Montage Technology’s Revenue Down 1.13% as Memory Market Plunges in 2019
COVID-19 and China
Image credit: Montage Technology official website

Montage’s financial performance has been mirroring major industry trends.
► This is both good and bad.

The vast majority of estimations made before and during the first weeks of 2020’s first quarter expected the global semiconductor industry to start the new decade on a high note. All those projections were quickly adjusted as the COVID-19 outbreak grew into a pandemic soon after. Gartner, for instance, has cut its forecast by USD 55 billion and now anticipates global chipmakers will gain as much as USD 415.4 this year, or 0.9% lower than 2019’s USD 419.1 billion. IDC, another well-known forecaster, is even more pessimistic this time. 

Memory has long been a bellwether for the entire microelectronics sector. Highly commoditized, the segment is directly affected by the proverbial economic cycle, with its peaks and troughs. In 2019, the global memory market took an over 30% dip, stirred by major chipmakers’ excessive inventories – which can be simply identified as an oversupply.

Shanghai-based Montage Technology (688008:SH), which develops memory interface elements for DDR RAM, the most common type of volatile memory, is no exception. The company went public last year and is currently one of the largest of those listed on the Shanghai exchange’s Star Market (here is our newest overview of the tech board). While its stock was doing well in 2019, the financial results for this period don’t look that bright. 

In the audited annual report published (in Chinese) on April 25, the chipmaker claims that in 2019 it earned around CNY 1.74 billion (USD 246 million), or 1.13% less than in the previous year. Meanwhile, the operating cost dropped even more significantly (by 12.60%), driving the net profit margin up from nearly 42% in 2018 to 54% in 2019 (other cost categories decreased, too). The latter is, undoubtedly, something Montage can boast. But there are, indeed, certain concerns about hurdles the company has been facing in terms of business scale and its dependence on the industry cycle.

In the first quarter of the new year, despite a rather tough local outbreak, it showed that at least some of these concerns are pointless. The firm reported revenue of more than CNY 495 million (USD 70 million) in January-March, up by 22.49% year-over-year. Nonetheless, like most of China’s chipmakers, it is yet to encounter feeble demand coming from the downstream due to the long-term nature of contracts in the industry and massive inventory. While this might smooth out the company’s future losses, double-digit revenue growth is not likely to last for long.

In the March quarter, Montage Technology added 11.42% to its market cap. 


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