Fri, Apr 27, 2012 - Page 11 News List

Largan posts record-low margins in first quarter

WEAKNESS AHEAD:The lens manufacturer forecast a double-digit decline in revenue this quarter because of continuing inventory adjustments by major customers

By Kevin Chen  /  Staff reporter

Largan Precision Co (大立光), the nation’s largest maker of handset lenses, yesterday reported record-low gross and operating margins in the first quarter and said it expected margins to fall further this quarter owing to weak customer demand.

The Greater Taichung-based company, which counts phone makers such as HTC Corp (宏達電), Apple Inc, Research In Motion Ltd and Nokia Oyj as major customers, saw its gross margin slide to 38.5 percent in the first quarter, from 39.72 percent in the previous quarter and 42.5 percent a year ago, according to a company statement.

Its operating margin also fell to 30.51 percent in the first quarter, from 31.72 percent in the previous quarter and 32.93 percent the year before, the company said.

In an online conference call with investors and analysts yesterday, CEO Adam Lin (林恩平) blamed the declining profitability in the first quarter to lower revenue, which fell 9.28 percent to NT$3.64 billion (US$123.8 million), from NT$4.01 billion in the previous quarter, as well as foreign currency exchange losses and lower deduction for business income tax.

During the January-March quarter, Largan made a net income of NT$882.44 million, or earnings per share of NT$6.58, down 23.95 percent from the previous quarter and 26.13 percent from a year earlier.

While the first quarter is a slow season for the global tech industry, with sales usually picking up in the second quarter, Lin said that would not be the case for Largan this year despite new smartphone launches by HTC.

Lin said the number of customers adjusting their orders downward outweighed those adjusting them up in the second quarter, adding that market sentiment remained cautious amid uncertainty over the global economy.

Lin did not specify which customers were cutting orders this quarter. He only said the company expected a double-digit sequential decline in revenue this quarter, while higher sourcing costs linked to a key component — voice coil motors (VCM) — would continue to squeeze profit margins.

“Based on current order visibility, the company is likely to see stronger sales growth in the second half of this year,” he said.

A breakdown of the company’s sales showed that handset lenses accounted for 95 percent of overall sales in the first quarter, while those used in digital cameras and multifunctional projectors accounted for 3 percent and 2 percent respectively.

Largan said it saw increased shipments of high-end 8-megapixel (MP) lenses, which accounted for about 50 percent of total handset lens shipments in the first quarter.

They would continue to be the main revenue driver this year, it said.

However, rising sourcing costs for VCM — one of the three auto focus actuator technologies used in camera lenses — which Largan assembles with the 8MP lenses, would continue to erode the company’s gross margin, Lin said.

Largan closed down 0.19 percent at NT$536 on the Taiwan Stock Exchange yesterday before first-quarter results were released.

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