Taipei--Shares of Taiwan-based MediaTek Inc. encountered downward pressure in the morning session Thursday after the integrated circuit designer a day earlier lowered its forecast of its operating profit for the first quarter of this year, dealers said.
Operating profit refers to gross profit minus operating expenses before deduction of interest and tax.
Market sentiment toward the IC design house's outlook has turned cautious as the company is faced with escalating competition in the China market in terms of smartphone chip shipments, which account for about 60 percent of MediaTek's total sales, the dealers said.
As of 10:25 a.m., shares of MediaTek had fallen 1.10 percent to NT225.00 (US$7.38) on the Taiwan Stock Exchange, where the weighted index was up 0.06 percent at 9,928.17 points.
"The cut in the operating profit affected investors' moods and it was no surprise that selling in MediaTeak shares emerged soon after the local equity market opened," Hua Nan Securities analyst Kevin Su said.
In a statement, MediaTek said it has cut its first quarter operating profit by more than 50 percent to a range between NT$1.01 billion and NT$1.24 billion, due to an expected rise in payout of performance bonuses to employees.
However, MediaTek said that after disposal of its subsidiary AutoChips Inc., located in China, the Taiwanese IC firm has raised its forecast of earnings per share (EPS) for the January-March period to a range between NT$3.57-NT$4.35 from the previous forecast of NT$1.47-NT$1.79.
"The higher EPS resulted from non-core operations, so the higher net profit failed to comfort investors who have concerns about rising competition in the China market at a time when many Chinese rivals have emerged," Su said.
"Investors simply seized the cut in MediaTek's operating profit forecast as a cause to lock in gains posted in recent sessions on a technical rebound," Su said. Before Thursday's fall, MediaTek shares had risen more than 10 percent since the beginning of February on bargain hunting.
MediaTek left its forecast of the first quarter's sales of NT$53.6 bilion-NT$59.1 billion unchanged. The first-quarter estimate was down 14 percent-22 percent from a quarter earlier, due to the slow-season effect.
On Wednesday, MediaTek announced that it had named Rick Tsai (???), former chairman and CEO of Chunghwa Telecom Co. (???) as the IC designer's co-CEO, effective from July 1. Before working for Chunghwa Telecom during 2014-2016, Tsai served as president and chief operating officer of Taiwan Semiconductor Manufacturing Co. (TSMC, ???) and as head of TSMC's new business division between 2001 and 2011.
"It is a good appointment, since Tsai is a veteran of the IC industry and more importantly, he is good at lowering costs, so I think his presence will benefit MediaTek in the long run," Su said.
Source: Focus Taiwan News Channel