KUALA LUMPUR: Hard disk drive (HDD) components maker JCY International Bhd is planning to reduce its workforce in its Malaysian operation from 14,000 workers to 9,000 (by 36%) to improve its gross profit margin.

JCY executive director Datuk James Wong said the company plans to make the job cuts over the next three to five years.

“This will result in an improvement of 5% in gross profit margin [per year], which translates to RM100 million in savings every year,” he told reporters after presenting the company’s second quarter results ended March 31, 2015 (2QFY15) yesterday.

He said the reduction in workforce will be enforced in tandem with the company’s plan to increase automation across its manufacturing facilities in Malaysia, Thailand and China, for which the company has allocated RM200 million to RM300 million over the next three to five years.

Apart from the 14,000 workers in Malaysia, JCY also has about 5,000 workers in Thailand and China.

Wong said over the past five years, the company’s revenue has been flattish due to the gradual reduction in the average selling prices (ASPs) of HDD components.

JCY (fundamental: 2.1; valuation: 1.8) reported yesterday that its net profit for 2QFY15 rose 34.25% on-year to RM51.15 million or 2.52 sen per share from RM38.1 million or 1.88 sen per share, due to a weaker ringgit and better ASPs.

Revenue was up 7.04% on-year to RM508.8 million in 2QFY15 compared with RM475.32 million previously. The company also declared a dividend of 1.25 sen per share.

For the six-month period (6MFY15) net profit rose 48.24% on-year to RM101.34 million or 4.99 sen per share from RM68.36 million or 3.37 sen per share, while revenue rose 4.68% on-year to RM996.67 million from RM952.13 million.

JYC said although original design manufacturer shipment numbers for the first three months of the year revealed continued softness in personal computer (PC) builds, enterprise shipments are expected to recover in the second half of 2015 on increased demand from traditional storage or server vendors, and hyperscale companies. 

This is largely due to the fact that the Sony Playstation 4 commenced selling in China towards the end of March. Coupled with that is the prospective PC refresh cycle from Windows 10, which may help improve HDD shipments.

Wong also said JCY International stands to gain from Seagate Technology plc’s reported RM1.05 billion investment to expand the latter’s operations in Penang — which was revealed in August last year — as Seagate is JYC International’s second largest customer after Western Digital Corp.

He said JYC International stands a good chance of supplying HDD components to Seagate, which currently holds a 40% global market share in the manufacturing of HDD.

This article first appeared in The Edge Financial Daily, on May 22, 2015.