Lite-On IT, the largest Taiwan-based maker of optical disc drives (ODDs), on October 25 reported its financial results for the third quarter of this year, posting a very small net earnings per share (EPS) of NT$0.033. The company also announced it has decided to stop production of consumer ODDs, mainly DVD recorders, to be sold under its Liteon brand in the global market, while keeping OEM/ODM production of such products.
Lite-On IT's average gross margin dropped from 16.7% in the first half of this year to 13.2% last quarter. Three main reasons for this were the following: the ongoing integration of Lite-On IT's own operating resources with those of BenQ's ODD business unit (acquired by Lite-On IT in April 2006); delays in R&D works on Blu-ray Disc drives, slim-type ODDs and Xbox ODDs; losses due to consumer returns of own-brand DVD recorders sold through the Wal-Mart chain, according to company CEO Danny Liao.
The case with Wal-Mart, Lite-On IT's largest client for consumer DVD recorders, shows the difficulty to make money on consumer ODDs, Liao pointed out explaining Lite-On IT's withdrawal from the global own-brand market. Sales of own-brand DVD recorders currently account for 5-6% of Lite-On IT's total revenues, Liao indicated.
This quarter, Lite-On IT will continue amortizing losses from consumer ODDs, including those from returns of DVD recorders shipped through Wal-Mart, so the profitability will not significantly improve from last quarter, Liao noted.
Planning to finish moving ODD production from BenQ's factory in Suzhou in eastern China to its own production base in Guangzhou in southern China by December, Lite-On IT expects its operating profitability to rebound in the first quarter of 2007, Liao said.
I'm not sure if this includes all of Lite-On's ODD products or just their DVD recorders. Thoughts?