Compal Electronics Inc (仁寶), which has been contracted to assemble Apple Watches, yesterday said it expects non-PC product shipments to grow between 15 and 20 percent year-on-year next quarter, as it is to start shipping new products for a key customer by summer at the earliest.
The company has for years been working to diversify into new areas in search of growth beyond the sputtering PC industry. It last year made significant progress as its non-PC business was responsible for more than 30 percent of its overall revenue totaling NT$887.66 billion (US$30.4 billion).
Compal broke into the Apple Watch supply chain in the first half of last year, ending Quanta Computer Inc’s (廣達) position as sole assembler for the US firm.
“We have invested resources in developing new products in the fourth quarter of last year, which will put pressure on the margin in the non-PC segment in the initial stage,” company president Ray Chen (陳瑞聰) said in response to an investor’s question about Compal’s venture into smart watches and, more specifically, the Apple Watch. “We will ramp up production of the product by late second quarter this year, or early third quarter.”
To cope with growing demand for smart watches, Compal is adding capacity in the form of a new production line in Chongqing, southeastern China, Chen said.
Compal expects shipments of non-PC products this year to grow 20 percent year-on-year from 40 million units last year, he said.
On the PC front, the company expects shipments to increase 15 to 20 percent next quarter from the first quarter.
PC shipments are forecast to show a single-digit percentage increase from last year’s 40 million units, thanks to robust demand for gaming PCs and replacement demand for commercial models from enterprises, Compal said.
Compal expects to continue to outgrow the notebook computer industry, which is forecast see anything between 2 percent growth and a 2 percent decline this year, Chen said.
The company yesterday said that net profit tumbled 29 percent to NT$5.75 billion from NT$8.13 billion in 2016, due to a one-off write-off on its business with China’s Leshi Internet Information and Technology (LeEco, 樂視).
That translated to earnings per share of NT$1.32, down from NT$1.88.
The write-off has eroded Compal’s full-year earnings to NT$0.82 per share, the company said.
Gross margin shrank to 3.6 percent last year, from 4.3 percent in 2016, which the firm said was due to higher component and labor costs.
Compal said it is negotiating with its customers to raise manufacturing prices to help absorb price hikes in passive components and other raw materials.
Despite the earnings contraction, Compal intends to keep its payout ratio stable at between 50 and 60 percent this year, Chen said.
That could bring cash dividend distribution to between NT$1.07 and NT$1.284 per common share, as the LeEco write-off would not be included in the calculation.
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