MediaTek Inc (聯發科技), the world's largest maker of chips for DVD players, said its quarterly profit fell for the first time after it lost market share and prices fell in the three months ending June 30.
The company's second-quarter net income declined to NT$3.2 billion (US$96.5 million) from NT$3.3 billion in the year-earlier period. Earnings per share fell to NT$5.08 from NT$5.35 because of changes in the share base.
MediaTek, the first company to combine the functions of several DVD player chips into one, lost market share as rivals introduced similar products.
Inventory at makers of DVD players in China rose as rivals forced companies into bankruptcy in the second quarter, Merrill Lynch analyst Dan Heyler said before the earnings announcement.
"MediaTek's net income was slightly lower than expected, signaling dwindling profit due to rising inventory," said Maggie Chien (簡美玉), who helps manage the equivalent of US$30 million at Capital Investment Management Co (群益 投顧) in Taipei.
"It probably still can make a net income of around NT$4 billion in the third quarter as the industry enters annual peak season," she said.
MediaTek sells most of its chips to Sichuan Changhong Electric Co (四川長虹) and rival DVD-player makers in China. These captured the bulk of the market more than two years ago by selling products that retailed for about US$35.
At least 30 player makers went bankrupt in the second quarter to avoid paying royalty fees, according to Merrill Lynch.
MediaTek's share of the market for DVD controller chips in the first half this year slipped to 39 percent from 65 percent, according to Merrill Lynch.
Zoran Corp, a rival company based in Sunnyvale, California, raised its share to 17.7 percent, from 4.5 percent in the same period a year earlier, Merrill Lynch said.
The company's gross margin, or the percentage of sales left after production cost, fell to 47.9 percent in the second quarter from 51.9 percent in the year-earlier period.
Mediatek said it hopes the gross margin would remain unchanged in the third quarter from the second quarter.
MediaTek's second-quarter sales, posted earlier, rose 21 percent to NT$9.7 billion.
The company said it expected sales to remain at that level for the third quarter.
The company had its smallest quarterly profit gain on record, at 10 percent, in the first quarter this year. MediaTek posted 18 percent profit growth in the first quarter of last year, the smallest previous rise.
MediaTek has been aiming to offer new products to help lift profit.
New chips for mobile phones won't contribute to the company's sales until the end of this year, later than MediaTek earlier predicted.
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