Weak handset sales hurt China’s TCL profits

PUBLISHED : Wednesday, 20 April, 2016, 11:04pm
UPDATED : Wednesday, 20 April, 2016, 11:04pm

TCL Communication Technology, a leading smartphone maker, yesterday said its revenue and profits fell sharply during the first three months of the year as weak handset sales continued to weigh heavily on the company’s performance.

The company said its net profit fell 92 per cent year on year to HK$14.25 million as sales in China shrank sharply during its ongoing business transition. Revenue for the period fell 17 per cent, it said in a regulatory filing.

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The handset maker warned that it expects considerably lower net profits for the first six months of this year. Revenue will, however, improve during the second half of the year after its newly launched products gain market acceptance, TCL said.

TCL’s revenue from China slumped 70 per cent year on year to HK$245.9 million for the quarter and accounted for 4.6 per cent of the total sales.

Chief executive Guo Aiping said the firm is realigning its strategy in China, from low-end products to mid-and-high end products, and also revamping its sales channels. The business transition is expected to take place during the third quarter of the year, he said.

“The quarterly results meet our expectations. It is a transition period as the firm is revamping its China business,” said Chloe Liu, a Hong Kong-based analyst at Oriental Patron.

“We are positive on the new chief operating officer, Yeung Zhe, who was in charge of Huawei’s China marketing business,” Liu said, “But TCL is still not that competitive in technology and research and development, when compared with Huawei.”

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Though the company will continue to strengthen efforts to boost sales in China, it will also focus on key emerging markets, North America and Europe for long-term growth.

Sales in its largest markets – Europe and North America – increased by 7 per cent and 4 per cent respectively in the first quarter, and accounted for nearly 60 per cent of the total revenue. Sales in the Asia-Pacific region jumped 58 per cent while in Latin America they fell 36 per cent due to currency fluctuations.

TCL is also planning to expand its presence in India. “We want to make India a big regional market for us,” Guo said. “We are cooperating with our business partners for a breakthrough there,” he said, adding that it was difficult for the company to expand in the market on its own.

TCL Multimedia Technology, a sister company that sells televisions, said its quarterly profit jumped 62.1 per cent to HK$74 million, and that it expects more sales from overseas markets.

Its total revenue for the first quarter fell 11.2 per cent year on year to HK$7.36 billion due to lower average selling price following the drop in major raw material prices and the impact of the stronger Hong Kong dollar against the yuan.

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“TCL Multimedia is unlikely to see a year-on-year turnover drop in the second quarter,” said Wang Yi, chief financial officer, given its product mix and improvement in sales volume in the overseas market could help offset the impact of yuan depreciation.

The company, which introduced LeTV as its second largest shareholder last year, has got a LeTV order for 1.2 million television sets.