How is global chip shortage to impact AD8’s business?

Highlights

  • Audinate shares dropped following the release of the trading update.
  • AD8 delivered strong quarterly results, however, expects a revenue drop due to chip shortage.
  • Audinate is accelerating the preparations to announce the next-generation Brooklyn product by Q4 FY2022.

The global shortage of chips around the world has affected businesses of many electronic manufacturers and is expected to continue its impact on the industry.

Australia based Audinate Group Limited (ASX:AD8) has also highlighted in its latest trading update that the semi-conductor shortage might impact its second-half results.

A look at the latest trading update

Headquartered in Australia, Audinate Group Limited is the developer of the professional Dante® media networking solutions, a leading product in the audio-visual (AV) industry. It has offices in the US, UK, and Hong Kong. Audinate, an US supplier, is amongst the top 30 global semi-conductor manufacturers and a top supplier to the AV industry.

Audinate Group Limited has delivered strong results for the September 2021 quarter (Q1 FY2022) with 46.1% growth in unaudited revenue to US$7.6 million compared to the previous corresponding period.

The demand for Dante products continues to stay at record levels. The backlog of orders for chips, cards & modules stood at US$14.8 million. 

global shortage of chips, AD8 reported 46.1% growth in unaudited revenue in Q1 FY2022

RELATED READ: Audinate Group (ASX:AD8) reports ~19% revenue growth over H2FY20; stock remains muted

Trading update revealed expected business dip in second half of FY22

The Company updated about a sudden fall in the supply of silicon chips, used mainly in the Brooklyn II, Broadway, and Dante video products. This is primarily because of its reliance on silicon chips supply from a leading Korean semiconductor foundry, impacted by surging demand for silicon chips.

Being a leading global supplier, the biggest challenge of the company is that it cannot assure delivery of open orders for AD8. In the case of AD8, this relates to orders dating back to January 2021. In the upcoming period, parts would be supplied using an allocation system with supply remaining restricted for the probable future.

Source: ASX update, 18 October 2021

How is Audinate planning to tackle the situation?

In the existing situation of shortage of chips, the Company is accelerating its plans to release the next generation Brooklyn product by Q4 FY2022. Thus, the company intends to bring forward engineering work planned for the subsequent 12 months. The next generation Brooklyn would be pin compatible, drop-in substitute for the existing Brooklyn II. The Company believes that many OEMs would also be using this in their respective products.

sAt present, AD8 is directing its resources on fast-tracking product transitions to platforms with enhanced supply outlook and alternate part availability. Meanwhile, Audinate will use an allocation process to supply current inventory for Brooklyn and Broadway orders during the rest of Q2 FY2022.

What next?

The year 2022 would be a challenging period for both AD8 as well as OEMs due to the shortage in chip supply. However, it would be exciting to see how this new technology would bring changes in the existing next-generation Brooklyn product in the coming period.

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