Pegatron Corp (和碩) yesterday said that it would continue vertical integration efforts to reduce costs after the its earnings and profitability took a hit in the past quarter.
The the second-biggest assembler of Apple iPhones reported that net income in the second quarter of the year dropped 26.2 percent annually to NT$2.72 billion (US$88.81 million), with revenue rising 12.8 percent annually to NT$271.26 billion.
Earnings per share fell to NT$1.12 last quarter from NT$1.34 in the same period last year.
The revenue contribution from consumer electronics in the April-to-June quarter surged 44 percent annually, benefiting from new customers’ launches of products, including Internet of Things devices and smart watches, the company said.
A weaker New Taiwan dollar also brought in NT$1 billion in foreign exchange gains, the company said.
However, the company saw its gross margin dip to 3.2 percent, from 4.6 percent in the same period last year.
Operating income fell 62.7 percent annually to NT$1.61 billion, down from NT$4.39 billion, while operating margin tumbled 1.2 percentage points to 0.6 percent, from 1.8 percent.
Pegatron blamed a lower capacity utilization rate following a wave of expansion at its subsidiaries in the second half of last year, as well as higher inventories, for the contraction in profitability.
Intensifying competition from Chinese rivals and rising wages at the company’s Chinese production bases also dragged on profitability, it added.
Amid widening losses at its subsidiaries, the company would stay the course on vertical integration, which would keep it competitive, Pegatron chief executive S.J. Liao (廖賜政) said yesterday during an earnings teleconference.
“In the past, delayed shipments from our partners have put our production lines on halt, and we hope that a more vertically integrated approach would prevent such issues in the future,” Liao said.
Looking ahead, the company expects to see notebook shipments rise 15 to 20 percent sequentially this quarter, while desktop computer shipments will continue to decline about 10 percent, it said.
The company’s top line is expected to see stable quarterly growth during the traditional peak season in the second half, Liao said.
Based on last year’s experience, the company might see 100 percent capacity utilization during the peak season, but it is difficult to predict how long the hot streak would last, Liao said.
“The peak season could last between one and four months,” he said.
Components makers and assemblers would be better prepared to weather the persisting shortage of passive components in the second half, he said, adding that during the first half, the global supply chain was caught off-guard by sudden production cuts announced by Japanese manufacturer Murata Manufacturing Co.
The company is also prepared to use production capacity at its plants in Mexico, Taiwan, Southeast Asia and India to mitigate impacts from the escalating US-China trade war.
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