[At a Crossroads: Listed Company] SMAC's Sales Plummet After Huawei Supply Cut

[Asia Economy Reporter Jang Hyowon] The first half sales of SMAC, a KOSDAQ-listed company, have sharply declined. This is because it has been unable to supply its main product, touch screen modules, to China's Huawei due to the intensifying US-China trade dispute. SMAC is strengthening its automotive parts business to make up for the performance, but it is uncertain whether visible results will emerge.

Touch Screen Module Sales Down 97%

According to the Financial Supervisory Service's electronic disclosure on the 16th, SMAC's cumulative consolidated sales as of the end of the first half of this year were 46.6 billion KRW, down 70.3% from 156.9 billion KRW in the same period last year. Operating profit also turned to a loss, from 4.6 billion KRW in the same period last year to a 5.6 billion KRW loss in the first half of this year.

SMAC is a company that manufactures touch screen modules used in input devices such as mobile phones and mobile devices. As of the end of last year, more than 70% of total sales came from the touch screen module sector. In addition, it operates businesses in automotive parts, antistatic materials, plastic films, and diagnostic raw material antibodies through subsidiaries.

The sharp decline in SMAC's sales is due to a significant drop in the performance of the touch screen module sector. As of the first half of this year, sales in the touch screen module sector were 4.6 billion KRW, down 96.6% from 135.5 billion KRW in the same period last year. According to the industry, sales are reported to be almost nonexistent in the third quarter of this year.

Most of SMAC's touch screen module sales come from Huawei. At the beginning of last year, SMAC announced that it had received an order for 500,000 touch screen modules from Huawei. Subsequently, it also began supplying to Huawei's foldable phones using the outfold method.

However, as the US-China trade conflict intensified and the US imposed sanctions on Huawei, a leading Chinese IT company, SMAC has been unable to supply products to Huawei. According to the industry, the US requested a supply halt to Huawei parts suppliers.

Can It Revive with Automotive Electronic Parts?

SMAC is focusing on new businesses such as automotive electronic parts to defend against poor performance, but the outlook is not promising.

Since last year, SMAC has started a business manufacturing automotive lighting products. As of the end of the first half of this year, sales in this sector reached 11.4 billion KRW, surpassing last year's total sales in just half a year. However, the cost of raw materials for electronic parts was 11 billion KRW, indicating a low profit margin. In fact, SMAC recorded a gross loss of 900 million KRW on a separate basis.

Furthermore, SMAC has conducted mergers and acquisitions (M&A) to expand its automotive parts business, but since the target company is recording losses, it is difficult to expect a quick turnaround in performance.

On the 13th, SMAC acquired Dreamtech Automotive, a company manufacturing lighting devices for transportation equipment, for 24.9 billion KRW. Dreamtech Automotive was established last year through a physical division of Dreamtech's electronic parts business unit. As of the end of last year, it recorded sales of 40.5 billion KRW and a net loss of 6.5 billion KRW.

After recording losses following the physical division, Dreamtech wrote off 14.7 billion KRW as impairment losses on Dreamtech Automotive's investment assets in the first half of this year. As a result, the book value of Dreamtech Automotive decreased from 38.8 billion KRW to 24.1 billion KRW. If losses continue, there is a possibility that impairments may also occur at SMAC.

An SMAC official said, "Our affiliate Kumho HT has a similar business structure to Dreamtech Automotive, and Kumho HT is showing positive performance," adding, "We believe Dreamtech Automotive can also generate sufficient profits through restructuring and other measures."