The chip developer Melexis is gradually ending its ‘cooling off period’. The Ypres company largely met analyst expectations in the first quarter, while CEO Marc Biron signals that stocks in the automotive sector are normalizing. ‘The bottom has been reached. We expect growth for the rest of the year.’
Minus 21 percent. That was the for the Melexis share
rather atypical balance on the Brussels stock exchange for the time being this year. Investors expected a significant slowdown in the automotive sector, which is crucial for the chip developer, a sentiment that was supported, among other things, by a warning from Taiwanese chip giant TSMC. CEO CC Wei admitted last week that he is no longer counting on growth for car chips this year, but is calculating a contraction.
Melexis itself has also talked about a slight cooling in its market in recent quarters. The car makers, who have built up a lot of inventory in recent years in times of chip shortages, would correct that inventory to bring it in line with the sluggish demand for cars. Every car that rolls off the production line worldwide contains an average of 18 Melexis chips. Electric cars in particular are bursting with chips, but that is precisely a market that is taking a hit.
Savings
The impact of the inventory correction appears to be relatively minor. Melexis reports a turnover of 241.8 million euros in its quarterly figures, right in the middle of its own projections for the quarter. That is slightly lower than what analysts had hoped for on average (243 million euros), but still an increase of 6 percent compared to the same quarter a year earlier. Compared to the last quarter of last year, there has been a contraction of 4 percent.
Melexis compensates for this with a slightly better than expected operational result. Operating profit amounted to 63.7 million euros, 4 percent more than last year and the previous quarter. That figure reflects cost savings and an adjustment in the structure that Melexis implemented in the previous quarter, it said. “Our operating costs are historically low,” said financial director Karen van Griensven during an analyst chat. ‘We continue to invest in research and development, which may cause costs to rise again. But the idea is to keep that under control.’
On a net basis, profit increased by 4 percent compared to a year earlier and even by 6 percent compared to the last quarter of last year, good for 52.9 million euros.
No longer just cars
“The inventory corrections we saw in recent quarters are now behind us,” CEO Marc Biron insists. The CEO thus echoes the sentiment he expressed after the annual figures: that the cooling-off period for Melexis would be short-lived. ‘We see signals in the automotive sector that things are improving. This is evident from our analyzes and from conversations with customers,” said Biron, who spoke of a global trend. ‘We also notice this in our order book. The situation is a lot better than six months ago.’
We always said we would make a soft landing in 2024, but the market did not want to believe that.
Karen van Griensven
CFO Melexis
Biron sees the electrification of the vehicle fleet and the great focus of manufacturers on safety and luxury trends as things that will continue to drive growth beyond the first quarter. In fact, Melexis expects to achieve stronger growth figures in the near future. “The second half of the year will be stronger than the first,” Biron said. Griensven’s financial director expressed himself a little more sharply: ‘We have always said that we would make a soft landing in 2024. Only the market didn’t want to believe that before.’
Investors have clearly adjusted their strict judgment. With a gain of 17 percent – around noon – Melexis experienced its best trading day ever on Wednesday.
Accelerated growth
Melexis sees potential not only in the vital car market, which generated 90 percent of turnover in the first quarter. Chips for robotics, new mobility, sustainability and healthcare should take the Ypres company ‘beyond automotive’. “There is also an acceleration of growth in those adjacent sectors,” Biron said, without giving precise figures.
For the current quarter, Melexis expects to achieve a turnover of between 242 and 247 million euros. For the full year, the company is still aiming for a turnover of ‘around 1 billion euros’, a gross margin of 44 percent and an operating profit margin above 25 percent. This amounts to at least 250 million euros, compared to a record profit of 261 million euros for the 2023 financial year.
Many analysts wanted to know whether these projections could be increased, supported by the signs of improvement in the automotive industry. CEO Biron promptly rejected that question: ‘We reached the bottom in the first quarter and we expect growth during the rest of the year. “It’s too early to make long-term assumptions,” he said. “At this time we are sticking to our outlook.”
