TPK Holding Co (宸鴻), which supplies touch panels for Apple Inc’s smart watches and iPads, unexpectedly swung into the red last quarter due to weaker-than-expected sales of its largest client’s products, company executives said yesterday.
The touchpanel maker reported a net loss of NT$2.4 billion (US$75.11 million) for the April-to-June quarter, expanding from losses of NT$618 million in the same period last year.
Loss per share was NT$7.28, compared with a loss per share of NT$1.77 last year.
The company posted a net profit of NT$5.2 million in the first quarter, or earnings per share of NT$0.15.
“The poor performance was mainly due to an unfavorable product portfolio because of the largest client’s piling inventories,” chief executive officer Michael Chung (鐘依華) told an investors’ conference in Taipei.
TPK did not disclose the name of the client, but it is widely believed that Apple Inc is the company TPK was referring to.
Due to the declining shipments of the client’s products, Chung said the capacity utilization rate of its product lines for the major client all dropped below TPK’s breakeven level, the first time for TPK since its collaboration with the client.
“The reduced production volume for the client was the main reason TPK’s performance dropped last quarter. Our business with other clients remained profitable over the same period of time,” Chung said.
In addition to the major client’s weak sales of its products, Chung said the yield rate of new wearable products for the client was also lower than TPK’s estimate, due to more complicated-than-expected production processes.
Chung said the complicated production processes affected not only TPK, but also the upstream and downstream suppliers for the wearable product last quarter.
Chief financial officer Freddie Liu (劉詩亮) attributed 70 percent of TPK’s net loss of NT$2.4 billion last quarter to the major client’s declining products shipments and the low yield of the new wearable device.
Therefore, the company’s gross margin plunged to minus-9.29 percent last quarter, compared with last year’s 2.11 percent and the prior quarter’s 2.35 percent.
This was the first time in many years that TPK’s gross margin was in negative territory, he added.
Operating margin was minus-16.05 percent last quarter, dropping deeper from last year’s minus-4.69 percent and the negative 1.68 percent seen in the previous quarter, he said.
Looking ahead, Chung said he expects the revenues and profitability this quarter could improve largely from last quarter on the back of the upcoming massive production for the largest client’s new products, including smartphones and tablets.
The production will improve TPK’s production utilization rate, benefiting the company’s overall operations, Chung said.
Yuanta Securities Investment Consulting Co (元大投顧) said TPK’s massive losses in the second quarter were a big surprise, derived from the low loading rate on iPad production and the poor yield on the Apple Watch.
“While this could be seen as a ‘must do’ to secure customer relationships, its return profile looks very disappointing,” Yuanta analyst George Chang (張家麒) said in a client note.
The brokerage cut its 12-month price target on TPK to NT$75 from the previous estimate of NT$85, compared with the closing price of NT$65.3 yesterday.
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