August 22, 2018 / 11:43 AM / a year ago

Apple supplier AAC Tech posts first profit drop in four years on weak phone market

HONG KONG (Reuters) - AAC Technologies Holdings Inc (2018.HK), an acoustic components supplier to Apple Inc (AAPL.O), said on Wednesday second-quarter net profit fell for the first time in nearly four years, hit by plateauing iPhone sales and a sluggish global smartphone market.

Shares of AAC plunged almost 11 percent after the company said net profit dropped 39 percent from a year earlier to 653 million yuan ($95 million), the first quarterly fall since July-September 2014. The stock later recovered, closing 1.3 percent higher.

“Apple in terms of volumes is hitting a plateau this year, and while it has been successful in driving product prices and profits, volume stagnation affects its suppliers,” said Neil Shah, partner at Counterpoint Research.

AAC, which supplies acoustic and haptic components for Apple products such as the iPhone, iPad and Apple Watch, was estimated by research and brokerage firm Sanford Bernstein to derive half of its revenues from the U.S. tech giant.

While Apple reported better-than-expected results for the June quarter, shipment volumes for iPhone and iPad were almost flat from a year earlier.

AAC’s quarterly revenue fell 14.5 percent to 3.79 billion yuan, the biggest such drop since 2009, with margins also hit by a stronger yuan.

The company, which also supplies leading Chinese smartphone makers including Huawei Technologies [HWT.UL], said smartphone unit sales were weaker than expected in the quarter amid a shrinking global smartphone market.

AAC competes against China’s Goertek and US-based Knowles as one of the world’s largest acoustic component makers. Shah at Counterpoint said the increasing number of products with microphones, such as smart speakers and TVs represent a bigger business opportunity, but competition is also tough.

AAC managing director Richard Mok told a media briefing that the company expects better profit margins in the traditionally stronger second half of the year, citing growth potential for its new optic lens business.

The escalating China-U.S. trade war is not hitting the company directly at the moment, Mok said, with none of its products or components on the list of those imposed with higher tariffs.

AAC, whose shares have fallen 37 percent this year, said its permanent staff fell 27 percent in the first half to 38,176 as it adopted more automation, which analysts said implies cost savings for the second half.

Reporting by Sijia Jiang; Editing by Sai Sachin Ravikumar, Chang-Ran Kim and Manolo Serapio Jr.

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