X-Fab tempers expectations | The time

The weak euro is playing tricks on the chipmaker X-Fab. Despite a strong second quarter, the company is downgrading its revenue forecast.

First the good news. X-Fab, a sister company of Belgian chip developer Melexis, has beaten forecasts between April and June. Appetite for chips in the auto, industrial and medical sectors led to revenue of $188.8 million, up 17 percent year-over-year and at the top of the forecast range of $180 to $190 million.

In the three core sectors, the chip company, listed on Euronext Paris, can achieve double growth, ranging from 19 percent in the automotive division to 34 percent in the pharmaceutical industry. “We are still experiencing unprecedentedly strong demand for our technologies, primarily driven by accelerating electrification. This applies in particular to the car market,” says CEO Rudi De Winter.

Fewer bookings

But despite the solid growth, X-Fab also faces obstacles. Bookings fell sharply in the second quarter, from $239.3 million in the previous quarter to $162.6 million between April and June. The reason? Inflation. X-Fab is trying to pass its higher costs onto its customers and move them into long-term contracts. Therefore, the chipmaker has “suspended the acceptance of firm orders for 2023 until the commercial terms are determined.”

The essence

  • X-Fab sees second-quarter revenue at the upper end of expectations.
  • The chip company registers fewer bookings because negotiations with customers are still ongoing.
  • X-Fab invests 500 million dollars to increase the production of chips for the automotive sector.
  • The sales forecast is subdued due to the weaker euro.

X-Fab hopes to cover 70 percent of its activities with long-term contracts, but that is not yet the case. “We are making progress towards achieving the goal,” it reads. However, X-Fab is in contact with its customers to make agreements on the minimum quantities they need to ensure their supply.

Margin slightly under pressure

These higher costs have also had an effect on profitability. X-Fab saw its second quarter gross operating profit (EBITDA) total $42.5 million. This corresponds to an annual growth of 15 percent. Despite this, the margin in relation to revenue of 22.5 percent is half a percentage point lower than in the first quarter. This is due to rising costs. In addition, X-Fab was required to make a provision of $13.8 million for a settlement in an arbitration case with a customer.

X-Fab continues to invest to meet the high demand from the automotive industry. On average, electric cars contain more chips than a classic car with a fuel engine. To respond to this, X-Fab is committing $500 million over the next three years to increase the production capacity of its factory in Malaysia by half. This year, $200 million is already being processed in the accounts.

Narrower income range

For the rest of the year, X-Fab remains quite positive. For the current quarter, the group expects sales of between 182 and 192 million dollars with an EBITDA margin of 20 to 24 percent.

“We continue to experience unprecedented demand for our technologies, primarily driven by accelerating electrification”

But the sales forecast for the whole year is being tightened up. At the beginning of this year, the target was a revenue of 750 to 815 million dollars. Now that range has narrowed to $750 to $790 million with an EBITDA margin of 22 to 25 percent. This is primarily due to the weaker euro. For this quarter, X-Fab assumes an exchange rate of $1.02 per euro, for the full year it aims for $1.06 per euro.

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