Harvatek Expects Revenues to Drop in 2H14

LED package manufacturer Harvatek revenues is expected to drop during third quarter in 2014, due to adjustments in lighting OEM orders, according to a Money DJ report. However, the company is expected to see revenue growth next season. While further long term observations are required to determine the impact from Cree’s patent lawsuit.

Major Taiwanese LED package manufacturer Harvatek’s revenue is expected to drop 20 percent to NT $1.4 billion (US $50 million), but revenue growth and gross profits for a single quarter are expected to be up 10 percent to 18 percent to 20 percent. The growth rate sets a new record high for the company in the last three years. Still, revenues in fourth quarter are expected to cool down as the industry enters conventional slack season.

Cree has filed a patent lawsuit against Harvatek on Sept. 15, 2014 in Wisconsin, U.S. The lawsuit accuses Harvatek for violating six patents, including patents for white LED and package. Harvatek’s operations and finances have not been affected by the lawsuit, and the company is still assessing risks in the aftermath. The company has in possession some 200 LED patents, which might result in a new round of patent lawsuits. Harvatek might file a lawsuit in response to Cree’s actions, which could affect future lawsuit developments, and requires further observations.

Since Cree sealed a blue LED chip partnership with Lextar, many industry insiders speculate Lextar will become Cree’s major LED chip OEM in the future. Cree will be acquiring 83 million stocks through private funding this year to acquire 13 percent stock shares. The current patent lawsuit might ask for financial compensation from Harvatek, but the actual outcome remains unclear.

With the fourth quarter entering the industry’s conventional low season, and with the ongoing Cree patent lawsuit, clients might be more conservative and speculate. Financial analysts projected, Cree’s fourth quarter revenue to be maintained at NT $400 million, while revenue for the quarter dropped 10 to 20 percent to NT $1.2 billion. Gross profit margin is likely to be maintained at 18 percent.

Harvatek’s revenue in 2Q14 has increased 47 percent QoQ to NT $1.75 billion, while it has grown 50 percent YoY. The company’s gross profit for 2Q14 has reached 14.37 percent, or a quarterly increase 5 percent. Operating income was also up 4.6 times this quarter to reach NT $141 million, while net profits were grew 1.9 times QoQ to NT $152 million. Compared to last year, the company has been able to turn around losses this year. The company’s accumulated revenue for 1H14 increased 40 percent to NT $2.94 billion, while net profits was NT $2.04 billion.

Adjustments in products in third quarter this year affected revenues in July, which dropped to NT $462 million, while in August revenues dropped a further 4.6 percent monthly to 440 million. The company still reported a 5.5 percent growth YoY. As display shipment picks up momentum, the company’s revenue is expected to incrementally increase in September 2014.

Reduced lighting OEM orders led to the decline in 3Q14. Due to OEM’s lower profits, the company’s gross profit margin increased in July and August 2014, and is close to 18 percent to 20 percent. The quarterly increase of three to five percent has set a new record height in the last two years.

Headquartered in Hsinchu, Taiwan, Harvatek was focused on backlight for small to mid-sized notebooks, and other consumer electronics in its early days. The company later entered TV backlight and lighting markets, but hit rock bottom in 2012 because of intense competition in the TV backlight market. The company operations have improved significantly after Harvatek restructured products and exited the TV backlight market.

The company’s Surface-Mount Device (SMD) LED products make up 40 percent of revenue. Most of these products are applied in consumer mobile device and other niche market applications, while the company’s lighting OEM business 30 to 40 percent. Display products only have a 10 percent market share, while the company’s traditional backlight products have a share of 10 to 15 percent revenue share. To improve operations, the company has scaled back on less profitable businesses, and scaled up small to mid-sized mobile device applications, displays and other niche market applications.  

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