Fri, Mar 15, 2019 - Page 12 News List

Pegatron profit falls on cost increases

SALES SLUMP:The iPhone assembler expects revenue to drop sharply this quarter as the electronics sector enters its slack season and given a high base last quarter

By Lisa Wang  /  Staff reporter

Pegatron Corp (和碩), one of Apple Inc’s iPhone assemblers, yesterday said that net profit for last quarter shrank 12.2 percent annually as higher manufacturing costs for the new iPhone XR squeezed margins.

Net profit slumped to NT$3.27 billion (US$105.82 million) in the quarter that ended on Dec. 31 last year, from NT$3.73 billion three months earlier.

Earnings per share (EPS) dropped to NT$1.25 from NT$1.42.

Gross margin slid to 2.6 percent last quarter, hitting the lowest level since the final quarter of 2015, the company said.

For last year as a whole, net profit declined 24.3 percent to NT$11.12 billion, from NT$14.68 billion in 2017, marking the weakest showing in five years. EPS fell to NT$4.25 from NT$5.66.

Last year’s EPS fell short of Yuanta Securities Investment Consulting Co’s (元大投顧) estimate of NT$4.76 per share.

“As a customer’s new products hit the market later than usual, we had to book higher manufacturing costs for the early stage [of the learning curve] for the fourth quarter,” Pegatron chief financial officer Charles Lin (林秋炭) told a teleconference.

Lin said that precisely managing a manufacturing “learning curve is key” to maintaining sound margins.

Contract manufacturers’ biggest challenge is knowing when to install the right number of workers, capacity and raw materials for new product ramp-ups, he said.

To tackle labor shortages and rising wages in China as well as avoid US tariffs on Chinese goods, Pegatron has allocated a production line to a Southeast Asian nation and plans to invest in another one in the second half of the year, Lin said.

India will be on the company’s short list as well, he said.

As the electronics sector is entering its slack season, the company would experience a “more dramatic correction” in revenue this quarter, compounded by a higher base of NT$465.85 billion in the final quarter of last year, he said.

Revenue this quarter would be little changed from the first quarter of last year, when it reached NT$280.89 billion, Lin said.

That implies a sequential fall of nearly 40 percent.

“The trough for this year would be the second quarter,” he added.

Pegatron chief executive officer S.J. Liao (廖賜政) also gave a conservative outlook for the full year.

“It is a challenging year... The US-China trade dispute remains unresolved,” Liao said. “Sales of our client’s older-generation products [have begun to slide] after peaking, while new products are not on the horizon yet.”

To weather this tough period, Pegatron will continue to broaden its product portfolio to cover automotive, Internet of Things (IoT), medical devices and electric vehicles, Liao said.

Pegatron also plans to scale back capital expenditure to between US$200 million and US$250 million this year, compared with the US$300 million it spent last year.

The company’s board of directors yesterday approved a proposal to distribute a cash dividend of NT$3.5 per share, implying a payout ratio of 82.35 percent.

With shares closing at NT$54.20 yesterday, that translates into a dividend yield of 6.46 percent.

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