Shares of Elan Microelectronics Corp (義隆電子) yesterday tumbled 4.22 percent after the chip designer gave a gloomy financial forecast for this quarter given weaker-than-expected demand for notebook computers and penalties for not exercising a contract signed with its chip supplier.
As customer demand has weakened significantly, Elan said it opted not to honor a three-year chip supply agreement with a foundry service provider, making it the nation’s first chip designer to default on a chip supply contract.
During the height of the chip crunch in the past two years, many chip designers signed long-term supply agreements with foundry service providers to secure supply.
“Customers have become extraordinarily conservative at this point, even though some of them have managed to lower their inventory compared with the same period last year,” Elan chairman Yeh I-hau (葉儀皓) said. “Our orders from Chromebook makers are only half of that last year.”
As customer demand dipped, Elan chose to default on the supply contract and book the full penalty this quarter, Yeh said.
Elan’s stock price sank to NT$79.50 yesterday, underperforming the TAIEX, which gained 0.31 percent.
Commenting on customers’ inventory digestion, Yeh said most Windows-based PC makers are expected to complete their inventory correction at the end of this year, but Chromebook makers would take a longer time — likely the first or second quarter of next year.
“We hope the fourth quarter would be the worst period,” Yeh said.
Revenue is forecast to plunge sequentially between 29 percent and 38 percent to between NT$1.8 billion and NT$2 billion (US$55.9 million and US$62.1 million) this quarter from NT$2.82 billion last quarter.
Three months ago, Elan, which designs chips for PC touch pads and laptop touch screens, expected revenue to pick up this quarter after a 32 percent sequential decline last quarter.
“However, we saw purchasing sentiment worsen, with PC brands cutting their sales forecast because of weak consumer demand, which slowed inventory digestion,” Elan spokesman Dennis Liu (劉代銘) told investors during an online meeting on Thursday.
“All of our product lines have shown weak momentum in the fourth quarter compared with the third quarter,” he said.
Gross margin is forecast to range from 45 percent to 47 percent this quarter, compared with 46 percent last quarter, as demand for high-margin touch screens drops, Liu said.
Operating margin is expected to plunge to between 3.6 percent and 9.8 percent this quarter, from 18.9 percent last quarter. That meant Elan’s bottom line might approach the break-even point this quarter.
Last quarter, Elan reported that net profit contracted 33 percent to NT$522 million from NT$784 million in the third quarter. That represented an annual decline of 62 percent from NT$1.32 billion.
Earnings per share fell to NT$1.83 last quarter, from NT$2.75 in the second quarter and NT$4.7 in the third quarter last year.
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