Chip Shortages, Consumer Sentiment Weigh on UEI Q4 Outlook
Semiconductor supply shortages remain, though there are some improvements, said Universal Electronics Inc. CEO Paul Arling on the company’s Thursday Q3 earnings call. “The semiconductor shortage problem is not going to just go from a big issue to the next quarter completely resolved,” Arling said.
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Certain vendors have moved back to “pre-shortage, pre-COVID operating principles of shorter lead times” in the neighborhood of six to eight weeks, indicating they have a “ready supply of parts” to meet forecasts, Arling said. “If you have a quarter where you forecast that I need a million of this particular part, and you call them during the quarter and say you need another 100,000, they can actually get them for you,” he said, but “if you want those extra parts, you’re going to have wait 60 weeks.”
Other vendors remain in shortage mode, with lead times out more than a year, “and you’re on allocation,” Arling said. “If you need extra parts, you can sometimes get them, but it’s a wrestling match with the vendor.” Vendors are trying to help “because they want the revenue, too,” but “it’s a struggle to get any extra parts you might need.” Shortages are “vendor by vendor, part by part,” he said.
Semiconductor capacity is being added “at a record pace,” Arling said, saying new fabs coming on line will “reallocate capacity to parts like ours.” Lead times will return to six to eight weeks, with a “ready supply of parts … but we’re not there yet,” he said. For some orders, the company delivers as much product as it can in a quarter and could probably do “10% more if we could get all the parts that we would like to have.”
For Q4, UEI expects net sales to be $125 million-$140 million vs. $144.9 million in the year-ago quarter. In addition to parts shortages, consumer sentiment is affecting the Q4 outlook. "Customers have voiced concern about where consumers are going to be this holiday season," Arling said, noting TV sales are typically strong into January, too. "They're concerned about the attitude of consumers given the level of economic headwind that the consumer is feeling right now."
Any company in the consumer market “is just concerned" with interest rates and inflation at record highs and middle-class families struggling against higher gas and grocery prices. Though UEI doesn’t sell a lot of its products directly to consumers, “we do sell to companies that do,” and those companies “want to be ready for demand because it’s unpredictable right now as to exactly how the consumer is going to react over the next three months,” Arling said.
Products with advanced features and IP boosted UEI’s margins half a percentage point year on year in Q3 to 29.9%, said Arling. Sales were $148.5 million, down from $155.6 million in the year-ago quarter.
The company believes it has over 10% of the OEM HVAC thermostat market. Rosenblatt Securities expects smart thermostats to become a standard part of any new installation and noted UEI has “multiple OEM partners to drive market share gains,” said analyst Steven Frankel in a Friday investor note.
UEI secured a design win with an MVPD customer for its nascent energy-harvesting remote control, Arling said, saying the remotes are able to incorporate advanced features including voice, QuickSet, self-configuring capability and power efficiency. Frankel expects energy harvesting remotes to be an accelerating trend over the next couple of years. UEI will be “the advanced remote supplier for a newly announced syndicated streaming platform,” he said. Shares closed 9.2% higher Friday at $22.30.