2.719 billion, but analysts said the Hsinchu-based company’s growth momentum was likely to slow down into next year because of intensifying competition from regional fabless peers.
While the company’s projected quarterly sales in the April-to-June period would post a new record high, vice president Chang Kuo-cheng (張國城) said yesterday he expected gross margin to fall to between 35 percent and 38 percent in the second quarter, from 37.7 percent in the first quarter and 38.8 percent in the fourth quarter of last year.
During a conference call with investors yesterday, Chang attributed the declining gross margin to the company’s product-portfolio strategy in shipping more lower-margin notebook products to gain market share over its US and local competitors.
FOUNDRY SUPPLY
In addition, Chang said the company’s lowered gross margin guidance for the second quarter was also the result of tight foundry supply that is affecting its 8-inch (200mm) capacity ramp.
He did not specify the size of Richtek’s market share in notebook products, saying only that the company would “improve the cost structure of notebook products” to deal with the gross margin problem.
Operating margin, meanwhile, would be between 19 percent and 22 percent in the current quarter compared with 21.7 percent in the first quarter, Chang said.
In the first three months, computing applications accounted for 67 percent of total sales, up 5 percentage points from the previous quarter because of higher demand in the notebook business, according to the company’s financial sheet.
Sales of communications products fell 4 percentage points to account for 18 percent of the total, while those of consumer electronics items declined slightly to 10 percent.
Ahead of yesterday’s conference call, analysts had already raised concerns about the company’s earning growth prospects, should new products, such as LED lighting, fail to show successful results.
CAUTIOUS
Citigroup analyst Timothy Lam (林子謙) said in a client note yesterday he was cautious about Richtek, which saw its shares plunge by the daily limit to NT$299 in Taipei trading.
He expected more downside risks ahead because of “expensive valuation and double-booking risk by its customers.”
“The ramp in notebook products will likely drag on its overall margins and limit upside to earnings. In addition, Richtek will still likely face increasing competition from existing IDMs and potential second-quarter inventory over-build by its customers,” Lam wrote in the note, referring to integrated device manufacturers who design and produce chips in their own factories.
Also, the company is likely to face pricing pressure in the second half of the year as its migration to 8-inch production from 6-inch appears to be gradual and will only see a meaningful contribution next year, Lam added.
Citigroup offered a “sell” rating on Richtek shares with a target price of NT$232. This was compared with Yuanta Securities Corp’s (元大證券) target price of NT$300, also with a “sell” recommendation.
Separately, the company’s board also approved a proposal to distribute an NT$8 cash dividend per share and a 5 percent stock dividend (50 shares per 1,000 held) to shareholders.
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