Sat, Aug 21, 2004 - Page 11 News List

CMC Magnetics expects to beat DVD profit target

BALANCING SUPPLIES Despite a drop in monthly sales, the net income of CMC, which makes half the world's recordable DVDs, could exceed NT$10 billion this year

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CMC Magnetics Corp (中環), the world's biggest maker of recordable DVD discs, expects to beat its earlier target of 50 percent profit growth this year because of strong demand, chairman Bob Wong (翁明顯) said.

"Growth will be over that," he said in a television interview.

That means net income will exceed NT$10 billion (US$293 million) compared with NT$6.7 billion a year earlier.

Wong's forecast comes even as the maker of about half of the world's recordable DVDs said supplies of the disks have exceeded demand. In June, the Taipei-based company's sales fell for the first time since November 1992, according to reports CMC filed to the Taiwan Stock Exchange. The drop in monthly sales widened to 19 percent last month from 10 percent in June.

"The stock is very cheap at the moment," said Chris Ruffle, who counts shares in the company among the US$60 million Greater China Fund he manages at Martin Currie Investment Management.

The company's shares have lost 37 percent of their value since Jan. 1, compared with a 5 percent decline for the TAIEX. The stock rose 1.2 percent to NT$16.60 yesterday.

CMC is opening a US$200 million factory next month that will help triple the company's output of DVDs that can be recorded at higher speeds.

"We still have to consume a lot of inventory in the third quarter," Wong said. "In the fourth quarter, supplies will become balanced."

CMC's rivals include Ritek Corp (錸德), the world's second-largest maker of recordable disks, and Moser Baer India Ltd.

Ritek's monthly sales started declining in May. The Hsinchu-based company's drop in monthly revenue compared with the year earlier period widened to 39 percent last month, from a 17 percent decline in June. Ritek had posted gains in monthly sales since January last year.

Ritek and CMC started shifting more of their output to recordable DVDs in 2002 as smaller competitors increased production of recordable compact discs and prices tumbled as a result of oversupply.

CMC's sales last year were NT$32.8 billion, compared with NT$28.2 billion for Ritek and 15.2 billion rupees for New Delhi-based Moser Baer in its fiscal year ended March 31.

CMC said it will continue to raise money from sales of new shares and bonds. The company in June announced plans to sell as much as US$200 million worth of convertible bonds to finance the new plant.

Wong repeated his expectation to maintain a gross margin of about 50 percent for several years by investing more than rivals in production of new types of recordable DVDs, he said.

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