**Sanan Optoelectronics Hosts Conference Call to Address Media Speculations**
*Published Date: July 14, 2017
Source: Bright Billion Network*
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Today at noon (July 13th), Sanan Optoelectronics convened a conference call for its management team. The former chairman, Lin Xiucheng, the current chairman, Lin Zhiqiang, and the Secretary-General, Li Xuechao, attended the session to address a series of inquiries. Below are the summarized minutes of the meeting for readers.
**Q:** What are the confirmed and unconfirmed amounts related to the streetlight project? Reports indicate over 70% gross profit margins. Any further details?
**A:** The streetlamp products have already secured 600 million RMB worth of orders in Wuhu. Additional projects are ongoing in Pingtan and Guowang, Fujian. Since 2014, over 20 billion RMB has been committed, with the total contract value exceeding 4 billion RMB. The gross profit margin for these streetlights is over 60%, compared to the industry average of 30-40%. While our margins are slightly higher, our warranty periods are longer.
Regarding the Wuhu Investment, all details have been publicly disclosed. We appreciate everyone’s continued support for Sanan Optoelectronics. The recent news circulating refers to investments made back in 2011. All subsidies were part of a comprehensive plan and have been fully executed over the past few years. Concerns raised in 2013 have been addressed comprehensively. We hope to avoid repetitive discussions.
**Q:** The board has a new chairman. What changes in strategy or goals can we expect under his leadership? How will his vision align with Sanan's existing goals? What are his plans for new ventures, and how do they fit into the company’s future?
**A:** Former Chairman: The group has been managing numerous affairs, particularly post the introduction of the national big fund. The current M&A environment is challenging, so more focus has shifted to routine group operations and securing funds from the security fund. I am not involved in the current listing plans.
Current Chairman, Lin Zhiqiang: Our strategic direction will largely remain unchanged. The first priority is to consolidate our position in the traditional LED business, aiming to increase our current 12% global market share to over 30% in the future. The second focus is on developing integrated circuit (IC) business, primarily around gallium arsenide (GaAs) and gallium nitride (GaN). Currently, GaAs has already started shipping, and we expect accelerated progress in the coming quarters. GaN will be ready by the second half of this year and scaled up next year. Our 3-5-year plan is already underway and will be detailed in upcoming meetings.
Lin Zhidong’s role in the listed company stems from his expertise in managing the domestic and international IC businesses. His clients are both concentrated and critical, making his involvement crucial for smoother communication. He has been brought in to strengthen this segment of our operations.
**Q:** Could you provide updates on the order status and revenue projections for gallium arsenide? Also, what are your expectations regarding production yields and process improvements?
**A:** GaAs orders are currently above 1 billion RMB. The production process involves lengthy product specification verifications. We anticipate increased volumes starting in the second half of the year and steady supplies moving forward. New opportunities are still in the pipeline. Sanan is actively expanding both domestically and internationally, though progress has been slower than anticipated. However, the results are promising.
Our integrated circuit layout differs from competitors, encompassing everything from basic materials to chips. Current chip yields are satisfactory, and we are conducting research to extend our foundational material capabilities. Business performance is expected to improve significantly next year.
**Q:** Based on current progress, what can we expect in terms of business development next year?
**A:** Next year will see substantial improvements. The exact extent depends on how quickly verification processes conclude in the second half of the year.
**Q:** When will the supply-demand dynamics of the LED business stabilize?
**A:** Sanan’s traditional LED business remains robust in the coming years. Entering new fields continues to drive demand. Sanan enjoys high visibility in the next two years, especially with partnerships in foreign markets and major international firms. Prices are expected to remain stable over the next 1-2 years.
**Q:** Regarding recent reports and rumors, will the government continue to support semiconductor and LED industries? Will employee stock ownership plans be reduced in the future? What are the broader plans?
**A:** The government supports semiconductors and LEDs with a uniform national policy. Sanan benefits from preferential policies and subsidies while striving for fairness. Our technological edge ensures strong competitive outcomes.
Employee stock ownership plans last 36 months with a 1:2 allocation. Renewals are not feasible post-expiration unless products are sold or loans are repaid.
**Q:** Quarterly reports indicate strong performance. What are your outlooks for the half-year and annual performance, as well as profitability?
**A:** Overall company performance is positive. First-quarter results were excellent, and we expect a favorable trajectory moving forward. Current pricing systems are stable, and future capacity expansions will boost revenue.
**Q:** How is the compound semiconductor business shaping up in the second half of the year? What are the profit and growth prospects?
**A:** Revenue contributions will be modest in the near term, with significant progress expected in the next 1-2 years. These developments will positively impact revenue and profitability.
**Q:** How many machines were added in the first half of the year, and what is the production ramp-up plan? Are competitors scaling production, and how does this affect the LED market?
**A:** Approximately 100 units will be added in the future. Starting in August, around 10 units will be introduced monthly. Global trends show a decline in Taiwan and limited expansion elsewhere, with Sanan benefiting from OEM agreements. Domestic competitors like Huacan are expanding production, but differences in product layouts minimize market impact. The market is poised for steady growth.
In the long term, Sanan is preparing for future LED demands, particularly in invisible light applications. Expansion plans are forthcoming.
**Q:** What is the current status of LED orders?
**A:** Orders are fully booked with high visibility.
**Q:** What is the market size and application scope for compound semiconductors?
**A:** Applications are vast, evolving with changing consumer habits and business models. GaAs RF is used in communications, IoT, 5G, and power electronics. Fast charging systems are emerging. The market is larger than LEDs.
**Q:** Who are the current overseas competitors, and what is the global market size?
**A:** Globally, the market is sluggish, but China’s market is valued at 10 billion RMB, focusing on GaAs. GaN is newer with limited applications but immense future potential.
**Q:** What support does the National Industry Fund provide?
**A:** I am monitoring relevant ministries closely. Specific details will be analyzed further.
**Q:** What is the current status of the company’s MicroLED efforts?
**A:** Research has been ongoing for 1-2 years. From small batches to industrialization, key equipment is awaited. Laboratory prototypes exist, but commercial-grade products are likely in late 2018, with mass production expected in 2020. Yield rates are controllable.
**Q:** Will the company issue a new announcement regarding yesterday’s news?
**A:** An announcement was made in 2011. Investors questioned it in 2013, and we see no need to revisit. Policies are nationwide, and past projects require no reevaluation.
**Q:** Has the company’s stock price been affected?
**A:** Focus should be on facts. Clarifications were issued in April 2013. We’ve addressed concerns multiple times. Repeated clarification is unnecessary.
**Q:** When will performance forecasts be released?
**A:** Performance-sensitive information is disclosed per exchange rules.
**Q:** What percentage of revenue and profit comes from Anhui Province?
**A:** Annual reports disclose this information.
**Q:** What is the equipment subsidy situation for future production in Anhui and Xiamen?
**A:** Equipment is amortized over 8 years. Advance payments receive subsidies of 30%, 60%, and 10%. Subsidies are granted before equipment deployment.
For example, 103 units in Anhui have been deployed, with amortization over 8 years. Similar patterns apply to Xiamen and other locations.
**Q:** Will subsidies decline?
**A:** Regional programs in Yiwu and Jiangxi continue. Changes depend on global policy shifts.
**Q:** Should the company clarify media reports given investor confusion?
**A:** We will evaluate and communicate accordingly.
**Q:** What is the new machine model?
**A:** It is a 4-inch, 31-chip model. Specific details cannot be disclosed.
Finally, the overall business outlook is strong. In 2016, the annual net profit was 2.167 billion RMB, with a non-recurring profit of 1.74 billion RMB. In Q1 2017, net profits were 690 million RMB, with non-recurring profits at 612 million RMB. These figures reflect year-on-year growth in core operations and diminishing reliance on subsidies.
*Tag: Sanan Optoelectronics addresses media rumors via conference call.*
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