VR "bomb", tariffs "backstab", where is the way out for Goertek?

Goertek Inc. released its Q1 2025 financial report (as of March 2025) after the A-share market closed on April 21, 2025, Beijing time. Key highlights:

1. Overall Performance: Demand Decline Leads to Revenue Drop Again. ①$Goertek(002241.SZ) Q1 2025 total revenue was RMB 16.3 billion, down 15.6% YoY, missing market expectations (RMB 20.9 billion). The decline was mainly due to weakening demand for VR devices. After double-digit recovery growth in Q4, Q1 slipped back into decline, indicating Meta VR restocking lacked sustainability. From VR and PS to earphones, the entire product line is stuck in a sluggish cycle with no new releases this quarter—or likely for the full year. ② Gross margin this quarter was 12.4%, up 3.2 ppts YoY, beating expectations (11.2%). Previous margin compression was driven by Apple order cuts, but rebounded thanks to order recovery and improved smart hardware margins, lifting overall margins back to double digits.

2. Expenses & Operations: Inventory Rational but Costs Rise. Goertek’s Q1 2025 inventory stood at RMB 10.746 billion, down 8.4% YoY. The inventory/revenue ratio of 0.66 remains historically reasonable. Core operating expense ratio rose to 10.9% due to revenue decline.

Goertek Outlook: Weak Q1, Full-Year Recovery Unlikely

Double-digit revenue decline this quarter reflects demand weakness. Profit growth was mainly driven by non-operational factors like investment gains.

Following Q4’s rebound—fueled by Quest 3S and AirPods 4—the market expected a strong Q1. However, renewed revenue decline confirms downstream demand softness.

With ~60% of revenue from smart hardware (Meta/PS VR/AR devices), growth in 2025 looks limited post-Quest 3S and PS5’s end-of-cycle. Apple’s MEMS upgrades may benefit its <20% precision components segment, but impact will be marginal. With clients in a product gap, no turnaround is in sight.

Tariff policy changes may also affect its Vietnam/China production. If implemented, manufacturing costs could rise. This "bleak" report signals persistent demand headwinds for 2025.

Dolphin Research’s detailed analysis:

1. Overall Performance: Demand Drop Drives Revenue Decline

1.1 Revenue

Goertek’s Q1 revenue fell 15.6% YoY to RMB 16.3B, below consensus (RMB 20.9B).

Q4’s 27% rebound (Quest 3S/AirPods 4) proved short-lived, highlighting demand fragility.

With clients entering a product drought, revenue recovery remains elusive.

1.2 Gross Margin

Gross profit rose 13.9% YoY to RMB 2.023B, lifted by margin expansion.

Q1 gross margin of 12.4% (+3.2ppts YoY) beat estimates (11.2%). Post-Apple order cuts, margin recovery reflects regained OEM share.

Precision components (20% margin) outperform smart audio/hardware (<10%).

2. Expenses & Operations: Inventory Steady, Costs Climb

2.1 Operating Metrics

① Receivables: RMB 8.713B (+18% YoY), with receivables/revenue at 0.53—within range.

② Inventory: RMB 10.746B (-8.4% YoY), inventory/revenue at 0.66—historically normal. Inventory may rise as clients’ product gaps persist.

2.2 Expenses

Operating expenses grew 20.7% YoY to RMB 1.775B (10.9% of revenue).

1) Sales: RMB 174M (+15.2% YoY, 1.1% of revenue)—boosted amid weak demand;

2) Admin: RMB 512M (+11.8%, 3.1%)—stable absolute spend, ratio up on revenue drop;

3) R&D: RMB 1.096B (+32.8%, 6.7%)—largest expense, focused on smart hardware/precision components;

4) Finance: RMB -7M—FX gains.

2.3 Net Profit

Net profit rose 23.4% YoY to RMB 469M, below consensus (RMB 560M). Gains were non-operational (e.g., investments). Operationally, flat profits reflect revenue drop offset by margin lift.

Q4’s Quest 3S/AirPods 4 hype gave way to Q1’s "cold shower" of weak demand.