VIA's revenue continues to decline

Computer designer VIA Technologies Inc (威盛電子) will record lower revenue in November and falling profit margins next year as PC demand slows and competition in the chipset market heats up, an official at VIA said yesterday.

VIA sales in October of NT$3.032 billion, down 14 percent from the previous month. VIA had predicted that sales in November could reach a new record high. "They said this but didn't achieve it because PC demand was not as high as expected," said Huang Han-wei, an analyst at Fubon Securities.

This, as well as a slowing US economy and a failure in demand to grow substantially during the Christmas season, has created a build-up in inventory for both VIA and its motherboard clients, analysts said.

"November's already gone, that was a bit of a shocker for us," said the official at VIA, adding that revenue for the month should come in slightly below October's figure. Analysts predict revenue could fall over 15 percent compared with October. "December's looking really bad," the official at VIA said.

After posting a record NT$3.8 billion in revenue in August, VIA must make NT$4.1 billion in revenue over the final two months of the year to meet its financial forecast for the year.

VIA's of directors on Wednesday officially approved the company's new forecast, revised for the second time this year. While the re-revised predicted pretax income of NT$6.8 billion represented a 22 percent rise over the previous figure, the company kept forecast revenue unchanged at NT$30 billion. VIA posted NT$25.91 billion in revenue in the first ten months of the year.

Analysts surprised by the downturn in light of the slowdown in PC demand during the second half of the year, and predicted a tough first quarter next year for VIA. Yesterday, shares in VIA fell 0.48 percent to NT$207. That's down 55.6 percent from its fifty-two week high of NT$466 posted in early September.

"VIA's products are directly related to sales growth in the PC market," said Elise Tung, an analyst at Taiwan International Securities Corp. Meanwhile, "Everyone knows the US market is about to go into a slowdown; the Asian markets are growing pretty fast, but not enough to compensate," she said.

Still, VIA continues to predict its revenue will grow by 50 percent to NT$45 billion next year, the official at VIA said. But after posting unusually high profit margins this year, the chipset designer anticipates its gross profit margin will fall by a quarter next year as more intense competition trims profits to more traditional margins of about 30 percent.

But while VIA will likely have to lower prices in the face of increased competition in the chipset market, lowered profits should be offset by increased sales of higher profit central processing units.

Sales chipsets should make up about 90 percent of revenue this year, with CPUs making up the rest, the VIA official said. Next year, chipsets should account for 70 percent of sales, with the CPU ratio rising to 25 percent to 30 percent.

Analysts less optimistic. VIA will face increased competition in the chipset market from Intel Corp, and to a lesser extent from Silicon Integrated System Corp, and Acer Laboratories Inc. While profits will fall, VIA should retain its dominant position in that market, analysts said.

In the CPU market, it will have to compete with Intel and Advanced Micro Devices Inc.

"They're trying to market their CPU for the low-cost or information appliance products," said Elise Tung. "But distributors don't think VIA's CPU is good enough or competitive enough compared with AMD or Intel." To expect 25 percent of VIA's revenue to come from CPU sales next year is being very optimistic, she said.