Pegatron Corp (和碩), one of Apple Inc’s iPhone assemblers, expects earnings to weaken further this quarter, possibly hitting their lowest point this year, due to a lower factory utilization rate and the effect of a stronger New Taiwan dollar.
Rising labor costs in China, following wage hikes that took effect on April 1, would also contribute to lower profitability, Pegatron chief financial officer Charles Lin (林秋炭) told a teleconference.
Pegatron expects its notebook shipments to contract 20 percent sequentially this quarter, and shipments of motherboards and desktop PCs to drop between 5 and 10 percent on seasonal weakness.
Its non-computing segment, which accounted for 75 percent of its total revenue of NT$238.99 billion (US$7.9 billion) last quarter, is forecast to fall “slightly” from the previous quarter on slow seasonal demand, the company said.
The non-computing segment includes iPhones, tablets and game console assembly.
Nonetheless, the company is purchasing new equipment and recruiting workers ahead of the peak season in the second half of the year, Pegatron chief executive officer S.J. Liao (廖賜政) said.
“It is crucial for us to be ready with equipment and workers before the end of June,” Liao said.
Apple, Pegatron’s largest client, is expected to launch its new generation of iPhone models in the second half of this year, with Pegatron expected to be the sole assembler of the US company’s 4.7-inch model.
Lin said Pegatron’s performance in the second half should outpace that of the first half.
However, the labor shortage in China presents an operating challenge, which could lead to higher labor costs and affect final assembly, he said.
“The labor shortage issue will affect factory utilization rates for both assemblers and component suppliers in the supply chain. Pegatron is paying extra attention to this issue,” Lin said.
Pegatron reported that net profit declined 5.36 percent year-on-year and 33.1 percent quarter-on-quarter to NT$3.88 billion, or NT$1.51 per share, last quarter.
The company attributed the earnings fall to exchange losses of NT$1.28 billion, as the NT dollar appreciated 6 percent against the US dollar in the first quarter, as well as low seasonal demand.
Gross margin dropped 0.78 percentage points annually to 5 percent last quarter, and operating margin fell 0.34 percentage points to 2.3 percent, company data showed.
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