In a much-anticipated management reshuffle, the world’s top touchpanel maker, TPK Holding Co (宸鴻), picked former Hon Hai Precision Industry Co (鴻海精密) executive Michael Chung (鍾依華) as its new chief executive last week in a bid to halt its declining profitability after losing orders from Apple Inc.
Chung’s appointment created a stir in the local stock market even before the appointment was confirmed. TPK’s share price surged 17 percent in the week ending Oct. 31, outpacing the weighted index’s 2.4 percent gain as speculation swirled that Chung would take the job at TPK.
That is because of Chung’s close relations with Apple executives — including CEO Tim Cook — as he was in charge of Hon Hai’s iPhone and iPad assembly business for most of his 20-year career at Apple’s major manufacturing partner. His hiring also fueled speculation that TPK might gain more orders from Apple, given his familiarity with the US firm.
CIMB Securities, Taiwan head of research Eric Lin (林育名) said that the gain in TPK shares also showed that “the market is positive on the company’s reorganization and better earnings in the coming quarters with the launch of Apple Watch.”
On top of that, Chung was once believed to be at the top of a short list of potential successors for Hon Hai chairman and CEO Terry Gou (郭台銘), before he left the company in May last year due to health problems. Managing a smaller company like TPK, with a market value of NT$60.09 billion (US$1.96 billion), should be easier than dealing with Hon Hai, with its NT$14.45 trillion market cap.
“We hope Chung can use his management skills to help TPK’s operation migrate to the next stage... We hope he can also use what he learned from Gou to improve TPK’s operation,” TPK chairman Michael Chiang (江朝瑞) told a media briefing right after the appointment.
“A 3 percent to 5 percent improvement in operating expenses would make a big difference in this highly competitive [touchpanel] industry,” Chiang said.
To achieve that goal, Chung, 53, said his priority was to reshape the culture of the company by infusing some of Hon Hai’s culture — its so-called “wolf-like” instincts — into TPK’s “mild” culture.
“I want to raise cost and competition awareness among our employees,” Chung said.
He plans to divide the company into several business units either by product or by client. Each business unit will be a profit center, he said.
“TPK has good technologies and good talent, but it needs to slim down a bit and to increase its flexibility,” he said.
Chung added that he would push for further yield improvement, especially for TPK’s touch-on-lens (TOL) production line.
“Boosting production yields to an optimal level can save a lot of costs,” he said.
However, the most important thing is learning to strike a balance between production and market demand, Chung said.
A successful company has to be good at two things — new product development and maintaining a balance between manufacturing and orders — as he learned from Gou, said Chung, who considers the Hon Hai chief his mentor.
“TPK now is facing the difficulty of bringing production and orders to a parity,” he said.
TPK is struggling to fill customers’ orders because of poor manufacturing yields. Its TOL yield remains poor, reaching 80 percent only occassionally, Chung said.
TOL is one of TPK’s major touchpanels for tablets and computers.
Chung aims to reduce the company’s operating expenses by 3 to 5 percent over the next three to six months.
As for oft-asked question of whether TPK could win back more orders from Apple, Chung said: “If we can enhance our strengths, I believe we will have orders. We have long been on Apple’s [supplier list].”
In 2007, TPK supplied touchpanels to Apple for its first iPhone, but the US company turned to Japanese suppliers when it adopted in-cell touch panels for its iPhone 5 series in 2012.
Analysts are still waiting to see how Chung’s appointment pans out.
“We believe Chung’s [restructuring] plans will take time to materialize, so we are maintaining our ‘reduce’ rating,” Lin said.
UBS analyst Arthur Hsieh (謝宗文) said he was also retaining his “neutral” rating on TPK.
“We believe it will take some time for the changes at TPK to have a positive impact,” Hsieh said.
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