Investors are scrambling to buy Taiwan's loss-making computer compact disk makers amid signs of a turnaround in the US$2 billion industry after last year's deep slump.
Some analysts said the rush into optical disk manufacturers -- dominated by Taiwan firms which all swung into the red in 2002 amid a supply glut -- has further to run as robust demand would spur more product price hikes.
But others were more cautious, saying that the sub-sector's price to earnings multiple was already more expensive than others in the technology sector.
Shares in CMC Magnetics Corp and Ritek Inc have soared some 60 percent and 69 percent respectively since late May, outperforming the 11.8 percent rise on the main TAIEX index.
CMC jumped 2.90 percent on Wednesday to T$28.40 and Ritek added 0.74 percent to T$27.10.
The two rivals command more than 70 percent of the global market for recordable compact disks (CD-Rs), which have become popular as their storage capacity is larger than floppy disks.
A steep downturn in the global computer industry hurt demand last year, but the outlook this year is better with a pick-up in PC demand and the increasing popularity of CD and DVD drives.
CD-R prices have already rebounded 31 percent to 20-22 U.S. cents each for delivery this quarter from an average 16 cents last year, which was just barely above production costs.
The turnaround was evident in improving first quarter net profits, as CMC swung to a net profit of T$406.6 million (US$11.77 million) from a T$1.99 billion loss in the previous quarter. Ritek narrowed its first quarter loss to T$641.1 million from a T$1.57 billion loss in the fourth quarter.
Shares of smaller rivals Lead Data Inc and Prodisc have also benefited, rallying 213 percent and 122 percent respectively over the past two months.
However, compact disks are commodity items that run in boom and bust cycles that leave little room for timid investors.
All of Taiwan's four compact disk firms lost money in 2002, but are expected to post earnings per share of between T$1-T$2 each in 2003, fueled by rebounding prices, according to SinoPac.
Profit margins could double to around 30 percent in the current quarter from the previous three months, well above the single-digit margins expected in the broader industry, analysts said.