An overoptimistic industry outlook among motherboard makers led to a price war last quarter, as makers looked to clear their inventory, which in turn led to Gigabyte Technology stating that its gross margins fell below 10% for the quarter, according to Gigabyte executive vice president Richard Ma.
Gigabyte announced that its first quarter revenues of NT$11.03 billion were up 12.2% on year but down 21.1% sequentially and its gross margins dropped below 10%.
With the European Union's (EU's) Restriction of Hazardous Substances (RoHS) legislation coming into effect on July 1, motherboard makers also tried to clear their non-RoHS ready inventories last quarter, which further contributed to a pricing slump, Ma added.
Gigabyte indicated that it cleared out a quarter of its accumulated NT$11.5 billion worth of inventory in the first quarter and the company expects to cut inventory further by over NT$1 billion in the second quarter.
Despite the setback, Gigabyte anticipates its margins will increase to above 10% in the second quarter and grow further to 12-13% in the second half of the year on the positive impact of new products, such as Napa-based notebooks. In addition, Intel’s Cedar Wood channel sales management program, should also increase the channel sales visibility among makers and help makers manage inventories better, Ma said.
Gigabyte shipped 3.93 million motherboards in the first quarter but the company does not expect shipment to exceed 7.5 million units in the first half of this year. Gigabyte foresees a 10-15% sequential drop in motherboard shipments this quarter.
Gigabyte reiterates its aggressive shipment goal for 2006. The company aims to ship 18 million motherboards and 4.3 million graphics cards this year, said company chairman Dandy Yeh. Yeh also projects shipments for communication and server applications to grow 30% on year.
Article translated by Esther Lam and edited by Esther Lam
