Deswell Industries, Inc. (Nasdaq: DSWL) today announced its financial results for the fiscal second quarter ended September 30, 2010.

Net sales for the second quarter ended September 30, 2010 were $24 million, an increase of 15.2% compared to net sales of $20.8 million for the same quarter ended September 30, 2009. Net sales increased by 6.3% to $13.1 million in the plastic segment and by 28.1% to $10.9 million in the Company’s electronic and metallic segment. The operating loss in the second quarter of fiscal 2011 was $1.7 million, compared to an operating income of $2.9 million for the same quarter of fiscal 2010.

Total gross margin decreased to 12.0% in the second quarter ended September 30, 2010 compared to 13.9% in the same quarter last year. Gross profit margin in the plastic segment decreased to 10.5% of net sales for the second quarter of fiscal 2011 compared to 15.5% of net sales for the same quarter of last fiscal year. The decreased gross margin in the plastic segment was mainly due to an increase in labor costs resulting from a raise in the minimum wage rate, increases in overtime allowance and headcount, as well as an increase in factory overhead as a percentage of sales during the quarter. Gross profit margin in the electronic and metallic segment increased to 14.0% of net sales for the second quarter ended September 30, 2010, compared to 11.6% of net sales for the year-ago quarter. The increase in gross margin in the electronic and metallic segment was mainly attributable to an increase in sales revenues, and savings in raw materials resulting from improvements in material usage which offset increased labor costs which were driven by increases in the minimum wage rate, headcount and overtime allowance, as compared to prior year quarter.

The Company reported a net loss of $1.6 million for the second quarter ended September 30, 2010 compared to net income of $3.1 million for the quarter ended September 30, 2009. Basic and diluted net loss per share was ($0.10), (based on 16,194,000 and 16,205,000 weighted average shares outstanding, respectively) compared to basic and diluted net income per share of $0.20, (based on 15,880,000 and 16,016,000 weighted average shares outstanding, respectively) for the same quarter ended September 30, 2009.

Net sales for the six months ended September 30, 2010 were $44.5 million, an increase of 2.1%, compared to sales of $43.6 million for the corresponding period in fiscal 2010. Operating loss for the six months ended September 30, 2010 was $4.4 million, compared to operating income of $2.7 million for the first six months of fiscal 2010. The Company reported net loss of $3.9 million in the first half of fiscal 2011, compared to net income of $2.9 million for the six months ended September 30, 2009. Deswell reported basic and diluted net loss per share of ($0.24) for the first six months of fiscal 2011, (based on 16,194,000 and 16,200,000 weighted average share outstanding, respectively), compared to income per share of $0.18, (based on 15,836,000 and 15,902,000 weighted average shares outstanding, respectively), for the prior corresponding period.

The Company's financial position remained strong at the end of the second quarter of fiscal year 2011, with $32.6 million in cash and cash equivalents at September 30, 2010, compared to $35.1 million at March 31, 2010. Working capital totaled $58.3 million as of September 30, 2010, versus $59.8 million as of March 31, 2010. Furthermore, the Company has no long-term or short-term borrowings at September 30, 2010.

Mr. Franki Tse, Chief Executive Officer, commented, “We were pleased to see sales increase during the quarter, particularly in the electronics and metallic segment of our business. We experienced a steadier component supply which helped the electronics division report enhanced margins. Nonetheless, our overall profitability was impacted by inflation, RMB appreciation and labor wage increases. Our SG&A for the quarter was below last year, reflecting our keen focus on cost control, and we are continuing to reduce headcount and working out a more flexible and cost effective structure to maximize the profitability of our business. The balance sheet remains extremely strong and we are very focused on continuing to develop the Company’s strong customer base. Given our loss for the quarter, we have not declared dividends to maintain cash reserves. “

About Deswell

Deswell manufactures injection-molded plastic parts and components, electronic products and subassemblies, and metallic products for original equipment manufacturers (“OEMs”) and contract manufacturers at its factories in the People’s Republic of China. The Company produces a wide variety of plastic parts and components used in the manufacture of consumer and industrial products; printed circuit board assemblies using surface mount (“SMT”) and finished products such as telephones, telephone answering machines, sophisticated studio-quality audio equipment and computer peripherals. The Company’s customers include N&J Company, Digidesign Inc., Vtech Telecommunications Ltd.

To learn more about Deswell Industries, Inc., please visit the Company’s website at www.deswell.com.

Forward-Looking Statements

Statements in this press release that are "forward-looking statements" are based on current expectations and assumptions that are subject to risks and uncertainties. For example, our statements regarding our expected growth in sales from the electronic and metallic division in the coming year and our efforts to reduce overhead costs in our plastic division are forward-looking statements. Actual results could differ materially because of the following factors, among others, which may cause revenues and income to fall short of anticipated levels or our overhead expenses to increase: our dependence on a few major customers; vigorous competition forcing product price reductions or discounts; the timing and amount of significant orders from our relatively few significant customers; continuing increases in resin prices that cannot be passed on to customers; unexpected production delays; obsolete inventory or product returns; losses resulting from fraudulent activity of our customers or employees; labor shortages that increase labor and costs; changes in the mix of product products we manufacture and sell; adverse currency fluctuations in the renminbi and Hong Kong dollar when translated to US dollars; potential new accounting pronouncements; and the effects of travel restrictions and quarantines associated with major health problems, such as the Severe Acute Respiratory Syndrome, on general economic activity.

For further information regarding risks and uncertainties associated with the Company’s business, please refer to the “Risk Factors” section of Company’s Annual Report on Form 20-F, copies of which may be obtained from the Website maintained by the Securities and Exchange Commission at http://www.sec.gov.

All information in this release is made as of the date of this press release. Deswell undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Deswell’s expectations.
     
DESWELL INDUSTRIES, INC.
 
CONSOLIDATED BALANCE SHEET
( U.S. dollars in thousands)
September 30, March 31,

2010

2010
ASSETS (Unaudited) (Audited)
 
Current assets :
Cash and cash equivalents $ 32,596 $ 35,120
Marketable securities - 5,673
Accounts receivable, net 21,878 14,399
Inventories (note 2) 20,605 15,808
Prepaid expenses and other current assets   3,003   1,844
Total current assets 78,082 72,844
Property, plant and equipment - net 57,623 60,705
Deferred income tax assets - 70
Goodwill   392   392
Total assets $ 136,097 $ 134,011
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities
Accounts payable $ 12,107 $ 7,298
Accrued payroll and employee benefits 3,930 2,570
Customer deposits 1,755 883
Other accrued liabilities 1,633 1,905
Income taxes payable - -
Deferred income tax liabilities   339   340
Total current liabilities   19,764   12,996
 
Shareholders' equity
Common shares nil par value
- authorized 30,000,000 shares; issued and outstanding
16,193,810 shares at September 30, 2010 and
16,191,810 shares at March 31, 2010, respectively 50,807 50,803
Additional paid-in capital 7,719 7,719
Accumulated other comprehensive income 5,316 5,316
Retained earnings   52,491   57,177
Total shareholders' equity   116,333   121,015
Total liabilities and shareholders' equity $ 136,097 $ 134,011
             
DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
( U.S. dollars in thousands, except per share data )
 
Quarter ended Year ended
September 30, September 30,

2010

2009

2010

2009
(Unaudited) (Unaudited)
Net sales $ 24,023 $ 20,852 $ 44,510 $ 43,590
Cost of sales   21,129     17,945     40,716     37,080
Gross profit 2,894 2,907 3,794 6,510
Selling, general and administrative expenses 3,835 3,867 7,658 7,783
Other income (expenses), net   (773 )   3,898     (529 )   3,939
Operating income (loss) (note 3) (1,714 ) 2,938 (4,393 ) 2,666
Interest expense - - - -
Non-operating income, net   184     150     581     205
Income (loss) before income taxes (1,530 ) 3,088 (3,812 ) 2,871
Income taxes   67     (36 )   65     1
Net income (loss) $ (1,597 ) $ 3,124   $ (3,877 ) $ 2,870
 
 
Net income per share (note 4)
Basic:
Net income per share $ (0.10 ) $ 0.20   $ (0.24 ) $ 0.18
Weighted average number of shares
outstanding (in thousands)   16,194     15,880     16,194     15,836
 
Diluted:
Net income per share $ (0.10 ) $ 0.20   $ (0.24 ) $ 0.18
Weighted average number of shares
outstanding (in thousands)   16,205     16,016     16,200     15,902

Copyright Business Wire 2010