[Asia Economy Reporter Hyunseok Yoo] S-Mac announced on the 13th that its operating profit in the first quarter achieved an earnings surprise, increasing by more than 400% compared to the same period last year. The company explained that sales also increased by about 80%, demonstrating both external growth and internal stability despite the challenging business environment caused by the novel coronavirus infection (COVID-19).
S-Mac disclosed that its consolidated operating profit for the first quarter reached 10.4 billion KRW, a 413% increase compared to the same period last year. During the same period, sales and net profit also recorded 79.2 billion KRW and 13.4 billion KRW, respectively, marking increases of 79% and 581%.
The first quarter performance was driven by touchscreen modules for Huawei. Although global smartphone shipments slightly slowed, Huawei’s better-than-expected performance in the Chinese domestic market was a key factor.
According to market analysis firm Canalys, China’s smartphone shipments in the first quarter of this year decreased by about 18% compared to the same period last year due to COVID-19. However, Huawei, a major client of S-Mac, saw its shipments increase by 1%, acting as a catalyst for explosive performance growth. Considering the initial estimate that smartphone shipments in the Chinese market would drop by 50% in the first quarter due to COVID-19, this is regarded as an outstanding achievement.
S-Mac has positioned its Vietnam subsidiary, which expanded its facilities last year, as a major production base. The improvement in profitability structure is the result of a combination of factors, including reduced fixed cost burden due to increased sales and cost reduction effects from local procurement of raw materials. Additionally, the amount compensated by Dongwoo Fine-Chem for some costs incurred during the expansion of the Vietnam line was also included.
The global smartphone market, S-Mac’s upstream business, is expected to hit bottom in the second quarter and show a rapid recovery from the third quarter. Accordingly, expectations for S-Mac’s annual performance improvement are high.
In particular, foldable smartphones, which smartphone companies are competing over as a new growth engine, are expected to contribute to profitability improvement as S-Mac supplies all parts directly to Huawei. S-Mac has already begun full-scale supply by securing an order for 500,000 units of foldable phone parts for Huawei in the first half of the year.
An S-Mac official stated, “We have already achieved first-quarter results comparable to last year’s annual operating profit,” adding, “The Chinese market is gradually recovering from COVID-19, and smartphone manufacturers are fiercely competing to gain leadership in foldable phones, so record-high performance is expected this year.”
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