Shares in CMC Magnetics Corp (
However, the share price later fell and ended the day unchanged at NT$36.1 as the third such announcement from CMC in as many weeks seemed more aimed at halting its stock's downward spiral rather than benefiting its bottom line, analyst said. The share was trading at over NT$70 in early September.
"It's good news, but it's important to see if the company will receive future orders, how big those will be, and what kind of contribution they make to the company's profit," said Liu Yi-feng, an analyst at Polaris Securities Co. "The company is releasing lots of news fast to help the stock price, so it's important to check to what extent the bottom line is benefiting," she said.
CMC yesterday announced that it had received an order for five million read-only digital video discs (DVD-ROMs) from optical disc maker Memory-Tech Corp.
The order from the Tokyo, Japan-based company, which CMC said is Japan's second-largest DVD maker, will add up to NT$300 million to CMC's revenue and carry a 30 percent profit margin, said an official at CMC.
Shipment of the order is due to start this year and continue into next year.
News of the order followed an announcement last week in which CMC received orders from Japan's Mitsubishi Chemical Corp for 20 million rewritable compact discs and 100 million recordable compact discs.
The week before, CMC announced that it had received US$50 million worth of orders at the recent Comdex Fall tradeshow in Las Vegas for its information appliances.
CMC said in its news release yesterday that the agreement with Memory-Tech, as well as previous agreements with other Japanese manufacturers, proved that these clients trusted the mutual benefits of such cooperation with CMC. "Our clients have faith in our quality and scale of production," a CMC official said.
That may be so, but the order from Mitsubishi Chemical announced last week will likely contribute only a very small amount to next year's profits, analysts said. The same applies to yesterday's order.
"If CMC makes NT$30 billion next year in revenue, yesterday's order makes up about 1 percent of that," said Andy Chen, an analyst at Jen Hsin Securities. "DVD-ROMs can have a 50 percent profit margin, much higher than for recordable compact discs. But the amount ordered is a little small, so the profit contribution won't be so big," Chen said.
Still, any order, particularly for higher profit products, is good news and may lead to other benefits, analysts said.
"They received the order from a Japanese client," said Eric Chen, an analyst at SG Securities in Taipei. "They will likely continue this as a long-term relationship," he said.
The Memory-Tech order was its first to CMC, but long-term orders will follow, CMC said.
The order is also a move in the right direction towards CMC's goal of diversifying its revenue sources away from mainly recordable compact discs (CD-Rs). CMC will derive about 70 percent of its revenues from the low-profit and oversupplied CD-R market this year, analysts said.
CMC hopes to reduce that figure to about a third of total revenue next year.
But to achieve that goal, CMC needs larger orders than what it's currently getting, analysts said.
"They haven't got any big orders so far, so we must see if it gets any, as well as the timing of the shipments, before we can know how its revenue will be next year," Polaris Securities' Liu said.
The company is predicting revenue of NT$14.5 billion this year.
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