Largan Precision Co (大立光), a key iPhone lens supplier, yesterday reported that its gross margin increased to 49.4 percent in the first quarter this year, the best in three quarters, thanks to eased inventory write-downs.
The figure remained lower than the 54.63 percent margin a year earlier, weighed down by low yields on some products, and higher fixed capital and electricity costs, Largan chairman Adam Lin (林恩平) said at an earnings conference.
The outlook for gross margin this quarter hinges on the share of advanced smartphone models in shipments and the improvement in labor efficiency, he said.
Photo: David Chang, EPA-EFE
During the January-to-March period, Largan’s revenue increased 7 percent year-on-year to NT$15.54 billion (US$492.5 million), while net profit fell 5 percent to NT$6.12 billion, or earnings per share of NT$46.63, the company said.
This month, revenue is expected to fall from last month’s NT$5.42 billion, with a further decline projected for next month due to the off-season effect, Lin said.
That is also because elevated memory prices are pushing up handset prices and weighing on end demand, he said.
On Tuesday, International Data Corp reported that the global smartphone market fell 4.1 percent year-on-year in the first quarter. Counterpoint Research last week said first-quarter smartphone shipments fell 6 percent from a year earlier.
Some smartphone clients have scaled back camera specifications or delayed upgrades due to rising costs, Lin said, adding that Largan would forgo orders if they adversely affect its profitability.
While factory utilization this quarter is expected to be lower than in the fourth quarter last year, it is still relatively tight and could return to full capacity in the second half of this year, the chairman said.
Among the key takeaways during the earnings conference was the company’s push into the co-packaged optics (CPO) business to supply collimator components. Lin said.
Largan is not developing a complete CPO solution at this stage, but rather focusing on the key component for CPO — fiber array unit (FAU) — which is crucial for optical interconnects at artificial intelligence servers.
Manufacturing the FAU component is more challenging than phone lenses, as key technical challenges lie in improving alignment and precision, Lin said.
Due to the lack of suitable equipment on the market, Largan has to develop the necessary equipment in-house, he added.
The company is preparing to send its FAU samples to customers for testing, Lin said.
Even after gaining client certification, mass production could take one to two years as the company builds up production and overcome yield and specification challenges, he said.
As such, smartphone lenses would remain Largan’s core business this year, Lin said.
Largan’s capital expenditure last quarter totaled NT$2.39 billion, he said.
The company has not observed a significant rise in raw material prices amid Middle East tensions, but it has been building inventory to mitigate potential risks, he said.
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