MACAO (July 24, 12:15 p.m. ET) — In a further sign of trouble among export-oriented Chinese injection molders, Deswell Industries Inc. reported July 23 that its sales fell sharply in its fiscal year, down 23 percent, with a second straight year of losses.
The company, which is based in the Chinese territory of Macao with factories in Guangdong province, attributed the problems to both softness in the global economy and continued rising costs in China, including wages, hurting its competitiveness.
“The decrease in sales revenues was mainly attributed to a decrease in customer orders in response to the slow global economic recovery and potential economic recessions in the European countries,” Deswell said in July 23 filing to the U.S. Securities and Exchange Commission.
Some other Chinese plastics-related firms have also reported slowdowns. Eva Precision Industrial Holdings Ltd. issued a warning June 25 saying that profits in the first half of the year are expected to be down 60 percent, but the company apparently still will be profitable.
As well, a senior advisor to China's central bank was quoted over the weekend as saying China's growth could slip to 7.4 percent in the third quarter, from 7.6 percent in the second quarter, which would be the seventh straight quarter of deceleration in China's economy.
For Deswell, sales in its 2012 fiscal year ending March 31 were $64.7 million, down 23 percent from $84.0 million the previous year. It did manage to stem the bleeding somewhat, losing $2.2 million in the 2012 fiscal year, compared with a loss of $8.1 million the previous year.
The company molds a wide variety of plastic parts and components in the consumer and industrial end markets, along with manufacturing audio equipment and other electronics. The company said it lost several key accounts in the last few years and has been unable to completely replace that business.
The rising labor costs in China are hurting its competitive position, it said. Minimum wages are up 20 percent a year for the last several years in Dongguan, and Chinese factory wages generally are projected to keep growing at double digit rates through 2015, it said.
But the company told the SEC that it still had solid financial footing, with $33.1 million in cash and no debt.
“We continue to see a challenging environment, especially in Europe and the U.S.,” said Chief Executive Officer Frankie Tse in a statement. “We are managing our overhead, working closely with current customers and driving new business initiatives. Our balance sheet remains particularly strong with cash and no long or short term debt.”
Deswell has 360 injection molding machines at factories in Dongguan, Guangdong province, but the company said in its SEC filing that it has only bought one new injection press in the last three years while disposing of 59 older machines.
Its sales are down from $143 million in 2008. Last year it reported its first annual loss in more than a decade, and it reported 1,880 employees in its fiscal year ending March 31, compared with 2,500 the previous year.
Company officials did not respond to a request for comment.