New orders for cell phones and laptop computers boosted Nam Tai Electronics Inc.'s net income in the fourth quarter of fiscal 1999, despite the fact that gross profit margins fell sequentially and on an annual basis due to technical problems and materials shortages.
For the quarter ended Dec. 31, the Hong Kong contract electronics manufacturer posted net income of $1 million, or 11 cents per share, erasing the $7.7 million, or 78-cent-per-share, loss reported in last year's fourth quarter. While gross margin fell dramatically from 24% in the 1998 fiscal fourth quarter to just 12.4% in the most recent period, the company offset the decline by generating $38.3 million in sales, an 84% increase from the equivalent year-ago quarter.
Nam Tai, whose North American headquarters is in British Columbia, said its troubles were tied to an industrywide materials shortage and technical difficulties with its chip-on-glass (COG) production line. The company's COG technology is designed to lower manufacturing costs in notebook PCs by connecting driver ICs directly to LCD panels without the need for wire bonds.
For the year, Nam Tai's net sales increased 42% to $145.1 million, compared with $101.6 million in the prior year. Net income jumped 234% to $11.7 million, or $1.26 per share, compared with $3.5 million, or 34 cents a share, in 1998. Still, gross profit for fiscal1999 declined to 17%, compared with 24% a year ago.
"By attaining additional orders in the fourth quarter, Nam Tai achieved record sales ... despite problems with our COG equipment, higher defect rates, and material shortages," said Nam Tai chairman Tadao Murakami. "We are happy these difficulties which caused a decline in our fourth-quarter margin are now behind us."
Now that it claims to have rectified its fourth-quarter difficulties, Nam Tai said it is poised for continued growth, particularly in the new area of telecommunications. Last year, the company said it would build a 118,000-sq.-ft. factory in Shenzen, China, dedicated to providing telecom manufacturing services to the region. The facility is slated for completion this year.
"With expected improvement in gross margins and strong growth in sales, management is confident of achieving its sales and profit targets for year 2000," Murakami said. Murakami added that Nam Tai's sales this year should reach between $170 million and $190 million.