The worst is over for CMC Magnetics, and the world’s second-largest CD-R disc maker’s gross margins will grow to a healthy 30% next year when demand returns, according to a company executive. After more than a year of downturn, CMC’s president Bob Wong said he is seeing hopeful signs of a recovery, as its factories in the UK and Ireland are running at full capacity and utilization rates at others improve. Growth in Europe leads other markets due to lower inventory levels there.
Wong said the upturn should mark a new round in the traditional 36-month industry cycle, with growth continuing past the seasonally strong fourth quarter.
Responding to rising CD-R disc prices and orders, CMC’s gross margin in August inched up to 22% from the first-half average of 20.5%, Wong said.
“Profitability is our top priority over factory utilization rates,” Wong said, noting that the company now rejects low-margin orders as part of its renewed profit focus.
After raising prices by 15% in October, the company will institute another increase of 5-10% at year-end or early next year. Higher prices will further lift gross margins to 25% in the fourth quarter and to 30% next year, Wong predicted.
The market upturn, however, is not necessarily benefiting everyone, he cautioned.
Small disc manufacturers will continue to feel the squeeze from higher raw material costs as oil prices climb from US-Iraq war fears and from technology inefficiency that slows their product transition into high-speed discs.
Wong said in the third quarter, the 48x discs still accounted for 80% of its CD-R disc shipments, with the rest from 52x. He predicted that for the coming fourth quarter, the ratio will reverse, with 52x discs taking 80% of shipments.