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Lens maker Largan bullish on new iPhone camera demand

Taiwanese supplier beats smartphone slowdown, but China rivals loom

TAIPEI -- Largan Precision, the world's leading smartphone camera lens supplier, foresees continued growth this quarter, supported by the start of orders for the upcoming iPhones and the demand from Chinese clients like Huawei Technologies and Xiaomi.

The earnings outlook for the Taiwanese manufacturer rests on the increasing number of lenses in phone cameras, which counteracts the slowdown in handset sales. 

Largan on Thursday reported strong results for the quarter ended on June 30, thanks to better-than-expected demand from Chinese phone makers Huawei, Oppo and Vivo, which launched new models earlier this year.

Largan's net profit climbed nearly 17% on the year to 5.5 billion New Taiwan dollars ($180.41 million). Its gross margin gained 1.93 percentage points to 68.61%, and its operating margin added 1.32 percentage points to 59.35%.

When asked if the momentum from Chinese handset clients for the existing models will slow this quarter, Largan CEO Adam Lin said in an earnings call that demand is in line with the company's expectation.

As for the upcoming new smartphones for a "major client" -- generally understood to mean Apple -- the models could produce favorable average selling prices for Largan owing to new specifications, Lin said.

"The sales performance this month is estimated to be better than last month [June], while the demand next month will be even better," Lin said. The company did no provide year on year comparisons.

The Nikkei Asian Review has reported that Apple warned suppliers of a roughly 20% drop in new iPhone orders, as the U.S tech giant makes a conservative estimate in a slowing global market. But the use of 3D-sensing for all of the three new iPhones and the dual-camera feature would benefit lens suppliers like Largan.

"Generally speaking, the smartphone industry may have started to slow, but the demand for more camera lenses does not stop there," Lin has told reporters after the company's annual general meeting on June 12. "The same smartphone shipment quantity would require more camera lenses than in the past."

Huawei rolled out the world's first phone with a three-lens camera, the P20 Pro, this year, and rivals are expected to follow suit. Apple also likely to introduce a model of iPhone in 2019 with such a feature, market analysts forecast. Currently, most premium phones, including iPhones, have dual-lens cameras.

 Largan produced more than 17.5 billion units of optical components in 2017, up from 14.8 billion the year before, according to the company, while in 2016. Although it splits orders for iPhone lenses with Genius Electronic Optical and Kantatsu, Largan is still the major supplier and dominates the high-value wide-angle lens for the device's main and rear cameras.

The company also enjoyed market shares of over 70% for high-end lenses used in flagship handsets by Huawei, Oppo, Vivo, Xiaomi, and other Chinese smartphone makers. It also began to supply to some lenses to Samsung Electronics, the world's largest smartphone company, this year.

"Largan's chance comes as more premium handset makers will begin to adopt triple-lens cameras by the end of this year and next year," said Jeff Pu, an analyst at Yuanta Investment Consulting. "For the triple-lens, Largan could maintain a monopoly for a while, as competitors are still lagging behind in technology."

However, Chinese rivals such as Sunny Optical Technology are bound to eat into its market share, as most Chinese smartphone companies would shift orders to domestic suppliers if they could provide similar lenses, according to Pu. Chinese suppliers also wants to grab market share in the iPhone supply chain.

Largan lost some orders to Sunny Optical for Huawei's new handsets earlier this year, owing to the Taiwanese firm's constrained production capacity, which could not meet the Chinese smartphone maker's surging demand in time. During the earnings call, Lin said Largan's capacity is still tight, while "some of the models" still facing stiff competition from peers.

To maintain Largan's lead in the industry, Lin said the company is seeking a new site covering more than 130,000 sq. meters in central Taiwan to expand its capacity. If successful, Largan plans to start the new plant by 2020, and the majority of the additional capacity will go toward "camera lenses with new technology" used in smartphones, Lin said.

The new optical technology is to supposed to enable innovative image functions, but Lin said he cannot elaborate on the features as Largan has inked confidentiality agreement with clients.

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