Weak smartphone demand prompts AMS to suspend dividend, avoid mid-term guidance

February 5, 2019

By Kirsti Knolle

VIENNA (Reuters) – Sensor specialist AMS, which supplies Apple with components for its face recognition technology, warned that sales in the first quarter could be more than 20 percent lower than last year as it expects smartphone demand to remain weak.

“Reflecting a more volatile end market and macro-economic environment, AMS has decided to suspend its cash dividend policy for fiscal year 2018 to focus on strengthening its business position in 2019,” it said on Tuesday.

AMS’s already battered shares took another hit, tumbling 15 percent as the Swiss-listed group disappointed investors and analysts with its guidance and fourth-quarter results.

“We believe the company’s outlook in 3D sensing remains weak, as a result revenue trends and margins are likely to remain under pressure,” Liberum analysts said in a note.

AMS provides Apple with optical sensors for 3D facial recognition features on its newest iPhones and analysts estimate Apple accounts for around 45 percent of AMS’s revenue.

AMS’ statement added to a bleak earnings season for semiconductor companies and further stoked fears of an industry slowdown after sales warnings from Apple, Samsung and Taiwan Semiconductor last month pointed to stagnating smartphone demand and a cooling Chinese economy.

German chipmaker Infineon Technologies on Tuesday revised down its guidance for full-year revenue growth and said it would trim investments due to an “increasingly difficult business environment”.

NO MID-TERM GUIDANCE

AMS decided to no longer provide a mid-term guidance figure, blaming volatile markets and uncertain demand trends and industry development.

“Given lack of visibility into 2019, it is not certain whether this is the last of the estimate cuts,” JP Morgan analysts said. Analysts’ estimates for the group have declined significantly in recent months due to Apple’s difficulties.

The group abandoned its 2019 revenue target of more than $2.7 billion in November, but still guided for annual double-digit revenue growth for the coming years.

It paid a dividend of 0.33 euros per share last year and analysts had expected a higher payout for 2018.

DECLINING PROFIT

AMS expects revenue in the first quarter of 2019 to fall to $350 million-390 million amid continued weak smartphone demand. It generated adjusted earnings before interest and tax (EBIT) of $61.9 million and revenue of $491 million in the three months through December.

AMS sees the EBIT margin in the current quarter falling to a “low single digit” percentage range from 13 percent in the fourth quarter. That would imply an EBIT of $4 to $16 million assuming a 1 to 4 percent margin range, Credit Suisse analysts calculated.

Analysts have highlighted increasing competitive pressure, a threat from new technologies, overcapacity issues and a high debt level facing the company. Net debt increased to $1.36 billion as of the end of December from $987.9 million a year earlier.

AMS said 3D sensor deliveries to two Asian Android smartphone makers agreed last year have started shipping or will start in the first half of 2019. It has finished a solution for sensors capable of scanning surroundings in 3D, so-called world-facing 3D sensors, for a major Android manufacturer and expects shipments to start in the current quarter, it said.

(Reporting by Kirsti Knolle; Editing by Michael Shields and Susan Fenton)