Macroblock Lets Go of Low-end Market to Secure Gross Margin

Macroblock fought a several price war against its rivals in China in 2017, so its product gross margin significantly dropped. The firm's gross margin in 2Q17 fell to 22.68%, far below 32.81%, the average gross margin in 2016. Eroded profit changed the company's strategies. Since 3Q17, Macroblock has given up the low-end product market, so as to maintain its gross margin.

(Image: LEDinside)

Investment institutions predicts that Macroblock's gross margin in 3Q17 might bounce back to 24~25%. Macroblock launched new products at the end of October, and strove to improve gross margin in 4Q17.

For the outlook for 2018, the firm will increase the share of niche products with high margin, in order to reduce the impact of price war. Revenue and profit in 2018 are expected to outnumber those in 2017. 

Macroblock is an IC design company, mainly producing upstream components such as LED driver IC used for display applications. Its production also covers architectural lighting, TV backlight and general lighting. End-market applications revenue by segment is as follows: Display occupies about 90%, and LED lighting around 10%. The corporate has focused on ultra-fine LED display and fine-pitch LED display (pitch < 3mm) since 2014. Currently fine-pitch LED display contributes 60%-70% of the consolidated revenues. This firm's shipment primarily flows to the China market which takes up to 70%-80% of its overall revenue.   

Because the market demand for fine pitch LED display in China rose, rivals poured investment in this segment and triggered a price war. Macroblock faced a severe challenge. It, in order to maintain its market share, lowered price for higher volume. Therefore, its gross margin considerably fell to 22.68% in 2Q17, far lower than 32.81% in 2016. Eroded profit led to EPS in 2Q17 only reached NT $0.44.

Macroblock emphasized, the second quarter in 2017 was the rock bottom of revenue this year. Starting from 3Q17, Macroblock gave up the low-end product market, so as to secure its gross margin. This move will lower shipment by 18%~20%, but it is predicted to increase revenues by 2%. In addition, because of peak season, customers procured more. The consolidated revenue in 3Q17 arrived at NT $730 million units, up 10.72% QoQ or 4.87% YoY. Institutional investors expressed, Macroblock's gross margin in 3Q17 is likely to bounce back but with a limit. The gross margin is projected to hit about 24%-25%, and the EPS is predicted to come to NT $0.7-0.8.

The company's EPS in 1H17 was merely NT $1.3, far lower than NT $3.21 in 1H16. Institutional investors predicts, the firm's EPS in 2017 will come to NT $2.7-3. This might set a new record low since the firm was listed.

In terms of the outlook for 2018, the corporate explained, fine pitch LED display still experiences strong growth. LED display applications become more widely seen in international giants' headquarters, stadiums and theatrical stages. This trend helps Macroblock's shipment grow sustainably. Even though the market currently pays lots of attention to mini LED, Macroblock does not enter this segment. The firm does not enter the segments of TV or smartphone, either. In 2018, Macroblock will increase high-gross-margin niche product's share, so as to reduce the impact of price war. The revenue and profit in 2018 are projected to go up.

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