Analogy IC's gross profit margin may decline this quarter

With the influx of international hot money, the appreciation of the NT dollar is unstoppable, and with the acquisition of National Semiconductor (NB) by Texas Instruments, the expansion has become more and more active. The analog IC groups such as Lichi (6286), Zhixin and Xiebian have become more active in China. Being hit by both sides, the gross profit margin in the second quarter is facing severe challenges.

The global analog IC leader, Texas Instruments, has accelerated its expansion. The first 12-inch analog IC fabs have already started production earlier this year. Recently, they have spent more on US$6.5 billion to acquire national semiconductors. They have mastered the absolute advantages in production capacity and process, and the industry has become more competitive. In this season, the gross profit margin of the domestic analog IC group has significantly declined.

The domestic analog IC factory gradually introduced 8-inch wafer process from 6-inch, hoping to reduce costs, but the effectiveness was offset by the strong exchange rate of the Taiwan dollar. Recently, the exchange rate of the New Taiwan dollar against the US dollar once rose above 28.5 yuan, hitting a 13-year high, which is aggravating the analogy of the IC group, which has a relatively small scale of operation and lacks too many safe haven tools.

Li Kuang, Deputy General Manager and General Manager Zhang Guocheng once said that the value of the NT exchange rate against the U.S. dollar will rise by 1 yuan per unit, and the gross profit margin of the company will drop by 0.3 to 0.5 percentage point.

The gross profit margin of Li Zhi in the first quarter was 37.36%, down from 37.8% in the fourth quarter of last year. This season, coupled with the NT dollar appreciation spoils, gross margin may further decline, Li Wei estimated that the gross profit margin for this quarter is approximately between 35% to 38%, facing 35% of the checkpoint battle. Foreign-funded Merrill Lynch believes that if the NTD continues to appreciate and market competition intensifies, it will be difficult to return the gross margin to 40%.

In the second quarter of Zhixin and Analog's division, the gross profit margin also faced 30% checkpoint defense. The first quarter of the new season performed well, with revenue up 8.5% from the fourth quarter of last year. However, the gross profit margin also fell from 31.7% in the previous quarter to 31.1%.

In the fourth quarter of last year, the company introduced a foreign exchange loss of nearly 100 million yuan, which eroded the profit per share by more than 1 yuan. The new general manager Wu Jinchuan admits that if the NTD is still at a level of around 28.5 yuan at the end of the quarter, the new second quarter gross margin pressure will not be small.

Analogicals also faced a similar situation. The first quarter revenue surged 91.6%, but the gross profit margin reversed 1.89 percentage points, dropping 30.51%. Analogic Branch estimates that for every NT$1 appreciation, gross margins will be reduced by two percentage points.

Analogic expects that the second quarter revenue will fall compared to the first quarter, reducing the size of the economic backing, compared to the 30% margin of the branch's gross margin this quarter is in jeopardy.