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Monday, September 23, 2002
 CMC to raise CD-R prices by 5-10% in December
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Message Text: CMC Magnetics, the world’s second-largest recordable compact disc maker, will roll out another CD-R price increase in December, said a company official. Meanwhile, the company asserted it has enough cash on hand to repay European convertible bonds (ECBs) coming due in October, after recently securing a new syndicate loan from local banks. The disc price increase, following a 15% rise the company plans for October, will likely range from 5-10%, depending on market conditions, said Andrea Wong, vice president of CMC.

A host of disc companies in Taiwan have announced plans this week to bump up prices in October by 10-15%, anticipating strong demand in the peak-selling fourth quarter.

The CD-R market is finally stabilizing after a year of oversupply and brutal pricing wars, Wong said, citing effects from manufacturers reining in production and distributors lowering inventory.

Despite a market glut that still hangs over the disc industry, dropping prices in CD-RW drives will continue to stimulate CD-R disc demand, with unit shipments worldwide reaching six billion this year, by some analysts’ estimates.

For the coming months, the largest appreciation in CD-R prices will likely occur in Europe, Wong said, as imports from disc maker Moser Baer India to the region are expected to be slapped a 30% anti-dumping levy, fueling demand for competing discs.

Major manufacturers like CMC stand to benefit the most from the fourth-quarter market upturn, especially in high-speed, 48x discs, for which smaller players have yet to gain the capability to mass-produce.

Wong also commented on CMC’s operation in the China market, saying the board just approved investment of US$20 million for its second plant there. Its factory in Nantong, Jiangsu Province will soon begin operating 11 production lines to turn out 10 million units per month by the end of the year.

Foreign disc makers have been drawn to China on the promise of growth in its educational sector, where the government is investing heavily to upgrade school hardware. Wong predicted that CD-R disc shipments in the country will double on-year to 60 million units in 2003.

In a business known for narrowing margins and lower prices, CMC is facing increased challenge managing its financials. The company saw a 27% decline in first-half 2002 sales from a year earlier, while pre-tax profit tumbled by 75%. That has raised some concerns about its cash level to repay bonds due next year.

According to Wong, the company has redeemed nearly half of the US$150 million in ECBs maturing by October 6 to reduce its debt load. In addition, a syndicated loan of NT$3 billion (about US$86.7 million) acquired on September 18 will provide a cushion to meet future obligations.

CMC had cash and short-term investments of NT$7.28 billion (about US$210.3 million) on its balance sheet as of June 30.
 
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