GoerTek: Gross Margin Recovery 'Steady Pace', Meta's New Launch 'Another Boost'?

$Goertek(002241.SZ) released its Q2 2025 financial report and interim report (as of June 2025) after the A-share market closed on the evening of August 21, 2025, Beijing time. Key points are as follows:

1. Overall Performance: GoerTek Inc.'s total revenue for Q2 2025 was RMB 21.2 billion, an increase of 0.8% year-on-year. The revenue stabilized this quarter, mainly driven by the smart components and smart hardware businesses. The company's gross margin for this quarter was 14.3%, an increase of 0.7 percentage points year-on-year. Previously, the company's gross margin had significantly declined, mainly due to factors such as the reduction in AirPods orders. Currently, the gross margin of smart acoustic devices has returned to around 10%, and the order share has also recovered.

2. Smart Hardware Business: Revenue for the first half of the year was RMB 20.34 billion, an increase of 2.5% year-on-year. The smart hardware business was significantly affected by the XR market, and due to the previous downturn in the XR market, the company's smart hardware business also experienced continuous decline. Driven by Meta's release of the entry-level Oculus 3S, the smart hardware business saw a rebound in the second half of last year.

However, the current VR products have ultimately failed to bring about a real improvement in demand, and the growth rate of the smart hardware business has once again slowed in this interim report. With the successive release of several new AR glasses, it may inject new vitality into the XR market. Meta is expected to release new smart glasses in September, which is highly anticipated by the market.

3. Traditional Hardware and Components

① Revenue from smart acoustic devices for the first half of the year was RMB 8.32 billion, a decrease of 35% year-on-year, mainly due to the impact of the product iteration cycle. Since the order reduction event, the company's share has recovered, and the gross margin has also returned to around 10%. Attention should be paid to the new AirPods in the second half of the year to halt the decline in the smart acoustic device business;

② Revenue from precision components for the first half of the year was RMB 7.6 billion, an increase of 20.5% year-on-year, mainly due to the impact of state subsidies, which boosted downstream customers' stocking at the beginning of the year. The gross margin of precision components remains significantly higher than that of the complete device business, having a noticeable effect on the overall gross margin improvement.

4. Expenses and Operating Conditions: The company's three core operating expenses for this quarter totaled RMB 1.99 billion, with a core expense ratio of 9.4%, remaining stable. The company's inventory for this quarter was RMB 13.45 billion, an increase of RMB 2.7 billion from the previous quarter, influenced by customer stocking for new products in the second half of the year. The inventory/revenue ratio is 0.63, which is within a relatively reasonable range.

Dolphin Research's Overall View: Stable Performance Recovery, Anticipating New Products from Clients

This quarter, GoerTek Inc.'s revenue stabilized, and the company's gross margin continued to recover. Both smart hardware and precision components performed well in the first half of the year, with significant improvements in their gross margins. The smart acoustic device business experienced a significant decline due to the product iteration cycle, but the new AirPods in the second half of the year are expected to boost the related business.

As the company continues to deepen its focus on the smart hardware field, its current share of total revenue has exceeded 50%. In other words, GoerTek Inc. has completed the transition from the mobile phone and TWS track to the XR track. The company's recent interest-bearing loan to Haylo Labs is also aimed at further deepening its layout in the AR display field.

Although the mobile phone market and Apple business will still impact the company's overall performance, the XR field is the market's main focus. For the company, the main focus is on the following aspects:

a) XR Market Demand Performance: The company is a leader in the XR equipment OEM field, and the demand situation in the XR industry will directly affect the company's smart hardware business revenue. Due to the sluggish demand in the XR market over the past two years, GoerTek's smart hardware revenue has also declined for two consecutive years.

As companies like XREAL and Thunderbird successively release new AR products, the AR glasses track is gradually heating up. The current VR market remains lukewarm, but AR glasses are expected to bring structural growth to the XR market. The market expects AR device shipments to reach 1.1 million units in 2025, thereby driving the overall XR shipment volume to rebound.

b) Expectations for Meta's New Products: Meta is expected to release the smart glasses Hypernova with a screen in September this year, which will further ignite the enthusiasm for AR glasses.

Meta has always been a leader in the XR market, occupying 60-70% of the market share for a long time. Now, with Meta launching new products, it will increase the market's attention to the XR market.

Meta has always been a major customer of GoerTek, and the company has previously secured a sole supplier position for Oculus products. If Meta's new products are successful, GoerTek's performance in the second half of the year will directly benefit.

c) Apple's New Products in the Second Half of the Year: Apple will also hold a new product launch event in September, where it will release the iPhone 17 series and other new products. The previous decline in the company's stock price was partly due to the impact of losing TWS earphone orders, but now the related share has also recovered. If Apple launches new AirPods in the second half of the year, GoerTek's smart acoustic device business is also expected to benefit.

Although the current demand for mobile phones and other consumer electronics products is generally weak, with the release of new products from major customers, GoerTek's performance is expected to see a seasonal rebound in the second half of the year.

Overall (a+b+c), GoerTek is in the midstream of the electronics product industry chain, mainly driven by new products from downstream customers. The recent rise in the company's stock price actually includes some expectations for the successive launch of new products from major customers in September, especially Meta's smart glasses products. If Meta's new products perform well, it is expected to drive the continued recovery of the XR market and the company's performance.

In the short term, the main focus is on the performance of new products from Meta and Apple, which will directly affect the performance in the second half of the year. In the medium to long term, as the company gradually shifts its focus to the XR direction, the overall performance of the XR market will directly affect the company's growth potential. The current market value (RMB 103.6 billion) corresponds to approximately 29 times PE of the core operating profit after tax in 2025 (assuming revenue growth of +1%, gross margin of 12.4%, and tax rate of 11.4%), with core operating profit in the second half of the year expected to achieve a 27% growth.

Stage-specific new products can affect performance in the short term, but the overall market improvement is the driving force for the company's sustained performance growth. Although VR remains lukewarm, AR glasses have injected vitality into the current market. If the upcoming "new products can become blockbuster products," it may bring a real "upward turning point" to the sluggish XR market.

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

I. Overall Performance: Revenue Stabilization, Significant Gross Margin Improvement

1.1 Revenue

GoerTek Inc.'s total revenue for Q2 2025 was RMB 21.2 billion, an increase of 0.8% year-on-year. This quarter, the revenue stabilized, mainly driven by the precision components business and smart hardware business. Due to the impact of the product iteration cycle, the smart acoustic device business continued its downward trend.

Considering the industry chain situation, the current demand in the mobile phone, PC, and other markets is relatively sluggish. The company's performance in the second half of the year will mainly be influenced by new products from Apple and Meta's smart glasses.

1.2 Gross Margin

GoerTek Inc. achieved a gross profit of RMB 3 billion in Q2 2025, an increase of 5.7% year-on-year. The company's gross margin for this quarter was 14.3%, an increase of 0.7 percentage points year-on-year, mainly driven by the improvement in the gross margin of smart hardware and precision components.

By business performance, the gross margin of precision components remained above 20%, while the gross margin of smart acoustic devices and smart hardware was around 10%.

II. Progress of Each Business: More Anticipation for New Products in the Second Half of the Year

In the smart hardware business, it mainly consists of XR devices (Meta's Oculus, Pico, etc.), PS game consoles, and other products. With the growth of the business, the smart hardware business has firmly occupied the first place in the company's (revenue and gross margin) share.

2.1 Smart Hardware Business

GoerTek Inc.'s smart hardware business achieved revenue of RMB 20.3 billion in the first half of 2025, an increase of 2.5% year-on-year. The recovery of the company's smart hardware business in the second half of last year was mainly driven by products such as Oculus 3S, but the growth rate has once again slowed in this financial report, indicating that the market demand for VR is still quite sluggish.

With the successive release of new AR glasses, it is expected to inject new vitality into the XR market. The market expects Meta to launch new smart glasses Hypernova in September, which will once again bring confidence to the market.

GoerTek previously secured a sole supplier position for Oculus. If Meta's new products can become blockbuster products, the company's smart hardware business will also significantly benefit. The XR market has been in a lukewarm state for the past two years, mainly due to the lack of a star product to ignite market demand.

GoerTek Inc.'s smart hardware business achieved a gross margin of 11.5% in the first half of 2025, an increase of 2.3 percentage points year-on-year. Even though the overall market demand for XR is still relatively weak, the company's smart hardware gross margin has gradually recovered from the bottom, driven by new products such as AR.

Since the smart hardware business accounts for the largest share of the company, the improvement in the smart hardware gross margin has a relatively large effect on the overall gross margin of the company.

2.2 Traditional Hardware and Precision Components

① GoerTek Inc.'s smart acoustic device business achieved revenue of RMB 8.32 billion in the first half of 2025, a decrease of 35% year-on-year, mainly due to the impact of the product iteration cycle. The release of new AirPods in the second half of the year is expected to boost the smart acoustic device business.

GoerTek Inc.'s smart acoustic device business maintained a gross margin of 9.9% in the first half of 2025, an increase of 0.1 percentage points year-on-year. As the share gradually recovers, the gross margin of the company's smart acoustic devices has been restored to around 10%.

② GoerTek Inc.'s precision components business achieved revenue of RMB 7.6 billion in the first half of 2025, an increase of 20.5% year-on-year. GoerTek's precision components business mainly includes MEMS, mic, and other electronic devices. This business was originally mainly applied in the mobile phone field, and later began to introduce company products in other products.

GoerTek Inc.'s precision components business achieved a gross margin of 23.5% in the first half of 2025, an increase of 1 percentage point year-on-year. The gross margin of the precision components business is significantly higher than that of the complete device business (around 10%), and it is one of the main contributors to the company's gross margin.

The growth of the precision components business in the first half of the year was mainly due to the state subsidies boosting customers' stocking expectations at the beginning of the year and the introduction of more products into new products such as AR.

III. Expenses and Operating Conditions: Stable Operating Expenses, Relatively Reasonable Inventory

3.1 Operating Indicators

① Accounts Receivable: GoerTek Inc.'s accounts receivable for Q2 2025 was RMB 13.7 billion, an increase of 23% year-on-year. From the accounts receivable/revenue indicator, GoerTek Inc. was 0.65 this quarter, showing an increase.

② Inventory: GoerTek Inc.'s inventory for Q2 2025 was RMB 13.5 billion, an increase of 13% year-on-year. The increase in inventory was mainly for customer new products and peak season stocking in the second half of the year. From the inventory/revenue indicator, GoerTek Inc. was 0.63 this quarter, maintaining a relatively reasonable level.

3.2 Expense Ratio

In Q2 2025, GoerTek Inc.'s three core operating expenses totaled RMB 1.99 billion, an increase of 8.5% year-on-year. The core operating expense ratio was 9.4%, maintaining relative stability.

Specifically: ① Sales Expenses: This quarter was RMB 162 million, an increase of 13.3% year-on-year, with a sales expense ratio of 0.8%; ② Management Expenses: This quarter was RMB 568 million, an increase of 17.8% year-on-year, with a management expense ratio of 2.7%; ③ R&D Expenses: This quarter was RMB 1.258 billion, an increase of 4.1% year-on-year, with an R&D expense ratio of 5.7%.

This quarter, all expenses maintained stable growth, with the company's R&D expenses being the largest part of the three expenses, mainly invested in the company's research and development in the smart hardware and other precision components fields.