MACAU (Aug. 4, 12:45 p.m. ET) — A slower global economy and rising costs in China, including wages and the strengthening currency, put the bite to Chinese injection molder Deswell Industries Inc., giving the firm its first annual loss since at least 1995, the company said Aug. 2.
Macau-based Deswell, which has about 400 injection molding machines in mainland Chinese factories, said sales for the year rose 3 percent, to US$84.0 million, but rising costs and declining orders from some major customers pushed losses to US$8.1 million.
In its Aug. 2 annual report filed with the U.S. Securities and Exchange Commission, the company, which is heavily concentrated in the global electronics industry, said cost-saving measures it has put in place have helped. It said it maintains a strong financial position, with no long or short-term debt and working capital of US$59.7 million.
But it said the world economy and rising costs, including a 20 percent increase in the minimum wage in each of the last two years at its factories in South China's Guangdong province, continue to take a toll on its business outlook.
“Increasing manufacturing cost and RMB appreciation, coupled with an uncertain world economic situation, are still the main challenges we face,” said CEO Franki Tse in a statement. “Our plastic segment experienced lower sales and margins largely due to its higher sensitivity to labor rates and RMB appreciation.”
In its plastics business, the company said it lost US$9.9 million in sales in the fiscal year ending March 31 from a reduction in orders from N&J Co. Ltd., its largest customer the previous year. Company officials would not comment but one blog that follows the firm said N&J is electronics games maker Nintendo.
That and other orders lost in the last three years were a major factor in company sales dropping from US$143.8 million in 2008 to US$84.0 million in the most recent fiscal year, Deswell said.
It's the first fiscal year Deswell has lost money since it became a public company in 1995, although it said that more than half of its losses came from writing off injection molding equipment.
It said it had negotiated price increases with some customers and that should help its profitability this year.
“We have taken great strides in reducing our overhead and expenses,” Tse said. “I am encouraged by our progress and confident that our performance will be further improving.”
The company employs about 2,500 in both its plastics and electronics contract manufacturing businesses, and said in the annual report it had reduced its workforce by more than 3,000 people the last three years.
