Shares in Prodisc Technology Inc (精碟) bucked the trend yesterday by falling nearly 3 percent in reaction to rumors in the market that the company was about to lower its financial projection for the year.
The optical storage media manufacturer later confirmed that it would not reach its original revenue and profit targets as a result of the unforeseen 50 percent fall in the price of recordable compact discs since July.
In April, Prodisc forecast revenue for the year of at least NT$7.6 billion, a pre-tax profit of NT$2.04 billion and a net profit of NT$2.2 billion.
"We probably won't reach those targets," said Jay Chang, assistant vice-president of the financial department at Prodisc, "but the earnings per share should still be above NT$5."
Analysts had predicted an earnings per share of NT$8.42, according to the latest average of analyst estimates by Barra Global Estimates.
The likely downward financial adjustment had been anticipated, and partly explains the steep drop in the company's share price, analysts said.
Yesterday, as the main stock index rose by over 6 percent, shares in Prodisc fell 2.9 percent to NT$82.5. The stock has lost nearly 40 percent of its value in the last ten trading days.
"The price of recordable compact discs is still bad, so profit margins have fallen," said Hsu Wei-che, an analyst at Taiyu Securities Co.
Demand this year for the compact discs has turned out to be lower than originally expected, and supply now exceeds demand, according to the Photonics Industry & Technology Development Association, a non-profit organization that works with the government as well as local industry to increase the competitiveness of Taiwan's opto-electronic industry. As a result, prices have fallen.
Meanwhile, the speed of output of Prodisc's new products has not been as high as expected, analysts said.
"Output of the new products has just started, so the contribution to revenue this year won't be so high," said Andy Chen, an analyst at Jen Hsin Securities Co. "They should reduce their forecast because they won't reach the 80 percent target."
According to stock market regulations, a company expecting to miss its financial projection by more than 20 percent must lower its forecast.
As margins for recordable compact discs have fallen, Prodisc has moved into the development and production of more profitable products such as rear projector screens for LCDs and broadband optical fiber components such as dense wave length division multiplexers and thin film filters.
Prodisc had hoped that the start of shipments of new products from the second half of the year would increase revenue and profits substantially.
Revenue for the months of August and September did reach record highs, but total revenue for the first nine months of the year of NT$4.09 billion came to only 53.8 percent of the forecast target.
Meanwhile the pretax profit for the first eight months of the year of about NT$710 million represented just over a third of the original profit target.
The figure is about right, said Chang, adding that the audited third quarter results should be released on Tuesday.
Chang acknowledged that the revenue contribution from the new products wouldn't be so large this year, but should grow substantially next year.
Eighty-five percent of revenue will come from recordable compact discs this year, said Chang. However, the new products should make up about 45 percent of revenue next year. "That's a little better," said Chang.
RSS