MFS Technology yesterday reported a 38 per cent year-on-year drop in net profit to $8.45 million for its fourth quarter ended Sept 30.

The earnings fall followed a 23 per cent fall in Q4 sales to $93.3 million.

For the full year, net profit fell 19 per cent to $35 million and turnover dropped 12 per cent to $379.52 million. MFS, which supplies printed circuit boards (PCB) parts and customised solutions in non-display flexible components used in handsets, said the full-year turnover decline was mainly due to lower sales from its display and imaging unit.

Its flexible printed circuit (FPC) business continued to drive the group's sales, contributing almost 90 per cent to turnover, while the balance was contributed from the PCB business division.

But turnover of FPC business fell 14.5 per cent to $339.6 million in FY05 due to a decrease in sales of FPC products in the LCD display and imaging segment although there was an increase in demand in the personal communication and wireless portables segment. Sales contributed by the display segment fell by about 57 per cent, while that contributed by the personal communication segment increased by 60 per cent.

'The production ramp in 4Q FY2005 forecast earlier was significantly delayed compared to the prior year. This was mainly due to the delay in the launch of several anticipated new volume programmes by key customers in both the personal communication and display segments,' the company said in a statement. Gross profits were hit by the lower turnover, the price pressure from a less favourable product mix and increased exposure to the lower margin segment of MFS' business in the second half of the fiscal year. The group also suffered a foreign exchange loss of $1.3 million.

In line with the overall drop in turnover, MFS' distribution and administrative expenses for FY2005 fell by $1.7 million to $16.1 million. But other operating income rose due to contractual compensation arising from cancellation of orders. Other operating expenses also rose, mainly because of higher foreign exchange losses.

MFS said it continued to benefit from its shift to 'a high mix, low-to-mid volume solution provider, specialising in heavy copper, high layer count and thin core PCB technology'.

'Based on the backlog orders, forecast provided by our major customers and the number of new models already in the production pipeline, the directors believe that the company's prospects in FY2006, barring any unforeseen circumstances will be encouraging and the performance of our group in 1Q FY2006 will improve,' MFS said.

Personal communication and wireless portable, LCD display screen and data storage segments will remain the key drivers of MFS' business.

In September, Merrill Lynch's analyst Jenny Tan predicted in a report that the company may disappoint in its fiscal fourth quarter ended Sept 30, 2005, due to slower than expected order momentum for new handset programmes.

BNP's analyst Pearly Yap accurately predicted MFS' 2005 net profit, at $35 million. She expects the new financial year to be a better year as MFS' new strategy focusing on customised non-display flex components pays off.