Phison: Fiscal 2Q23 Financial Results

Phison Electronics Corp. discloses its financial results for 2FQ23 ended ended June 30, 2023.

Financial Measures

• The consolidated operating revenue for this quarter is NT$10.007 billion, a decrease of 0.7% from 1FQ23 and a decrease of 38.6% compared to 2FQ22.
• The consolidated gross margin rate for this quarter is 32.5%, an increase of 0.7% from 1FQ23 and an increase of 2.1% compared to 2FQ22.
• The consolidated operating income for 2FQ23 is NT$0.717 billion,  a decrease of 14.4% from 1FQ23 and a decrease of 62.6% compared to 2FQ22.
• The consolidated net income for 2FQ23 is NT$0.441 billion, with earnings per share of NT$2.28.

Consolidated Revenue
The consolidated operating revenue for 2FQ23 was NT$10.007 billion, representing a decrease of 0.7% compared to 1FQ23 and a decrease of 38.6% compared to 2FQ22.

Consolidated Gross Profit and Gross Margin
The consolidated gross profit for 2FQ23 is NT$3.25 billion, reflecting a 1.5% increase fro 1FQ23 and a 34.3% decrease from 2FQ22. The consolidated gross margin for 2FQ23 is 32.5%, marking a 0.7% increase from 1FQ2 and a 2.1% increase from 2FQ22.

Consolidated Operating Expenses
The operating expenses for 2FQ23 amounted to NT$2.533 billion (25.3% of operating revenue), compared to NT$2.364 billion (23.5% of operating revenue) in 1FQ23, and NT$3.027 billion (18.6% of operating revenue) for 2FQ22.

Operating expenses for the quarter included:

• R&D expenses totaled NT$1.983 billion (19.8% of operating revenue), which is lower than 1FQ23’s NT$2.000 billion (19.8% of operating revenue) and lower than 2FQ22’s NT$2.390 billion (14.7% of operating revenue).
• Marketing expenses amounted to NT$0.3 billion (3.0% of operating revenue), higher than 1FQ23’s NT$0.262 billion (2.6% of operating revenue) and lower than 2FQ22’s NT$0.317 billion (1.9% of operating revenue).
• General and administrative expenses were NT$0.19 billion (1.9% of operating revenue), higher than 1FQ23’s NT$0.178 billion (1.8% of operating revenue) and lower than 2FQ22’s NT$0.329 billion (2.0% of operating revenue).

Consolidated Operating Income and Operating Margin

• The operating income for 2FQ23 is NT$0.717 billion, which is a decrease of 14.4% from 1FQ23 and a decrease of 62.6% from 2FQ22.
• The operating profit margin for 2FQ23 is 7.2%, lower than 1FQ23’s 8.3% and also lower than 2FQ22’s 11.8%.

Consolidated Non-Operating Income (loss) and Income Tax
The non-operating loss for 2FQ23 was NT$0.067 billion, or (0.7%) of revenue. This is mainly due to the shares of loss of associates accounted for using the equity method and gains on financial assets at fair value through profit or loss. The income tax expense for 2FQ23 was NT$0.21 billion.

Consolidated Net Income, Net Profit Margin and EPS

• The net income for 2FQ23 is NT$0.441 billion, an increase of 82.0% from 1FQ23 and a decrease of 75.6% from 2FQ22.
• The net profit margin for 2FQ23 is 4.4%, higher than the 1FQ23’s 2.4% and lower than 2FQ22’s 11.1%.
• Earnings per share (EPS) for 2FQ23 are NT$2.28, higher than 1FQ23’s NT$1.26, and lower than 2FQ22’s NT$9.17.

Consolidated Cash and Financial Assets-Current
Cash and Financial assets at fair value-current at the end of 2FQ23 was NT$13.366 billion, which presents 24.7% of total assets. Cash and Financial assets at fair value-current was NT$10.662 billion in 1FQ23 and NT$16.825 billion for 2FQ22, respectively. Financial assets-current portfolio includes funds, domestically listed stocks and derivatives and so on.

Consolidated Accounts Receivable
The net accounts receivable for 2FQ23 total NT$6.509 billion, with an average accounts receivable turnover of 63 days (calculated based on the average net accounts receivable for 2FQ23 and the annualized current sales revenue), which is higher than the 60 days of 1FQ23 and also higher than the 47 days of 2FQ22.

Consolidated Inventory
The net inventory for 2FQ23 amounts to NT$20.590 billion, with an average inventory turnover of 274 days (calculated based on the average net inventory for this quarter and the annualized cost of goods sold), which is lower than the 277 days of 1FQ23 and higher than the 170 days of 2FQ22.

Consolidated revenue for July 2023
The consolidated revenue for July was NT$3.394 billion, showing a month-over-month growth of -1%. The year-to-date accumulated revenue up to July has reached NT$23.479 billion, marking a Y/Y growth of -39% compared to 2FQ22.

Market overview
K.S.Pua, CEO, said that, in 2FQ23, the equity method investment losses affected the EPS by about NT$2.01, mainly because company’s associated investment company Hosin-Global’s operating results were affected by the slowdown in the storage industry’s overall demand and unfavorable macroeconomic conditions (such as inflation, unemployment rate, etc.). In other words, excluding the recognition of equity method investment losses, operating profitability and financial health remain relatively robust.

He further explained that as global NAND makers have sequentially announced their 2FQ23 quarters. This conveys 3 messages: Firstly, NAND makers are making concerted efforts to halt the price decline and reverse the trend. Secondly, NAND makers have been announcing plans to expand the scale of production cuts. Lastly, NAND prices have reached a relatively low point, driving a substantial increase in NAND storage module capacity. Considering the current overall decline in NAND supply, there might be a situation of demand exceeding supply in the future once the demand rebounds.

He concluded by emphasizing that its company achieved a historic high gross margin rate of 32.48% in 2FQ23. This is primarily attributed to continuous focus on customized storage module projects, which has shown steady progress. As this Design-in type of business is associated with more stable pricing, it contributes to overall profit stability.

Furthermore, Phison is continually expanding its design services, leveraging leading-edge technology and substantial R&D resources to assist global partners and clients in developing value-added NAND controllers and storage module solutions. This approach is expected to be the primary driving force behind firm’s future growth. It demonstrates that company’s strategy of expanding R&D over the past few years is gradually yielding results. With the market expected to recover, it is believed that the vendor will continue to expand its business scale and revenue in relevant areas.