VR "fizzling out," tariffs "backstabbing," where is GoerTek's way out?

Goertek released its Q1 2025 financial report (ending March 2025) after the A-share market closed on April 21, 2025, Beijing time. The key points are as follows:

1. Overall Performance: Demand Decline, Revenue Drops Again. $Goertek(002241.SZ) Total revenue for Q1 2025 was 16.3 billion yuan, a year-on-year decline of 15.6%, lower than market expectations (20.9 billion). The decline in Q1 was mainly due to the drop in demand for devices such as VR. After a double-digit recovery growth in Q4, the decline in Q1 indicates that the previous Meta VR inventory pull was not sustainable. In Q1 and throughout this year, the VR, PS, and headphone markets will experience a bleak period with a lack of new products. The company's gross margin for this quarter was 12.4%, a year-on-year increase of 3.2 percentage points, better than market expectations (11.2%). The company's gross margin had declined mainly due to order cuts from Apple, but with the recovery of customer orders and the rebound in smart hardware gross margins, the overall gross margin has returned to double digits.

2. Expenses and Operating Conditions: Reasonable Inventory levels and Rising Operating Expenses. Goertek's inventory for Q1 2025 was 10.746 billion yuan, a year-on-year decline of 8.4%. The current inventory/revenue ratio stands at 0.66, and is historically at a relatively reasonable level. The combined ratio of the four core expenses in this quarter was 10.9%. Moreover, under the impact of declining revenue, the operating expense ratio has increased significantly.

Overall View on Goertek: Disappointing Q1 Performance and Dim Prospects for the Year

This quarter, the company witnessed another double - digit decline in revenue, primarily attributed to the slump in demand. The growth in the company's profit mainly originated from investment income and other non - operating aspects.

Previously, the company's annual report indicated a significant improvement in Q4 performance, mainly driven by the low-priced Quest 3S and Apple's new AirPods 4, which raised high expectations for the company's Q1 performance. However, the revenue decline reported this time serves as further evidence of the persistent weakness in downstream demand.

Currently, nearly 60% of the company's revenue comes from the smart hardware sector, which is mainly affected by VR/AR devices such as Meta and PS. After the release of Quest 3S in 2024 and the end of the product cycle for PS5, the growth space for the company's smart hardware business in 2025 will be limited. On the other hand, the company is still expected to benefit from Apple's upgrades to components like MEMS, but the current revenue from precision components accounts for less than 20%, having a minimal impact on the company's overall performance. As downstream customers enter a product release gap, the company shows no signs of performance improvement.

In addition, due to the company's capacity layout in both Vietnam and the domestic market, recent adjustments to tariff policies will also have a certain impact on the company. If tariffs are implemented, they will further increase the relevant costs on the manufacturing side for the company. Moreover, this "sluggish" financial report has already shown a decline in demand, and the company's performance in 2025 will continue to face pressure.

Here is Dolphin Research's specific analysis of GoerTek's financial report:

1. Overall Performance: Demand Decline, Revenue Declines Again

1.1 Revenue Analysis

GoerTek's total revenue in the first quarter of 2025 was 16.3 billion yuan, a year-on-year decline of 15.6%, lower than market expectations (20.9 billion).

Driven by the launch of the low-priced Quest 3S and Apple's AirPods 4, the company's revenue growth rate in the fourth quarter returned to 27%. However, revenue declined again in the first quarter, indicating that the sustainability of current downstream demand remains insufficient.

As the company enters a new - product - launch gap with downstream customers, its revenue is still unlikely to improve.

2.2 Gross Profit Analysis

GoerTek achieved a gross profit of 2.023 billion yuan in the first quarter of 2025, a year-on-year increase of 13.9%. The year-on-year growth in gross profit is mainly due to the increase in gross profit margin.

The company's gross profit margin this quarter was 12.4%, an increase of 3.2% year-on-year, better than market expectations (11.2%). Previously, the company's gross profit margin was relatively low, mainly because Apple cut orders for headphones. However, as the company's OEM share recovers, its overall gross profit margin has improved.

Currently, in the company's gross profit margin structure, the gross profit margin for precision components is relatively high, around 20%; while the gross profit margins for smart acoustic complete machines and smart hardware are both below 10%.

2. Expenses and Operating Conditions: Inventory Relatively Reasonable, Operating Expenses Increase

2.1 Operating Indicators

① Accounts Receivable: GoerTek's accounts receivable in the first quarter of 2025 were 8.713 billion yuan, a year-on-year increase of 18%. From the accounts receivable/revenue indicator, GoerTek's ratio this quarter was 0.53, which is at a relatively reasonable level.

② Inventory: GoerTek's inventory in the first quarter of 2025 was 10.746 billion yuan, a year-on-year decline of 8.4%. From the inventory/revenue indicator, GoerTek's ratio this quarter rose to 0.66. Considering the situation in previous quarters, the company's current inventory indicator is relatively reasonable. However, as it will enter a gap period for new product launches from downstream customers, the company's total inventory will also gradually increase each quarter.

2.2 Expense Rate Situation

In the first quarter of 2025, GoerTek's total expenses amounted to 1.775 billion yuan, a year-on-year increase of 20.7%. The expense ratio was 10.9%, with an increase in expenses and a decline in revenue, leading to a rise in the expense ratio for this quarter.

1) Selling Expenses: This quarter, selling expenses were 174 million yuan, a year - on - year increase of 15.2%, with a selling expense ratio of 1.1%. In the context of weak downstream demand, the company chose to increase its sales - related spending;

2) Administrative Expenses: This quarter, administrative expenses were 512 million yuan, a year-on-year increase of 11.8%, with an administrative expense ratio of 3.1%. The company's administrative expenses remained around 500 million yuan, and the expense ratio increased mainly due to the decline in revenue;

3) R&D Expenses: This quarter, R&D expenses were 1.096 billion yuan, a year-on-year increase of 32.8%, with an R&D expense ratio of 6.7%. R&D expenses accounted for the largest portion among the four expenses, mainly directed towards increased R&D investment in smart hardware and other precision components. The company is committed to continuously enhancing its R&D capabilities and plans to further increase related expenditures in the future;

4) Financial Expenses: This quarter, financial expenses were -7 million yuan, as the company experienced an increase in exchange gains due to currency fluctuations.

2.3 Net Profit

In the first quarter of 2025, GoerTek's net profit attributable to the parent company was 469 million yuan, a year-on-year increase of 23.4%, which was below market expectations (560 million yuan). The growth in the company's profit this quarter mainly came from non-operating factors such as investment income. However, despite the decline in revenue and the increase in gross margin, the operating profit for this quarter remained basically flat.

Driven by the new products Quest 3S and AirPods 4, the company achieved good performance in the fourth quarter, and the market raised its expectations for the company. Nevertheless, the first quarter financial report cast a shadow over the market, as downstream demand still failed to be sustained.