Wireless Chip Maker Espressif Down Nearly 40% since Pre-COVID Peak
In 1H 2020, the firm's net profit dropped by 45.42% – it was cutting prices and boosting salaries.
Espressif Systems (688018:SH), a Shanghai-headquartered wireless chip designer, like many other players in the electronics industry, has been discernibly affected by the COVID-19 outbreak. Although the excessive inventory prevented immediate supply chain disruption, the weakening demand made the company cut the prices of its best-selling microcontrollers ESP32 and ESP8266. As a result, the firm's revenue in the first half of 2020 declined by 9.31% year-on-year, while the number of devices sold remained stable. At the same time, the net profit halved, affected by the increasing R&D cost, which swelled from CNY 41.73 million in 1H 2019 to CNY 75.32 million in 1H 2020.
Right before the COVID-19 started accelerating its global rise, the traders on the Star Market – where Espressif is currently listed – were extremely optimistic about the System-on-a-Chip maker: the firm's shares peaked at CNY 305 apiece intraday in mid-February. Since then, the price has fallen by almost 40%, closing the public transactions on September 21 at CNY 182.04. The lack of real business growth over this period drove the valuation down to approximately CNY 14 billion.
Some may argue that Espressif's dip is a temporary phenomenon, and the financial indicators are poised to rebound in a couple of years, stirred by the local wireless revolution (only 16% of the chipmaker's operating income came from abroad in 2019) and the boom in the Internet of Things devices market (IDC, for instance, expects the industry to grow at a 28.7% CAGR in 2018-2025), the company's direct downstream. Nonetheless, it is not that clear yet, as 5G has the potential to disrupt the short-range connectivity segment instead of complementing it, and the world still has all signs of 'the 90% economy.'