Novatek made nearly 1 share capital in Q3 and Q4 entered seasonal correction

IC design factory Novatek (3034) held a press conference today (6th). Novatek General Manager Wang Shouren said that due to the crowding out effect of demand for AI infrastructure, memory supply has continued to be tight and prices have risen sharply this year. Brand customers have already raised funds in the first half of the year. In addition, the demand for large-size panels has weakened recently, and customers have entered the inventory adjustment stage. It is expected that operations in the fourth quarter will enter a seasonal correction, with a quarter-on-quarter decrease of approximately 5.4% to 9.6%, and gross profit margins falling between 37% and 39%.

Novatek's revenue in the third quarter was 30.97 billion yuan, a quarterly increase of 8.06%, an annual increase of 26.03%, a gross profit margin of 40.89%, a quarterly decrease of 1.53 percentage points, an annual increase of 4.6 percentage points; after-tax earnings were 6.08 billion yuan, a quarterly decrease of 3.97%, an annual increase of 66.26%, and after-tax earnings per share of 9.99 yuan.

Wang Shouren pointed out that from the perspective of various application markets, the production of TVs, monitors and laptop panels is expected to decrease quarter-on-quarter in the fourth quarter, mainly due to the early purchase of goods by brand customers in the first half of the year and the impact of inventory control at the end of the year. In terms of mobile phones, orders from Chinese customers are expected to increase slightly, but demand for tablets will decrease quarter-on-quarter, while the automotive market will remain roughly the same.

Looking further at the product lines, Novatek expects that the revenue of the three major product lines in the fourth quarter will decline from the previous quarter. Among them, the revenue of small and medium-sized driver ICs is expected to decline slightly, mainly due to the adjustment of tablet inventory and the gradual entry of non-Chinese mobile phone customers into the stocking adjustment stage; Chinese mobile phone customers OLED driver IC orders are expected to increase. The quarterly decline in SoC product revenue will be higher than that of small and medium-sized driver ICs, mainly affected by the reduction in shipments of large-size panel-related products.

In terms of gross profit margin, Novatek expects the gross profit margin to drop to 37% to 39% in the fourth quarter, down from 40.89% in the third quarter. This is mainly affected by the reduction of low-cost inventory, changes in product mix, and a significant increase in memory-related costs. Among them, rising memory costs will dilute the gross profit margin of SoC products. Novatek stated that it has gradually adjusted the selling prices of SoC and driver IC products in accordance with market conditions to reflect the increase in costs.

Looking forward to 2027, Wang Shouren said that the benefits of capacity crowding caused by AI will continue, and the prices of wafer foundry and packaging and testing will continue to rise. In terms of terminal demand, affected by the maintenance of high-end memory prices and the adjustment of terminal product selling prices, changes in mobile phone, PC and notebook shipments and market demand will be closely observed next year. However, Novatek will continue to launch a number of new products next year, which is expected to drive revenue growth.