TCL's struggling smartphone unit outshone by TV business

HONG KONG -- Not all handset makers have benefited from the smartphone boom of recent years. TCL Communication posted disappointing results on Friday in what could be its last first-half earnings briefing, as the struggling smartphone unit of China's TCL Corp. gears for delisting by the end of this year.

TCL Communication, a 65%-owned subsidiary of electronics producer TCL, said on Friday net profit plummeted 98% to 11 million Hong Kong dollars ($1.41 million) in the six months ended in June.

Revenue fell 17% to HK$10.9 billion on the year, hurt by weak sales of smartphones at home and overseas. Sales of handsets fell the most in mainland China, declining by almost 70%, followed by Latin America, the Middle East and Africa, although sales in Asia-Pacific rose 48%.

The group attributed its slowing China business to a transition from producing cheap mobile phones to mid- to high-end devices. "We are in a stage of transition. Any slowdown is not surprising, but rather expected," said Chief Executive George Guo. The group would count on new product launches, including smart watches, tablets and its latest IDOL 4S smartphones that come with virtual-reality headsets to boost sales, he added.

TCL's smartphone business has lagged behind its peers. According to Gartner, TCL- Alcatel, a joint venture with the French telecom company, was ranked 10th globally as a smartphone brand in the first quarter, after global peers like Samsung and Apple, as well as local rivals Huawei, Lenovo Group and ZTE.

Sagging valuation

Analysts say the delisting of TCL Communication comes amid the parent's uncertainty over its sluggish smartphone business and the unit's sagging stock valuation in Hong Kong. In June, TCL announced a cash offer of HK$7.5 per share, or about HK$3.5 billion, to take the unit private, pending shareholder and regulator approval. Asked about the deal on Friday, Guo said there were no further details to disclose.

Despite a boost in the share price thanks to the buyout, some analysts were cautious. Kary Sei, a Hong Kong-based analyst at China Everbright Securities gave TCL Communication a "sell", citing its weaker fundamentals. "The positive news about the takeover has been digested by the market," he wrote in a note on Tuesday.

Meanwhile, TCL Multimedia, a unit of TCL's television business, fared comparatively better. First-half net profit fell 30% to HK$ 95 million on the year, while revenue was down 7.6% to HK$14.2 billion despite an increase in sales volume.

Sales volume of LCD TVs in its overseas markets grew 18% on the year to 4.28 million sets, outstripping its 4.6% growth at home. The company put the blame on the falling Chinese yuan, as well as fierce market competition and cheaper panel costs that had lowered the average selling price of its TVs. New products such as curved TVs, ultra-high-definition TVs and large screens would be some of the "brighter spots" for business growth ahead, said TCL Multimedia's Chief Financial Officer Michael Wang.

Parent TCL is the world's third-largest LCD TV producer with about a 6% market share in the first quarter. With overseas sales accounting for 40% of revenue, it has extended its multinational footprint over the years through acquisitions of bankrupt German TV maker Schneider in 2012 and Toshiba China in 2014. Its latest move is the formation of a joint venture with Brazilian home appliance company SEMP in July, with a target to boost market share in Brazil to 10%.

Shares of TCL Communication closed 1.6% higher at HK$7.07 on Friday, before results were posted. Shares of TCL Multimedia edged up 0.68% to HK$4.46. Shenzhen-listed TCL has been suspended from trading since Aug. 4, pending an announcement.

Source: TCL's struggling smartphone unit outshone by TV business