MediaTek shares plunge after revision of forecast

MediaTek Inc (聯發科) saw its share prices plunge by the daily limit yesterday after the company announced another cut in its revenue forecast for this quarter.

Shares of MediaTek dropped 6.97 percent to close at NT$393.5 yesterday, underperforming a 0.13 percent decline in the benchmark TAIEX index. The stock has dropped 40 percent since its session high of NT$656 on Oct. 30.

In a filing to the Taiwan Stock Exchange late on Tuesday, the company said it would see a 25 percent decline in its revenues this quarter from a record high NT$26.69 billion (US$820.5 million) in the third quarter.

It's the second reduction in fourth-quarter revenues that the company -- the world's biggest supplier of chips for DVD players and the nation's biggest handset chip designer -- has taken in two months.

On Nov. 30, the company said its fourth-quarter revenues would drop by 15 percent to 20 percent compared with an original projection of 10 percent to 12 percent decline made on Nov. 1.

The firm said at the time that it was cutting its revenue forecast due to a shortage in key components such as power amplifier chips.

This time, MediaTek did not elaborate on the reduction. But market watchers suspected that a series of macroeconomic policy adjustments in China to affect Chinese consumer demand may have led to the company's downward projection.

Commenting on the move, Citigroup Global Markets said the Hsinchu-based chip designer's 25 percent reduction in fourth-quarter revenues is slightly worse than its forecast of a 20 percent to 21 percent decline from last quarter.

It expected MediaTek to post a decline of 10 percent to 12 percent in next year's first quarter, Citigroup analyst Andrew Lu (陸行之) said in a note to clients yesterday.

But Citigroup advised investors to "look beyond the inventory adjustment quarters" of this quarter and next and maintained its "buy" recommendation on MediaTek shares, with a target price of NT$675, Lu said in the note.

IBT Securities Investment Consulting Co (台灣工銀證券投顧) also reiterated a "buy" rating on MediaTek on the company's strong outlook for next year.

Wang Chieh-jen (王玠仁), a researcher at IBT Securities Investment, said in his report released yesterday that high inventories at its downstream clients had pushed MediaTek to revise its forecast for this quarter.

MediaTek is expected to post NT$18.18 billion revenues this quarter, down by 25.61 percent from the previous quarter, Wang said in the report. Earnings will fall by 37.29 percent quarter-on-quarter to NT$7.43 billion this quarter, or NT$7.16 earnings per share (EPS), he added, compared with an EPS forecast of NT$7.83 by Citigroup.

But Wang said MediaTek would benefit from rising mobile handset and digital TV demand in China with its strong position in the global positioning system and television integrated circuit (IC) segments.

SinoPac Securities Corp (永豐金證券), meanwhile, said in another note that it expected more downward revisions from MediaTek.

"Our outlook in first quarter is for [MediaTek's] revenues to decline another 5 percent to 10 percent; We are revisiting our model," the note said.