Pegatron Corp (和碩) expects earnings to begin improving next quarter as new products are launched ahead of the high-season in the second half of this year.
Sales this quarter would continue to see declines that persisted during the slow season in the first three months of the year, chief executive officer S.J. Liao (廖賜政) told a teleconference yesterday.
However, revenue contribution from laptop and desktop computers was expected to shrink by 10 to 15 percent, with non-information technology related products expected to be more resilient to the slump and see smaller declines, Liao said.
Total sales during the second quarter are expected to show a double-digit growth from a year earlier, Liao said, adding that the contract electronics manufacturer would see diminished foreign exchange pressure as the New Taiwan dollar weakens.
First-quarter results were a hard hit, as increasing competition and margin compression took a toll on the Taipei-based company.
Net income fell to NT$2.08 billion (US$69.63 million), down 46.4 percent from the same period last year, while earnings per share were NT$0.8, down from NT$1.51.
Sales rose 17.5 percent year-on-year to NT$280.89 billion, while gross margin dropped to 3.3 percent, from 5 percent, with operating margin plummeting from 2.3 percent to 0.8 percent.
Chief financial officer Charles Lin (林秋炭) said Pegatron did not see a significant decline in average selling prices in the past quarter.
However, it was not able to meet its goal of achieving efficiency gains through efforts at vertically integrating its subsidiaries, Liao said.
The manufacturer was also burdened with rising capital expenditure in a bid to expand capacity and initiate product transitions at its subsidiaries, such as Casetek Holding Ltd (鎧勝), a metal casing maker that recently secured a spot in Apple Inc’s supply chain.
Although competition has been tougher as rivals expand their production capacities and outpace demand growth in the sector, the company would continue its expansion plans, Liao said, noting that smartphones still represent the biggest demand for metal casing.
Vertical integration is part of the firm’s long-term strategy and some growing pains are to be expected, Liao said.
The firm has made the same leap as when it transitioned from the PC to the mobile era, while its subsidiaries, including Kinsus Interconnect Technology Corp (景碩), are transitioning to more advanced market segments and broader product mixes, and costs would be higher during the period, he said.
Kinsus is a silicon substrate manufacturing arm of Pegatron.
“In about two years we could see vertical integration plans begin to pay off and bring improvements to margins and shortened learning curve,” Liao said, adding that costs are expected to be higher during the process.
The company also has plans to cut its reliance on consumer products and tap into more stable revenue streams from commercial and industrial customers, he said.
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