Sales and Profits Turn Upward For Taiwanese Disk Suppliers

Most of Taiwan's disk suppliers returned to profitability in the first half of this year, a happy change from the losses suffered in 2002, thanks largely to rising CD-R prices and cuts in non-core business spending.

For example, first-half gross profit margins of first-tier suppliers Ritek Corp., Magnetics Corp., and Prodisc Technology rose to an average of 25%; for the second quarter alone, the figure was 30%. The margin is expected to remain about the same throughout the rest of the year.

Price-slashing competition forced gross margins last year down to only 9% for Ritek, 3.5% for Lead Data, and a negative 6% for Gigastorage Corp.

Ritek's anemic pretax earnings of about NT$38 million (US$1.1 million at NT$34:US$1) in the first half of the year was mainly the result of NT$1.78 billion (US$52 million) in non-core outlays. In the second half, however, non-core units are expected to break even and total capital spending for the year is expected to be less than 2002's NT$4.4 billion (US$130 million).

CMC has cut its non-core spending in the second half to around NT$1 billion (US$29 million), a huge reduction from the NT$3.2 billion (US$94 million) spent during the same period of 2002. Partly as a result of stabilized earnings, the company recorded pretax earnings of N$1.9 billion (US$56 million) in the first half of this year, topping the industry.

In terms of earnings per share (EPS), however, the trophy was taken by Daxon Technology Inc. (a company invested by BenQ Corp.), with NT$1.43 in the first half. That compares with NT$1.21 for all of 2002.

Daxon chairman K.Y. Yu points out that his company has boosted its total CD-R capacity to 50 million a month following the retooling of a monitor plant in Malaysia formerly run by BenQ. For this year as whole, Yu expects the EPS figure to reach NT$3 on revenues estimated at NT$5 billion (US$147 million). This compares with NT$2.2 billion (US$64.7 million) in 2002.

Yu notes that the Malaysian factory will focus on supplying demand from Europe, while the firm's Taiwan factory is designed to turn out DVD-Rs at the rate of 10 million disks a month.

While many suppliers predict that DVD-Rs will soon replace CD-Rs as the mainstream storage medium, Yu believes that CD-Rs will remain a preferred medium for copying data and music as DVD-Rs take over as the storage medium of choice for giga-size audio and video data. CD-Rs still have a long way to go, he says, because history shows an average 40-year life cycle for major storage media.

Ritek and CMC, too, are expanding their CD-R and DVD-R output--CD-Rs in mainland China, and DVD-Rs in Taiwan.

CMC plans to finance its expansion by issuing global depository receipts (GDRs). Around NT$1.1 billion (US$32 million) of the proceeds will be spent on 21 new CD-R lines at the company's Shanghai factory by the end of next year; currently the plant has only 10 lines. The expansion will boost monthly output there to 30 million disks, compared with just 10 million now.

Much room remains for further expansion since, CMC executives report, the mainland authorities have given them permission to operate 50 lines.

The company is boosting DVD-R capacity at its factory in the Hua-Ya Hi-Tech Industrial Plant in Taiwan's Taoyuan County. When the project is completed, the plant will have 30 lines turning out 15 million disks a month.

Ritek plans to boost CD-R production at its Kunshan factory in mainland China from the current 30 million disks a month to 40 million by installing 10 new production lines before the end of the year. The company is also considering installing DVD-R lines there next year.

1st Half 2003 Operations Of Top Taiwanese Disk Suppliers
Companies	Ritek	CMC	Prodisc	Lead Data	Gagastorage	Daxon
Gross Margin Ratio	26.40%	28.90%	24.20%	13.50%	17.20%	23.90%
EPS(NT$1)	-0.12	0.83	0.93	0.27	-0.12	1.43
Pre-Tax Results	NT$38 million gain	NT$1.92 billion gain	NT$460 million gain	NT$117 million gain	NT$29 million loss	NT$184 million gain
Source: The companies