Solomon Systech Announces 2023 Annual Results

A Stable Product Demand with Shipping Volumes Up 7.4% New Display IC Business Remains Resilient

Financial Highlights:

• Sales revenue decreased by 19.8% YoY to US$ 153.2 million
• Gross profit was US$ 46.3 million with a gross margin of 30.3%
• Profit attributable to owners of the parent declined by 30.1% YoY to US$ 19.4 million
• Shipment volume rose by 7.4% YoY to 336 million units in 2023

(20 March 2024 – Hong Kong) Solomon Systech (International) Limited (“Solomon Systech” or the “Company’’; Stock Code: 2878) announced its annual results of the Company and its subsidiaries (collectively, the “Group”) for the year ended 31 December 2023 (the “Year”).

In 2023, global economic activity faced significant challenges, with inflation and high interest rates severely impacting demand for consumer electronics products. In early 2023, the Group implemented various inventory control policies and strategically reduced the inventory on certain items. With the further help of the increase in shipment volume, the Group kept its inventory at a relative healthy level as at the end of year 2023. Price reduction measures implemented by wafer fabs from mid of 2023 also helped alleviate some of the cost pressures on the Group. The market showed a stable demand for the Group’s products, with total shipments reaching 336 million units for the Year, marking a 7.4% year-on-year increase.

Due to the impact of price decreases on certain products, the Group’s overall sales revenue decreased by 19.8% year-on-year to US$153.2 million, with a gross profit margin of 30.3%.  Affected by the decline in sales revenue and challenges in offsetting the impact of decreased average product prices despite the reduction of certain costs, the profit attributable to the owners of the parent during the Year declined by 30.1% year-on-year to US$19.4 million. Earnings per share were 0.8 US cents, a decrease of 27.3% compared to 2022. The Board resolved not to declare any final dividend for the year ended 31 December 2023.

Business Review

New Display ICs

During the Year, the shipments of New Display IC products showed a steady growth trend. Apart from the contribution of sales of the current three-color display labels, the growth was also boosted by the market drive for four-color display labels launched in the fourth quarter of the Year. The Group introduced IC products supporting large-size four-color display labels in the fourth quarter of the Year and plans to subsequently launch other sizes of four-color display labels. However, the price decrease of New Display IC products, resulting from the replacement of three-color display labels by four-color display labels and market competition, led to a decrease in the Group’s revenue. Sales of three-color display labels slowed down as retailers awaited the launch of the new generation four-color display labels. Besides, the high inflation environment and the strong US dollar also affected the willingness of some European and Asian retailers to install Electronic Shelf Labels (ESL).

OLED Display ICs

The Group remained the world’s number one PMOLED display driver IC player with a dominant market share in terms of shipment volume in 2023. During the Year, the Group introduced a series of competitively priced Icon ICs targeted at displays ranging from 1 to 4 inches. These products aim to expand the Group’s presence in the large display application market for smart home appliances.

Mobile Display and Mobile Touch ICs

During the Year, the market demand for the Group’s game console controller ICs and MIPI Bridge ICs remained stable. The Group collaborated with a number of leading small-medium-sized TFT-LCD display panel manufacturers to develop a human-machine interface display platform, which successfully entered mass production in the second half of the Year. Meanwhile, regarding the newly developed mini-LED backlight solution, the Group is engaging with customers who produce various end products to gather insights into their requirements and develops tailored solutions for individual applications.

Large Display ICs

During the Year, the Group collaborated with multiple display manufacturers to mass-produce a range of mainstream new products for internationally renowned brands. These included projects for 23.8-inch UHD gaming monitors with a 100Hz high refresh rate, 43-inch smart FHDTVs and 32-inch HD entry-level smart TV. Solomon Systech also obtained authorization from a major display manufacturer in China to develop a new generation of point-to-point (P2P) high-speed transmission interface display driver ICs, which are expected to undergo trial production in the third quarter of 2024.

Innovative Technology and Product Highlights

The global technology race is becoming increasingly fierce, it is particularly crucial to achieve independent innovation and enhance research and development (R&D) capabilities. During the Year, the Group made significant strides in the e-paper field. The Group has collaborated with E Ink to develop Display IC Solutions enabling a four-color spectrum display for Spectra™ 3100, a next-generation specialized platform for ESL and retail signage applications. The product was launched in the second half of 2023. To further expand applications in the e-paper field, the Group is currently developing large-scale display applications beyond ESL, such as large color electronic retail signage of 20 inches and above. The project is slated for mass production in the first half of 2024.

The Group is also partnering with three internationally renowned e-book brands to launch full-color e-book reader tablets, and has delivered the related display IC products in the first quarter of 2024. The shipment volume is expected to keep growing in the future. E-books have the advantage of being environmentally friendly, easy to carry, and friendly to the eyes. As the new generation of color e-books are able to offer a richer digital reading experience in comparison to the traditional black and white e-books, it is expected to become a new trend.

The Group also introduced SSD2363, the world’s first small-sized PM-micro-LED display driver IC, which is suitable for next generation high-brightness displays under 3 inches. It is ideal for wearables, home appliances, and industrial uses.

Furthermore, the group is developing automotive display driver IC solutions to align with future trends. The Group partnered with a large-scaled Shenzhen display manufacturer in July 2023 and signed a memorandum of understanding for strategic cooperation to jointly design and develop the first integrated driver IC for automotive specifications. Mass production is slated to commence in the fourth quarter of 2024 for mainstream automotive systems in China.

Outlook and Strategies

The manufacturing industry faces challenges due to persistent high interest rates and macroeconomic uncertainty, coupled with sluggish demand growth. While awaiting a market turnaround, the destocking process is expected to persist in 2024. As inventories pent up in the pandemic-era keep dwindling, the supply chain is anticipated to normalize. Additionally, lowering average prices by wafer fabs since the latter half of 2023 will positively impact the Group’s gross profit in 2024.

Looking ahead, Mr. Wang Wah Chi, Raymond, Chief Executive Officer of Solomon Systech said,

“As consumer electronics demand picks up, we are expecting a rebound in the personal electronic device market, presenting opportunities for the display driver chip sector. Despite the slow market recovery, we remain cautiously optimistic, focusing on enhancing R&D to develop high-value products meeting market needs and actively seek beneficial opportunities to the Group. We are currently partnering with internationally renowned e-book brands to launch full-color e-book readers. Hopefully this would become a new driving force for our new display IC segment revenue. With anticipation of global economic recovery and the vast prospects of the tech-driven world, we are committed to seizing development opportunities and will strive for sustainable business growth, in order to deliver greater returns for customers and shareholders.”

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