THORNHILL, Ontario -- An early revenue warning from one of the industry's leading display-device suppliers could be proving out fears that parts of the electronic components industry ended the year with excess inventories.
Genesis Microchip Inc., a Canadian manufacturer of digital-display and video/graphics ICs, said it expects revenue for its fiscal third quarter, ended Dec. 31, to be in the range of $10 million. That's a drop of almost 40% compared with the $16.4 million it recorded in the immediately preceding quarter.
While the expected revenue shortfall was attributed to a range of problems, the primary obstacle faced by Genesis Microchip during the quarter was "excessive inventories," according to CEO Paul Russo, echoing concerns expressed late last year by a number of analysts and industry executives.
Genesis Microchip's results have come under pressure as prices of LCD panels galloped to record highs in the second half of last year, primarily because producers were unable to meet rising demand. The shortfall in supply led to a 50% hike in the price of analog XGA monitors, to about $1,200, from $800 at the end of 1998.
Genesis Microchip said the surge in prices caused several Japanese and Taiwanese customers to slow their purchases and added to excessive inventories at the company's OEM accounts.
The company said it expects to announce break-even results later this month while revenue will barely match figures from the comparable 1998 quarter. The weak results are likely to persist through the end of the fourth quarter, said company officials. Genesis Microchip reported a profit of 20 cents per share for the third 1999 fiscal quarter.
Other factors that affected Genesis Microchip's results include the September earthquake in Taiwan, lower demand for some of its products, and its ongoing transition from analog to digital interfaces.
"There's no question that we are not pleased with this performance," Russo said, during a conference call with analysts. "Our share of the LCD market dropped between 5% and 10% in the last quarter and it seems that some of the brand suppliers have had inventory build-up in the quarter."
The company, which supplies ICs used by major OEMs such as Acer, Apple Computer, Dell Computer, Fujitsu, Hitachi, IBM, and Sony, said it first noticed a drop-off in orders sometime in September last year and later determined that a build-up in inventory was crimping sales in Taiwan and Japan. Sales to Korea, however, continued to improve.
"We sent sales teams to Korea, Japan and Taiwan to see what was going on because we weren't seeing the bookings that we expected," said Hamid Farzaneh, Genesis Microchip's chief operating officer. "We were seeing inventory problems and that indicated to us that inventories have to wind down over the next few months [for us] to get back, in some cases, to normal shipment in January, and in some cases, later."