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Epistar Aims to Turn Around Losses in 3Q16 Despite Challenges Ahead

2016-08-15

Top LED chip manufacturer Epistar’s shipment volume rose in second quarter, and the company revenue climbed up on the back of easing price falls, but still faces financial challenges ahead, reported Taiwanese media Money DJ.com.

The company projects the peak season in third quarter will support revenue growth, and its fabs will reach full utilization rate capacity, which would improve its operations.

Despite the optimistic outlook, losses incurred from first half of the year still present significant challenges. For second quarter of 2016, Epistar was still in the red due to non-recurring loss and impairment loss that resulted in consecutive quarter of losses.

Epistar is a large LED EPI-wafer or chip manufacturer and its products are applied in panel backlights, lighting, LED billboards, automotive lighting and other niche lighting markets. The company’s six LED EPI-wafer fabs are located in different regions in Taiwan and China. Most of its LED products are for TV backlight applications, displays, notebook displays, monitors, and surveillance cameras. The company’s highlighted product for 2016 include package-free CSP LEDs, AlInGaP LEDs, and IR LED products.

Impacted by restructures in the LED industry, the company operations are gradually being readjusted. Epistar’s will mainly be adjusting its production capacity, and optimizing its product portfolio. Rising LED shipment volumes in second quarter, and temporary halt in LED price falls drove up the company’s revenues resulting in positive gross margins for second quarter and reduced operation losses. Yet, escalating non-recurrent losses and impairment losses resulted in wider net losses in second quarter compared to the previous quarter in 2016, and escalated losses compared to the same period last year.

The company stated losses incurred during second quarter were not caused by cash expenditures, but by terminating production at affiliated Nanya Photonics Inc. (NPI), which halted production of LED dies in the future, and will be transferring its focus to making end lighting products. Secondly, the company listed manufacturing equipment it stopped using in China as part of impairment losses. Lastly, due to many listed non-recurring losses, the company expects its operations to improve in third quarter as its operations encounter fewer interference from none-operating factors. Additionally, the company has reached full utilization rates, which is expected to improve its operations.

Epistar’s revenues for second quarter of 2016 climbed up 8% quarter-on-quarter, but downed 3% annually, to reach NT $6.56 billion. The company’s gross margin performance was still lower than that from the same period last year, which reached about 9.91%. For second quarter the company recorded a revenue loss of NT $432 million. In addition, listed nonrecurring losses, lowered credit ratings and impaired losses drove its total net loss for the quarter to NT $1.75 billion. Its net losses escalated quarterly and annually.

The company’s accumulated revenue for first half of 2016 reached NT $12.61 billion and downed 6%, while operating losses reached NT $1.87 billion, while net losses peaked to NT $3.39 billion.

The company’s revenue in July 2016 rebounded to NT $2.18 billion, up 3.5% Month-on-Month, and 3.3% Year-on-Year. For the first seven months of 2016, the company recorded a total revenue decline of 4.7% YoY to NT $14.79 billion. Financial institutes estimate for third quarter Epistar’s revenue might achieve single digit growth rates, and report a total annual revenue increase of 10%. The company’s gross margins might be able to further advance, and present opportunities for it to turn around losses. 

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