Tue, Mar 13, 2018 - Page 12 News List

Sercomm earnings sink on higher costs, FX rate

By Lisa Wang  /  Staff reporter

Telecom equipment maker Sercomm Corp (中磊) yesterday posted a 9.4 percent annual contraction in net profit for last quarter as higher component costs and an unfavorable foreign exchange rate eroded its gross margin.

Net profit fell to NT$376 million (US$12.84 million) in the final quarter last year, compared with NT$415 million during the same period the previous year. Earnings per share (EPS) shrank to NT$1.53 from NT$1.7.

On a quarterly basis, net profit slid 3.3 percent from NT$389 million in the third quarter last year.

Gross margin edged lower to 13 percent last quarter from 13.1 percent the previous quarter and from 15.3 percent a year earlier.

For the full year, net profit shrank 10.3 percent to NT$1.31 billion from NT$1.46 billion in 2016. EPS dropped to NT$5.38 from NT$6.02. Gross margin sank to 13 percent from 14.6 percent.

“It was an uphill battle to hold gross margins steady at 13 percent last quarter, as the company faced increasing pressure from higher prices,” Sercomm president James Wang (王煒) told investors.

In particular, price increases in memory chips and passive components showed no signs of abating since they started climbing in the first half last year, Wang said.

Sercomm stopped taking orders from Chinese clients in November and December in an attempt to stave off further gross margin erosion, Wang said.

Higher key component prices and a strong New Taiwan dollar shaved more than 3 percentage points from the company’s gross margin, Wang said.

Sercomm has managed to offset part of the erosion by shipping more higher-margin products, such as fixed-mobile products, he said.

Fixed-mobile products accounted for 25 percent of the company’s total revenue last year of NT$38.6 billion, almost doubling from 14 percent in 2016, the company’s financial statement showed.

“We are going to boost [shipments] of higher-margin products, while moving away from lower-margin commodity products,” Wang said.

With the fast-growing deployment of Internet-of-Things (IoT) applications, the company plans to create a new category for this segment. The company expects high-margin narrowband IoT (NB-IoT) products to account for 10 to 15 percent of the company’s revenue by 2020.

The company saw growing IoT momentum from applications such as water and electric meters, street lamp control, industrial IoT and some agricultural applications.

Aside from organic growth, abundant cash flow, which stood at NT$6.48 billion at the end of last year, raises the likelihood of merger-and-acquisition opportunities for the firm.

Sercomm’s board yesterday approved a proposal to distribute cash dividends of NT$3.75 per common share. That represented a payout ratio of about 70 percent based on last year’s EPS of NT$5.38.

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