Decline in Vanguard's Net Profit by 15 Percent
Vanguard International Semiconductor Corp's Profit Squeezed by Stronger New Taiwan Dollar
Vanguard International Semiconductor Corp (VIS) has reported a 15% decrease in net profit sequentially in the last quarter, with the appreciation of the New Taiwan dollar (NTD) being a significant factor in this decline. This comes despite an increase in wafer shipments, indicating that the stronger NTD offset the benefits of higher sales volume.
The company forecasts moderate semiconductor market conditions and implies that margin pressure will continue due to foreign exchange factors, specifically the strong NTD. This aligns with broader industry trends, as other Taiwanese chipmakers like TSMC also report margin pressure from the NTD’s strength against the US dollar, which reduces revenue and gross profit margins even when sales are largely in US dollars.
The stronger NTD has negatively affected VIS's profit, contributing to the quarterly decline in their second-quarter net income. VIS expects ongoing margin pressure linked to currency shifts. This is consistent with the semiconductor sector in Taiwan, where currency appreciation negatively impacts margins because earnings are reported in NTD but many sales are in USD.
Despite these challenges, VIS maintains a positive outlook for the growth momentum for power management chips, which contribute about 70% of its total sales. The company also expects the growth momentum for high-performance computing and industrial applications to continue into the third and fourth quarters.
Looking ahead, VIS has order visibility of three months. The average selling prices of Vanguard's products are anticipated to increase by 1% to 3% sequentially. Revenue from 0.18-micron and more advanced technologies is expected to increase from the previous quarter.
VIS is also investing heavily in its new 12-inch fab in Singapore, with about 90% of its capital expenditure budget allocated for this project. The company expects higher equipment depreciation costs from this new fab, but it is optimistic about the long-term benefits of this investment.
Customer demand for Vanguard's products is gradually increasing, and the company is gaining market share from competitors due to customers shifting power management chip orders out of China. VIS's factory utilization rate is expected to rise to 80% this quarter.
In conclusion, while the stronger NTD is a significant headwind dampening VIS’s profitability and expected to continue exerting pressure on margins, the company remains optimistic about its growth prospects in the power management chip market and the high-performance computing and industrial applications sectors. The ongoing investment in its new 12-inch fab in Singapore is a testament to this optimism, and the company is well-positioned to capitalize on the opportunities in these markets as they arise.
[1] Taiwan News [2] Reuters [3] Nikkei Asia
- The strong New Taiwan dollar (NTD) has impacted VIS's finance, causing a decrease in net profit and margin pressure, as the appreciation of the NTD reduces revenue and gross profit margins, even when sales are largely in US dollars.
- VIS, despite facing margin pressure due to the strong NTD, expects growth momentum in the power management chips, high-performance computing, and industrial applications sectors, thereby highlighting the resilience of the technology industry in the face of currency fluctuations.
