[FLTCF] FILTRONIC PLC FOREIGN - UK
Filtronic wobbles as it splits in two
Cellphone antenna maker posts flat H1 loss, seeks partner
By Madeleine Acey, FTMarketWatch
Last Update: 9:10 AM ET Jan 29, 2001
LONDON (FTMW) - U.K. wireless communications component supplier Filtronic (FTC) announced plans on Monday to split off its loss-making semiconductor unit and posted losses in line with expectations.
Filtronic announced a first half loss of £1.5 million, unchanged from the same period in 1999.
The company also announced it would split into two operating companies - separating its loss-making semiconductor unit from the group.
Investors initially welcomed the news, but Filtronic's shares lost their early gains as doubts set in over the plan to fix the semiconductor unit.
Expectations for the group were mixed, with analysts' forecasts ranging between losses of £2.2 million and profits of £1.5 million.
ABN Amro said last week Filtronic had to "solve or sell" its main semiconductor plant at Newton Aycliffe. See research note.
Shares initially rose almost 8 percent on the news but completely lost those early gains to sit 2 percent down at lunchtime in London at 370 pence.
Semiconductors lose £1m a month
Executive chairman David Rhodes said Filtronic wanted to reduce or eliminate the financial burden of Compound Semiconductors as soon as possible.
"The Board continues to believe that there is substantial business opportunity for Compound Semiconductors and is pursuing various options, including discussions with potential commercial and financial partners," Rhodes said.
The unit's main plant has excess capacity.
"The Compound Semiconductor losses at Santa Clara, coupled with the £1 million per month running costs at Newton Aycliffe, represented a significant drain upon resources," he said.
ABN Amro analyst Toby Thorrington said Filtronic's statement didn't go far enough. "I think we still need to see a contract with names on the bottom," he said.
Price target, earnings estimates cut
Following an analyst briefing, he said he felt the company was aiming for some sort of joint venture than would guarantee it supply of components for other parts of the business. It expected to sign some sort of deal by May, he said.
ABN Amro retained its 'add' rating for Filtronic stock but Thorrington said he would be downgrading earnings forecasts.
Without the semiconductor unit and associated debt, he had given the stock a 720 pence value last week.
But, he said he was reducing that by 15-20 percent, as underlying profitability was lower than hoped.
Filtronic said group sales rose 57 percent to £147.6 million on the flat £1.5 million losses.
Rhodes also said the group would stop accepting any significant development contracts in its electronic warfare division, although it would continue to support future production runs.
He said the wireless infrastructure unit - which brings in 70 percent of the group's sales - would see its world market share for cellular handset antennas rise towards 30 percent.
However, there was also likely to be a reduction in operating margins in that unit while new products were introduced.
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