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Cell Phone Dip Calls for Cuts

Even with the world’s biggest smartphone maker as a customer, Semtech Corp. has suffered from the slowdown in the phone market, resulting in an 8 percent cut in its global workforce. The Camarillo maker of integrated circuits’ annual report states that it employs about 1,400 in 31 offices in 14 countries, meaning the 8 percent layoff will affect about 112 people worldwide. The cutback, announced July 15, is the company’s second in 18 months. In January 2014, Semtech announced that it would cut 6 percent of its employees. Sandy Harrison, director of investor relations at Semtech, wouldn’t disclose how many employees would be laid off at the Camarillo location but said it was “minimal” because of the company’s large global footprint. The cause of the layoffs, Harrison said, was weaker demand for Semtech’s products from its South Korean-based cellphone customers, top smartphone maker Samsung Electronics Co. Ltd. and television manufacturer LG Electronics. Samsung faces pricing pressure from its competitors, Harrison said, and has chosen to forego using Semtech’s protection devices – components that protect sensitive circuitry from dangerous voltage spikes – in some of its phones in order to trim its cost for internal components. “The real issue is they are not buying as many units as we thought they might,” Harrison said. Craig Ellis, who follows Semtech and the semiconductor industry for brokerage B. Riley & Co. LLC in San Francisco, said Semtech missed sales expectations in the second quarter due to Samsung’s exclusion of Semtech’s protection chip in its mid-range priced phones. “It was a tough start to the year for protection (business segment) and overall sales,” Ellis wrote in a May 28 report for investors. “Management believes Samsung smartphone weakness and protection defeaturing are at play, which more than offset growth (the company generated) in China and in other end markets.” Weaker demand Smartphone makers are facing weaker demand from consumers, according to a recent report from Taipei-based market research firm TrendForce Corp. The trend is forecast to continue through the rest of the year. Shipments of 298 million smartphones in 2015’s second quarter represented only a 1.9 percent bump up from the 304.4 million units that shipped the prior quarter, according to Trendforce. As a result, the research firm downsized how much it expects the market to grow this year to 8.2 percent from its previous estimate of 11.6 percent. It cited a negative economic outlook worldwide and weakening consumer demand for the phones for the second half of this year. “Compared with the high 26.5 percent growth of 2014, this year’s smartphone shipment growth is entering a plateau period,” said Avril Wu, TrendForce’s smartphone analyst, in a statement. “Vendors are likely to face serious challenges when shipping their products in the near future.” Samsung, which makes the Galaxy S smartphone, leads the market but the research firm expects its shipments to drop again this year, because Chinese smartphone makers are taking an increasingly greater chunk of the low-to-mid-range priced segment of the market. Samsung’s smartphone market share slid to 28 percent last year, reported TrendForce in early 2015, from 32.5 percent in 2013. Semtech investors have suffered with the market slump: The company, which has a market cap of $1.21 billion, has seen stock prices drop 6 percent to $17.80 on July 22, from $18.41 on July 15 when it announced the most recent round of layoffs. Semtech sells to other smartphone makers such as Huawei Technologies Co., the leader of Chinese-made smartphones as rated by TrendForce. But Samsung is a significant customer, and sales are slipping. Sales to Samsung accounted for 8 percent of Semtech’s business in its second quarter, compared to 14 percent for the year-ago quarter.

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