Fri, Oct 14, 2016 - Page 12 News List

Largan capping manufacturing, despite expectations

LARGER FACILITIES:Dutsche Bank AG said that for Largan to increase its monthly output it needs to streamline its production, which the company hopes to do next year

By Crystal Hsu  /  Staff reporter

Handset camera lens supplier Largan Precision Co (大立光) yesterday gave a positive outlook for this quarter, saying business would fare stronger than last quarter, but unsatisfactory yield rates are capping its manufacturing capacity.

The Taichung-based company, which counts Apple Inc and Xiaomi Corp (小米) among its customers, said shipments are accelerating this month and beyond, backed by a continued migration of customers to high-end devices.

Lenses with 10 megapixels accounted for about 50 percent of its shipments last quarter, 8 megapixels contributed 30 percent and 5 megapixels the remaining 20 percent, Largan data showed.

As a growing number of handset brands introduce dual-camera lenses for their new-generation models, the trend might benefit Largan, Lin said.

Largan last week reported revenue of NT$4.95 billion (US$156 million) for last month, its highest monthly figure since November last year, with analysts staying positive on the company’s near-term outlook as the handset lens has become a seller’s market, in which Largan dominates.

The adoption of high-end devices benefited Largan’s gross margin, which rose to a record 68 percent last quarter, from 66.4 percent in the previous quarter, special assistant to the chief executive Josephine Huang (黃印嘉) said.

The continued decline in voice coil motor (VCM) business lent support to the profit margin because it generates thin profits, Huang said.

While Largan refused to comment on specific customers, better-than-expected iPhone 7 sales in the wake of Samsung Electronics Co’s troubled Galaxy Note 7 boosted Largan orders and profitability.

In the July-to-September quarter, Largan reported a net income of NT$6.96 billion, while revenue totaled NT$14.31 billion, Huang said.

The results represented a retreat of 15.9 percent and 11 percent from the same period last year because the company took a hit from foreign-exchange losses that eroded profit by NT$420 million, in addition to the decline in the VCM business, Huang said.

The New Taiwan dollar gained 3.87 percent against the US dollar in the third quarter, but depreciated 7.31 percent from a year earlier, allowing Largan and other exporters to reap a windfall.

“A strong NT dollar is unfavorable for Largan, but other things matter too,” Huang said.

Yield rates remain an issue that has constrained revenue growth, Lin said.

“Granted demand appears stronger this quarter, but the room for capacity increase is limited unless we can push up production yield rates,” Lin said.

The increasing variety in product models is raising difficulty for yield improvement unless the company can find solutions and upgrade its technology, Lin said.

Regarding the issue of capacity constraints, Deutsche Bank AG said in a note ahead of yesterday’s earnings conference that all Largan can do to increase its monthly output is “streamline production flows” in addition to improving yields for new products.

That is because Largan’s new Taichung factory is unlikely to be ready for mass production until the third quarter of next year, Deutsche Bank said.

Lin said the construction of the new and much larger manufacturing facility is expected to be completed by the end of second quarter next year and start mass production the following quarter.

The company is also taking part in major Internet of Vehicle development projects, but they are unlikely to generate significant earnings contributions in the foreseeable future due to the small volume, he said.

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