Sat, Sep 25, 2004 page11

• Disc oversupply to persist

  MORE COMPETITION With many new players in the market and prices cut in half since March, discmaker Ritek says excess capacity will go on through the year

  • BLOOMBERG
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  Ritek Corp (錸德), the world's second-largest maker of recordable discs used to store computer files, said excess supply may last until the end of this year because of overinvestment, Chief Executive Gordon Yeh (葉垂錦) said.

  "The third quarter and the fourth quarter for the industry will be difficult," Yeh said in an interview in Taipei. "Maybe by the end of the year there will be some change."

  Market leader CMC Magnetics Corp (中環) and Hsinchu, Taiwan-based Ritek are facing increased competition from as many as 20 disc makers, including some in China. Prices of recordable compact discs have halved since March, analyst Tony Tsai (蔡東松) said.

  "The overcapacity won't be digested in the third and fourth quarters," said Tsai, director of Taiwan Rating Corp (中華信評), an affiliate of Standard & Poor's. "Prices won't pick up by the end of this year."

  Prices of recordable compact discs used to store computer files plunged to US$0.10 from US$0.20 cents in March and should remain stable during the rest of this year, Tsai said.

  Ritek aims to invest less next year to expand capacity, Yeh said without elaborating.

  "Last year, a lot of people got profit from the DVD market and increased capacity," Yeh said.

  Ritek reported net income of NT$1.3 billion in the year ended Dec. 31, while CMC had net income of NT$6.7 billion. Both reported losses in the year-earlier period.

  CMC and Ritek posted their first losses this year in the second quarter. Even so, Bob Wong (翁明顯), chairman of Taipei-based CMC, said on Aug. 20 he expects profit growth this year to beat the company's earlier target of 50 percent on strong demand.

  Yeh declined to give an outlook for earnings at Ritek during the rest of this year, citing a silent period associated with the company's intended sale of about US$200 million of bonds in Europe.

  Ritek's sales plunged last month by 41 percent compared with the same period a year earlier, based on reports filed to the Taiwan Stock Exchange.

  The percentage drop in sales has widened each month since May when sales started falling.

  CMC Magnetics' monthly sales last month tumbled 26 percent, the largest percentage drop since the company's revenue started falling in June.

  Some fund managers are cautioning against investing in companies that count on the computer business for sales growth.

  Ritek shares have fallen 31.9 percent this year and CMC shares 31.6 percent, compared with a 6 percent gain in the benchmark TAIEX.

  Deutsche Bank AG is among candidates to manage a US$220 million bond sale, Ritek spokesman Eric Ai (艾元瑞) said on Aug. 26. Part of the money raised would be used to pay off debt, he said at the time.

  Credit ratings company Standard & Poor's has assigned a B+ rating to Ritek, which is four levels below investment grade.

  Standard & Poor's has given CMC Magnetics a BB- rating, one level above Ritek's.

  "Ritek hasn't invested as aggressively as CMC," Tsai said."It's definitely a good sign that they're trying to improve their balance sheet."

  CMC Magnetics had a NT$363 million (US$10.7 million) second-quarter loss after net income of NT$1.6 billion in the same period a year earlier.

  Ritek had a NT$530 million loss in the second quarter after a profit of NT$910 million a year earlier.
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