Datrontech hit hard by glut of US chips

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The Independent Online
SHARES IN Datrontech sank to an all-time low yesterday after the distributor of computer hardware issued a profit warning and announced the resignation of its finance director.

In a surprise statement to the Stock Exchange, the company warned that overproduction by US component manufacturers and increased competition in the UK market would slash profits for 1998.

Sources close to the company said Gerry Connolly, the finance director, would receive a payout of around pounds 100,000.

Datrontech, a Basingstoke-based distributor of hardware components, said that sales in the past three months "had experienced a sharp decline ... compared to the first four months of the year."

The statement said that the fall in sales would lead to an interim profit figure of pounds 2.6m, well below City analysts' expectations of pounds 3.5m.

It indicated that profits for the year would come in at pounds 5m, down from last year's pounds 6.1m and sharply lower than the market's expectations of a figure of around pounds 8m. The warning triggered a number of profit downgrades and sent the shares into free-fall. They slipped 28 per cent to an all- time low of 60p.

Mark Mulford, chief executive, blamed a bout of oversupply caused by a rise in production by a number of US chip manufacturers such as Intel.

Producers had been overoptimistic in assessing the demand for computers, creating a glut of production.

"The components manufacturers have overegged the first quarter and pushed through a large batch of supplies," he said.

The problem had been compounded by a slowdown in demand, triggered by the economic crisis in Asia. The Year 2000 computer problem had also dampened demand as firms concentrated on software updates rather than hardware.

Mr Mulford maintained that tough market conditions had sparked a price war among distributors. This had hit price and margins.