Solomon Systech Announces FY2007 Annual Results

Sales Amounted to US$165M (HK$1,290M) Net Profit at US$10M (HK$80M) 　 Continue to Invest in R&D Solution-Based Business Braces Value Creation

Financial Highlights

	Year ended 31 December
	2007		2006
	US$’m	HK$’m equivalent	US$’m	HK$’m equivalent
Sales	165.0	1,289.6	254.1	1,971.8
Gross Profit	39.5	308.5	59.3	459.9
Gross Profit Margin	23.9%		23.3%
Net Profit	10.2	79.7	22.4	174.0
Total Assets	202.4	1,582.1	221.1	1,719.8
Shareholders’ Funds	172.1	1,345.6	179.9	1,399.3
EPS, Basic*	0.42 US cent	3.3 HK cents	0.91 US cent	7.1 HK cents
EPS, Diluted**	0.41 US cent	3.2 HK cents	0.90 US cent	7.0 HK cents
DPS, Final	0.26 US cent	2.0 HK cents	0.51 US cent	4.0 HK cents
DPS, Total	0.39 US cent	3.0 HK cents	0.77 US cent	6.0 HK cents

*EPS, Basic calculation is based on the weighted average number of shares for the year
** EPS, Diluted calculation is based on the adjusted weighted average number of shares for the year

 

• Display IC shipment reached 173 million units
• Sales amounted to US$165 million
• Net profit was US$10 million
• Basic earnings per share was 0.42 US cents (3.3 HK cents)
• The Board proposed a final dividend per share of 2 HK cents. Total dividend per share of the year amounted to 3 HK cents
• Book to bill ratio for the year ended 31 December 2007 was 0.64
• Broadened business model by offering solution-based business

 

(Hong Kong – 27 March 2008) – Solomon Systech (International) Limited (“Solomon Systech” or “the Group”; SEHK: 2878) today announced its annual results for FY2007.

 

For the year under review, its sales amounted to US$165 million. The decline was mainly the result of (1) average selling price erosion of 14%, (2) small-medium size TFT panel supply shortage in 2Q07 and 3Q07, (3) demand slow down in 4Q07 after the unfolding of US subprime mortgage issue and China tightening credit control, and (4) the new business of New Display and Display System Solution did not take off as quickly as the Group had expected. At the Group’s effort in lowering manufacturing cost, gross profit margin was kept at similar level of last year at 23.9% (2006: 23.3%), with gross profit amounting to US$39.5 million (HK$308.5 million). Operating profit was US$5.7 million. The Group’s net profit was US$10.2 million and net profit margin was 6.2%. Basic earnings per share was 0.42 US cent (3.3 HK cents per share).

 

In a relatively rich cash position with net cash at US$138 million, the Board of Directors proposed to pay a final dividend of 2 HK cents per share. Including the interim dividend of 1 HK cent already paid, the total dividend per share for the year ended 31 December 2007 amounted to 3 HK cents, which is equivalent to a dividend payout ratio of 92%.

 

The Group’s Managing Director, Mr. Humphrey Leung, said, “2007 was a year of challenge for Solomon Systech. The Group’s sales was affected by migration of technology, some major customers experiencing setback in their business and the long pick up time for new businesses. To overcome the adversities, the Group extended its capability technologically from display ICs to system ICs and strategically from component sales to solution-based business, to cover a bigger market and create more opportunities.”

 

“On top of offering IC components, we are providing to customers solutions comprising completed reference designs, and hardware and software for targeted applications such as mobile digital TV, Personal Navigation Device (PND) and Portable Media Player (PMP),” said Mr. Leung.

 

During the year, the Group shipped some 173 million units of display IC (2006: 230 million units). Due to technology migration, the Group’s shipment of monochrome STN and color STN dropped, thus caused the fall of total IC shipment. M-TFT display ICs shipment recorded a solid growth of 57.7%, reflecting progress of the design-in activities of this product family turning into mass production. For the OLED display market, shipment rose by 32.3% as a result of its recovery from the slide in 2006 and display technology continuing to find new applications. The Group continued to strengthen its leadership in New Display IC to achieve additional design-wins beyond mobile phone applications to electronic shelf label. Shipment of Display System ICs exceeded the milestone amount of one million units in 2007. Small volumes of large display TFT driver IC were also shipped as the Group continued to engage targeted panel manufacturers.

 

 

Units Shipped (million)	2007	2006	Change
Monochrome STN	32.2	43.3	-25.6%
Color STN	63.7	133.6	-52.3%
m-TFT	29.8	18.9	+57.7%
OLED	29.1	22.0	+32.3%
New Display Application	16.8	10.3	+63.1%
System IC	1.2	–	+%
L-TFT	0.2	0.8	-75%
Miscellaneous	0.4	0.8	-50%
Total	173.4	229.7	-24.5%
Note: Miscellaneous includes PDA drivers, microdisplay controller and others

According to market surveys done by IDC and Strategy Analytics, global shipment of mobile phones for 2007 ranged between 1,120 and 1,140 million units. Based on the finding, the Group believes it has 11% share in the global mobile phone display ICs market.

 

The Group’s research and development expenses rose to roughly US$20 million in 2007, 13% more than that in the previous year. The R&D team turned out new products using advanced wafer technologies as fine as 0.09µm and the Group earned more than 180 design-win projects and introduced 13 new products in 2007. During the year, the first million units of image processor were shipped for digital photo frame application, testifying to the Group’s effort in expanding its customer base making up of display module makers to include end-product manufacturers for specific high-volume applications. Its multimedia processor, which is the core of many consumer electronic applications, has entered the final stage of development and be ready to support the solution-based business.

 

Building for the Future
Taking into account the current sluggish semiconductor market, the intensely competitive market and the challenges of gaining foothold in new markets, 2008 will be another challenging year for the Group. To improve competitiveness, the Group aims to make progress in delivering technologically leading ICs and expand its customer base through product diversification.

 

1. Key Account Strategy: The Group has strategically focused resources on developing key customer accounts since early-2007. Each key account identified is served by a dedicated support team to assure timely service is provided to customers as well as open more opportunities for specific projects.

 

2. Market and Product Diversification: The Group continues to expand its IC product portfolio for different kinds of display technologies (m-TFT, OLED, e-paper, microdisplay) so as to diversify its product applications for primarily mobile phones to many more other applications. This strategy will enable the Group to balance the opportunities and risk that may appear in different market or technology segments.

 

3. Customer Base and Application Expansion: Since 2005, the Group has extended its product portfolio to system ICs and its multimedia processor has entered the final stage of development. A completed demonstration system of mobile digital TV riding on this multimedia processor was unveiled at the 2008 Consumer Electronics Show (CES) in Las Vegas. This multimedia processor will play an important role in supporting the Group’s solution-based business.

 

4. Partnerships for Specific Business: The Group has partners in key players for specific business like new display, large display and display connectivity (MIPI). It also partners with system design houses for its total system solution offerings. The partnership strategy has allowed it to align with the interest of customers, stay abreast of end-market requirements and share common development resources.

 

5. Quality and Productivity Improvement: Apart from strengthening market foothold, the Group has been enhancing product quality and productivity for continuous improvement in customer satisfaction, product delivery cycle time, production yield and cost reduction.

 

“We are confident that, through all these proactive measures and applying our capabilities in the total system solutions, we will be able to broaden our horizons and enhance our position in the supply chain, create values for both our customers and end users of our products and ultimately enlarge our revenue stream,” concluded Mr. Leung.

 

Solomon Systech (International) Limited
Consolidated Income Statement
For the Year Ended 31 December 2007
	2007		2006
	US$’000		US$’000
Sales	164,952		254,092
Cost of sales	(125,497)		(194,823)
Gross Profit	39,455		59,269
Other income	1,008		787
Other loss – net	(227)		–
Research and development costs	(19,688)		(17,373)
Selling and distribution expenses	(3,308)		(4,128)
Administrative expenses	(11,479)		(14,322)
Other operating expenses	(28)		(1,265)
Operating profit	5,733		22,968
Interest income	7,963		6,290
Finance costs	(1)		(1)
Share of results of associated companies	(754)		(662)
Profit before taxation	12,941		28,595
Taxation	(2,752)		(6,177)
Profit for the year	10,189		22,418
Attributable to:
Equity holders of the Company	10,208		22,418
Minority interest	(19)		–
	10,189		22,418
Dividends	9,438		19,269
Earnings per share for profit attributable to the    equity holders of the Company    (expressed in US cents per share)
Basic	0.42		0.91
Diluted	0.41		0.90

 

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