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Digital camera maker Asia Optical's disappointing outlook triggers sell-off

Shares of Asia Optical Co (亞洲光學) plunged by almost the daily limit of 7 percent yesterday, as concern over the company's disappointing outlook for this year triggered a sell-off.

Shares in Asia Optical, the nation's No. 4 digital camera maker, fell 6.72 percent to NT$166.50 (US$5.14) on the Taiwan Stock Exchange yesterday. Overseas fund managers sold a net of around 1.2 million Asia Optical shares.

Revenue and camera shipments are expected to decline this year after the company decided to pull out of low-margin operations to maintain profitability, Asia Optical chairman Robert Lai (賴以仁) told investors last Friday.

Lai said the company plans to hold margins steady this year by diverting its focus to high-end products, such as cameras with a higher resolution, better zoom functions and other special features.

Lai expects this strategy to bear fruit next year, saying shipments should soar to 7 million units.

Average selling price (ASP) should recover to US$150 next year from US$90 to US$95 in the fourth quarter of last year as the company concentrates on high-end models, he said.

Lai told investors on Friday that revenue would drop to less than NT$30 billion (US$927.3 million) this year from NT$33.6 billion last year.

Digital cameras made up 44 percent of the company's revenue last year, while camera lenses contributed 30 percent. Asia Optical shipped 4.6 million cameras last year.

Lai also slashed almost 40 percent off the company's forecast for camera shipments for this year, down to 3.9 million units from an earlier estimate of 6 million units.

Despite the decline, Asia Optical said in a statement filed to the Taiwan Stock Exchange that the new strategy would have a medium to long-term impact on its operations.

In addition to low confidence in the company's outlook for next year, Vincent Chen (陳豊丰), an analyst with CLSA Ltd in Taipei, described Asia Optical's forecast for this year as disappointing.

"The company has surprised investors by predicting a 10.1 percent year-on-year decline in 2006 revenue," Chen said in an investment note yesterday.

"It is unavoidable that local digital camera contract manufacturers like Asia Optical will have to adjust their strategies to cope with falling prices," another industry analyst said on condition of anonymity.

But it will take time for the manufacturers to land high-volume orders from customers, such as Japanese camera vendors, as most firms are reluctant to outsource high-end models, he said.

Asia Optical posted net income of NT$2.8 billion for last year, up 14.4 percent from NT$2.44 billion the previous year. Earnings per share also increased to NT$12.31 from NT$11.26 over the same period.
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