According to Taiwan Media Economic Daily, Sheng Qun, a prominent MCU manufacturer, faced a substantial challenge as their inventory sales ballooned to a staggering 435 days by the end of the second quarter, equating to a daunting 14.5 months of stock. In response to this inventory glut, the company has devised a strategic plan to alleviate the situation and achieve a turnaround.
Shengqun has implemented a “positive price strategy” in an earnest attempt to reduce their burgeoning inventory. Furthermore, they have pledged to curtail the number of returns received from wafer factories on a quarterly basis throughout the remainder of the year. The goal is to bring inventory levels down to more manageable levels and improve their financial performance, aiming to match or surpass the results achieved in the preceding quarter.
Widely recognized for their MCU products that cater to an array of industries, including consumer electronics, Internet of Things, and intelligent home applications, Shengqun has nurtured close relationships with wafer generation factories, such as Liandian. To combat the current sluggish state of the MCU market, the company has taken the bold step of launching an active price reduction strategy, signalling their commitment to regaining momentum in the industry.
Despite their efforts, the sluggish MCU market has had indirect repercussions, adversely affecting wafer replacement plants that rely on receiving orders. Nevertheless, Sheng Qun remains optimistic and determined to mitigate these challenges and resume their growth trajectory.
In the second quarter, Shengqun experienced a decline in revenue, with NT $715 million, representing a 5.9% decrease compared to the previous quarter, and a substantial 57% drop year-on-year. The financial picture for the first half of the year was equally disheartening, with revenue falling to NT $1.476 billion, signifying a significant 58.8% reduction compared to the first half of the previous year.
Despite the challenging financial landscape, there was a glimmer of hope in terms of net profit in the second quarter, which showed an encouraging increase of 52.7% compared to the preceding quarter. However, this positive trend was overshadowed by a drastic annual decrease of 84.1%. Similarly, in the first half of the year, the net profit reported NT $92.88 million, reflecting an alarming 89.2% decline compared to the same period last year.
Cai Rongzong, the deputy general manager of Shengqun, acknowledged the challenging global economic climate, which has contributed to the high inventory levels that have persisted for 435 days. He emphasized the importance of a proactive approach and announced that, starting from the third quarter, the company would focus on an active price strategy to expedite de-stocking and pave the way for future growth.
Presently, the channel merchants hold a substantial share of Shengqun’s inventory, ranging from 5% to 60% of the company’s total stock. Inventory removal will commence from these channel merchants, and it will only be towards the end of the process that Shengqun will start to receive goods after the route has been reshaped.
Despite the challenging market conditions, there are encouraging signs, as sales results from the channel merchants in the months of April to June have shown monthly increases, indicating a positive shift in inventory status. This increase signals that inventory has already begun to undergo a transformation towards a more manageable state.
Moreover, Cai Rongzong expects a 27% reduction in the number of returned films in the third quarter compared to the previous quarter. He anticipates even further reductions in the fourth quarter, which will contribute to a sustained decline in overall inventory levels. Additionally, in the third quarter, Shengqun will continue implementing an active pricing strategy to accelerate inventory reduction through the channel and facilitate an increase in new orders.
Looking ahead to the third quarter, Tsai Wing-Chung, an industry expert, forecasts that the operational conditions will likely resemble those of the second quarter. Observations and adjustments will be made as they proceed towards the fourth quarter. Due to the impact of the current general economic environment, the demand for short-term orders remains significant, while long-term orders are relatively less prominent. Tsai anticipates that this situation may not become the norm but reflects the cautious nature of the market as it experiences a slight recovery. He likened the economic situation to a moderate rise in temperature, indicating progress but not yet reaching the point of significant growth. Consequently, it is expected that demand will remain flat during the first half of the second half of the year.
However, according to the Electronic Times, even though the MCU industry typically experiences a peak season around this time, restoring normal market momentum has proven difficult this year. Mainstream consumer-grade MCU downstream customers are still adopting a wait-and-see approach, exhibiting caution and hesitancy. As a result, it is expected that the MCU market demand will not fully bottom out and regain robust momentum until the fourth quarter of 2023. Shengqun and other industry players may have to navigate these challenges with patience and a strategic long-term perspective.
In conclusion, Sheng Qun, the MCU manufacturer, faces significant inventory challenges, but they remain determined to reduce their stock levels through an active price strategy and other measures. Despite the current downturn in the MCU market and the cautious approach of downstream customers, the company is hopeful for a gradual recovery as they look toward the fourth quarter of 2023 as a potential turning point.
