Solomon Systech Achieves Business Turnaround in 2020 Interim Results

Net Profit Amounts to US$4.3 Million

Highlights

• Solomon Systech achieved business turnaround with a net profit of US$4.3 million despite the challenging and uncertain business environment.
• Total revenue up around 3.5% to approximately US$58.6 million.
• Total shipments recorded a growth of approximately 7.9% to about 175.5 million units.
• Gross profit increased to US$15.1 million year-on-year. Gross margin increased 8.2 percentage points to 25.8%.

(HONG KONG, 18 August 2020) Solomon Systech (International) Limited (“Solomon Systech” or “the Group”; SEHK: 2878) announced today its 2020 interim results for the six months ended 30 June 2020 (“1H 2020”), which achieved business turnaround with a net profit of US$4.3 million despite the challenging and uncertain business environment. The Group recorded a mild growth of 3.5% in revenue to approximately US$58.6 million, mainly attributed to the strong growth of its Advanced Display (“AD”) business. The Group’s total shipments registered an increase of approximately 7.9% to about 175.5 million units. Gross profit increased by approximately 51.7% to US$15.1 million year-on-year. Gross margin increased 8.2 percentage points to 25.8% during the period under review. The significant improvement was mainly attributable to the change in product type mix. Book-to-bill ratio for 1H 2020 was 1.2.

Business Review

The AD products, which include Passive matrix OLED (“PMOLED”) displays, bistable products, micro-/mini-LED products, OLED lighting products and custom ICs, recorded a double-digit growth in total shipments by approximately 63.4% to around 109 million units. The increase was mainly due to the change in the mix of AD products in 1H 2020, as the COVID-19 pandemic (“the pandemic”) has triggered the demand for healthcare products worldwide, which was translated into increased orders for portable healthcare devices and related applications for the Group’s PMOLED display driver ICs.

Despite the sluggish economy dampening the global demand for wearable applications in general, the Group has maintained its business with renowned wearable brands. To capitalize on the growing potential of smart home appliances market under the rising trend of Artificial Intelligence of Things (“AIoT”), the Group has successfully achieved related design-in projects, including wireless Bluetooth speakers, smart door knobs, etc.
In view of dynamic shifts in global overseas retail market conditions, the Group shifted its focus to promote its new bistable display driver IC for medium-size ESL panels of 4 inches to 6 inches used at mega stores in 1H 2020, eyeing on the markets of Europe and the U.S. The Group has further developed its micro-LED technology featuring ultra-high display brightness and fine pixel pitch since 2016, and has made significant progress through strategic collaborations with leading companies over the years. In the reporting period, the Group received orders that paved the way for applying micro-LED technology to mass production.

The Large Display (“LD”) products, which include large panel TFT LCD display driver ICs for TVs, monitors and other applications, registered total shipments of approximately 38.9 million units during the period under review. Samples of the point-to-point (“P2P”) display driver IC for the high-end 120Hz UHD TV and 8K TV markets were made ready-for-testing. The Group has continued to develop new LD product to prepare for its future business growth.
The other products of the Group, including Mobile Display (“MD”) products such as In-Cell Touch and Display Driver Integration (“TDDI”) ICs, TFT display driver ICs and MIPI bridge ICs; and Mobile Touch (“MT”) products covering LCD touch controller ICs (Out-Cell/On-Cell), recorded a slight decrease in unit shipments of approximately 1.4% year-on-year to around 27.6 million units. Despite the influence of the pandemic, the demand for mobile devices in China and consumer sentiment have gradually recovered and resumed respectively from May 2020 onwards that ultimately helped boost MD’s revenue in relation to TDDI and DDI. Inventory level of the Group’s MD business was gradually reduced in June this year.

Besides, demand from specific customer segments, such as video games related products boomed due to the pandemic. As more people stayed at home and played video games, the MT IC, the product line which supported game consoles, was one of the product lines that most benefited in 1H 2020. The drastic demand for the aforesaid product consumed most of the inventories in May and June 2020 with inflows in return.

Prospects

Looking forward, in spite of the lingering uncertainty in the global economy may continue to weigh on the Group’s business as a whole, the AD business is expected to continue its strong growth. A number of new products and design win projects are expected to start contributing to the Group’s revenue. For instance, its custom ICs are going to be widely used in digital signage benefiting both the AD and MD businesses.

For AD products, the Group’s key innovation of the PMOLED Touch and TDDI IC SSD7317, is anticipated to enter mass production by the end of 2020 and contribute to the revenue stream. The Group has received and processed its sample order in 1H 2020. The Group will also strive to capitalize on the growth potentials of smart home appliances and AIoT with grayscale displays. Meanwhile, the Group’s bistable display driver IC business, bolstered by the constant development in retail automation and wide commercial applications spanning across logistics and signage demonstration, is set to continue its strong growth momentum in 2H 2020. The Group has put in efforts in developing a new generation bistable color display IC that supports multiple colors, so as to unleash new potential for business growth. The Group’s resources will be devoted to working with market leading micro-LED panel manufacturers to develop more new ICs with technological breakthroughs plus fulfilling the market needs. These products are ready for launch by the end of 2020.

The Group’s LD driver IC business is set to regain its growth momentum in 2H 2020. Leveraging the expanding business of its key customers in Nanjing, Chengdu and Xianyang, the Group is anticipated to drive its further growth. The Group’s P2P display driver IC for the high-end TV markets is expected to start production in 2H 2020.

For MD business, a wide range of new driver products, custom ICs applicable to smart wearables along with public information display applications have been planned and developed for launch in the upcoming months. It is anticipated that this new target segment of MD products will be able to contribute to the Group’s revenue starting from next year.  The MD business will continue to grow and to prosper with enhanced capacity and the support from our close factory partners.

Mr. Raymond Wang, Chief Executive Officer of Solomon Systech, said, “Thanks to the organizational restructuring in financial year 2019 and the change in the Group’s product type mix, we have successfully maintained our leading position in the market despite the adverse market environment. Having led the Group during this challenging period, I am extremely encouraged by the turnaround of our financial performance.

Our fundamental goals and principles include leveraging cutting edge technology to design and manufacture products that meet the market needs. Two ICs that feature our latest technology, namely PMOLED TDDI IC and the world’s first N-Color Active matrix electrophoretic display (“AMEPD”) Driver IC with our design win, are expected to commence the mass production in 2020.

Given the fallout of the U.S.-China trade dispute and the great uncertainty abounds in the healthcare sector, we will be taking a prudent approach to 2021. However, we believe our Group will continue to grow as the global economy recovers. Solomon Systech will continue to take measured steps to unlock market potential and to maximize the returns for our shareholders”.