Deswell Posts 17% Sales Growth in First Half 2019

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Deswell Industries, Inc. released its unaudited financial results for the first six months of fiscal 2019, ended September 30, 2018.

Net sales for the six months ended September 30, 2018 were $34.8 million, an increase of 16.9% compared to net sales of $29.8 million for the six months ended September 30, 2017. Net sales decreased by 1% to $13.6 million in the plastic segment and increased by 32.4% to $21.2 million in the Company’s electronic segment.

Total gross margin decreased to 13.8% of net sales during the six months ended September 30, 2018, as compared to 19.6% of net sales in the same period last year. Gross profit margin in the plastic segment decreased to 16.4% of net sales for the first half of fiscal 2019, compared to 24.3% of net sales for the corresponding period of last fiscal year. The decrease in gross profit and margin in the plastic segment was mainly due to increases in raw materials cost, offsetting a slight decrease in labor costs and subcontracting charges, as a percentage of sales. Gross profit margin in the electronic segment decreased to 12.1% of net sales for the first half of fiscal 2019, compared to 15.5% of net sales for the corresponding period of last fiscal year. The decrease in gross margin in the electronic segment was mainly attributable to an increase in raw materials costs, as a percentage of net sales. Operating income in the first half of fiscal 2019 was $0.2 million, compared to operating income of $1.6 million for the same period of fiscal 2018.

The Company reported net income of $2.8 million for the six months ended September 30, 2018, compared to net income of $3.7 million for the six months ended September 30, 2017. This was primarily due to a decrease in gross profit, as a percentage of sales, for the six months ended September 30, 2018. Deswell reported basic and diluted income per share of $0.17 for the first half of fiscal 2019 (based on 15,885,000 and 15,975,000 weighted average shares outstanding, respectively), compared to basic and diluted income per share of $0.23 (based on 15,885,000 weighted average shares outstanding), for the six months ended September 30, 2017.

The Company's financial position remained strong, with $15.5 million in cash and cash equivalents and working capital totaled $53.4 million as of September 30, 2018. Furthermore, the Company has no long-term or short-term borrowings as of September 30, 2018.

“We saw solid double-digit growth in our consolidated revenue driven by a 32% improvement in our electronic segment. This revenue increase was primarily attributable to increased orders from new and existing customers for professional audio equipment and home entertainment products. Gross margin in both our plastics and electronics business was lower during the period due to higher raw material costs. Throughout the first half of the fiscal year, the entire electronics industry faced shortages of semiconductors and other electronic components. While this impacted our margins, we were able to proactively manage the situation with our customers and effectively service their needs. Our balance sheet remains strong, and we continue to focus on expanding our business with both new and existing customers. On the other hand, in order to mitigate the uncertainties caused by the trade war between the US and China, we are studying the feasibility of reallocating part of the production to Southeast Asian countries,” Edward So, chief executive officer, commented.

First Half Dividend

The Company also announces that its board of directors today declared a cash dividend of $0.06 per share for the first half of the fiscal year ended September 30, 2018. The dividend will be payable on December 18, 2018 to shareholders of record as of November 27, 2018.

About Deswell

Deswell manufactures injection-molded plastic parts and components, electronic products and subassemblies, and metallic molds and accessory parts for original equipment manufacturers (OEMs) and contract manufacturers at its factories in the People’s Republic of China. The Company produces a wide variety of plastic parts and components used in the manufacture of consumer and industrial products; printed circuit board assemblies using surface mount (SMT) and finished products such as telephones, telephone answering machines, sophisticated studio-quality audio equipment and computer peripherals.