Wed, Oct 17, 2001 page18

• Yageo's profit likely fell

  DOWNTURN Analysts that follow the maker of electronic components say earnings for the third-quarter likely dropped on waning computer and cellphone demand

  • BLOOMBERG
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  Yageo Corp (國巨), one of the biggest maker of parts that control the flow of electricity in personal computers and mobile phones, may say third-quarter profit fell almost half as waning demand drove down prices.

  Net income for the three months to September may have fallen to NT$964 million (US$27.9 million) from NT$1.9 billion a year ago, according to the average forecast of six analysts surveyed. Yageo will report earnings in Taipei tomorrow, after the stock market closes.

  Slowing demand for computers and mobile phones is forcing manufacturers to cut prices for the components used to run them, crimping profit margins. The Sept. 11 attacks in the US and military retaliation in Afghanistan may delay a rebound, dragging prices down further in the fourth quarter, some analysts said.

  "The PC and communications markets are rotten, so Yageo's performance has been disappointing," said Wu Wen-tong, who manages NT$300 million in stocks at Taiwan International Investment Management Co (金鼎投信). Wu sold Yageo shares in September.

  Yageo shares sagged 37 percent in the third quarter as global computer and mobile phone sales slumped. According to International Data Corp, PC demand will fall this year for the first time since 1985.

  Last week, Motorola Inc, the second-biggest maker of mobile phones and a Yageo customer, posted a third-quarter loss of US$1.41 billion and cut 7,000 more jobs, firing 39,000 workers in all this year, as demand for its chips and phones lagged targets.

  Motorola predicted 380 million to 400 million handsets will be sold worldwide by manufacturers in 2001, down from earlier forecasts of 400 million to 425 million.

  Yageo, which generates about 45 percent of its sales from the PC industry and about a quarter from communications products, said in July it expected profit to recover as PC demand and orders from Flextronics International Ltd and Solectron Corp, among the largest contract electronics manufacturers, rose.

  Those orders may now be put on hold as the terrorist attacks in the US probably tipped the biggest economy into recession, further damping consumer demand for electronics products.

  US retail sales fell 2.4 percent in September, the largest drop in almost ten years, the US Commerce Department said Friday.

  "With the economic environment showing no obvious signs of a recovery, those big orders will be delayed," said Vincent Kao, an analyst at Chung Shing Securities Co (中興證券).

  Slowing growth in Europe's economies, the destination of more than a third of Yageo's sales, is exacerbating the slowdown. Last month, the IMF cut its growth forecast for the dozen nations that share the euro to 1.8 percent, from April's estimate of 2.4 percent.

  Sales at Ferroxcube and Phycomp, two units Yageo bought from Royal Philips Electronics NV in May last year, fell 29 percent in the third quarter.

  Europe accounts for more than two-thirds of sales at Ferroxcube and almost half at Phycomp.

  To maintain margins, Yageo is cutting costs by trimming its workforce and boosting production in China. In May, it fired 570 of its 7,220 workforce. The company is using part of the US$136.5 million raised in an overseas stock sale in July to move production of low-end chip resistors to its plant in China.

  Yageo, whose competitors include Murata Manufacturing Co and TDK Corp in Japan, boosted third-quarter non-operating income by selling part of its stake in Taiwan Cellular Corp (台灣大哥大), said company spokesman Vincent Weng.

  Yageo also raised about NT$50 million selling some of its 40 percent stake in Chilisin Electronics Corp. Chilisin began selling shares on the stock exchange last month.

  In July, Yageo cut its full-year pretax profit forecast by a fifth to NT$5.7 billion. Yageo cut its sales forecast from Taiwan operations by 22 percent to NT$7.2 billion, and group sales by 17 percent to NT$26 billion.

  Yageo shares rose 3.4 percent to NT$21.20. The shares have risen 12.5 percent in the past year, compared with a 33 percent fall in the TAIEX.
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