Shares of Hua Hong Semiconductor, a Shanghai-based semiconductor company, tumbled after the company announced a significant drop in its quarterly net profit. The decline comes amidst a slowdown in the global chip industry.
The company's shares plummeted 8.2% to 14.38 Hong Kong dollars (US$1.84) early Wednesday, bringing the total decline to 24% for the year.
Hua Hong revealed that its fourth-quarter net profit fell to US$35.39 million, a significant decrease from US$159.14 million in the same period the previous year. The company attributed the decline to lower average selling prices and capacity utilization, resulting in a gross margin slide from 38.2% to 4.0%.
Hua Hong's president and executive director, Junjun Tang, commented on the challenging conditions faced by the global semiconductor industry in 2023.
Looking ahead, the company expects first-quarter revenue to range between US$450 million and US$500 million, with a gross margin anticipated to be between 3% and 6%.
Analysts Laura Chen and Jack Chen from Citi expressed uncertainty about Hua Hong's demand recovery outlook in China while acknowledging that the company's near-term bottoming out had been expected. Citi maintained a sell rating on Hua Hong stock with an unchanged target price of HK$15.00, citing concerns about consistent new capacity ramp-up and rising depreciation costs.
Jefferies analysts noted that Hua Hong would have posted a net loss in the fourth quarter if government subsidies were not considered. Furthermore, they pointed out that China's rapid expansion of supply capacity on mature nodes could increase pressure on Hua Hong's average selling price and utilization rate due to intense competition. Jefferies, which has a hold rating on the stock, reduced its target price from HK$21.00 to HK$17.00.
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