A profit warning has obliterated AZ Electronic Materials (AZEM), causing the chemicals group to slump 28.7% to 263p and wiping out the entire share price rally since last summer.


The £1 billion cap has blamed a slowdown in demand at its IC Materials division and lower margins in its IC Niche arm. To exacerbate the situation, it expects weakness to continue into the second quarter.


Group margins for the first half of the year are expected to be under the 30% targeted since the group's IPO in November 2010.


AZ Electronics provides chemicals for use in tablet computers, television screens and cars. It floated with great fanfare in 2010, brought to market by a host of heavyweight financiers including UBS, Goldman Sachs, Deutsche Bank and Rothschild. Today's profit warning takes the share price almost back to its 240p listing price.


The fall-off in demand is attributable to a number of factors. Firstly, the group's IC Materials division experienced a reduction in volume demand for its Dielectrics products which form part of that group's core offering.


AZ Electronic Materials controls an 80% share of the Dielectrics market with its PHPS products (Perhydropolysilazane) which improve wafer cost and performance.


The fall in demand is being blamed on dual sourcing by one of its customers Hynix; a South Korean memory semi-conductor supplier of dynamic random access memory (DRAM) chips and flash memory chips.


It is understood that Hynix is currently in dispute with the other Dielectrics supplier (UP Chemicals) and that a settlement is envisaged by the end of April which could see AZ Electronic Materials regain its business from Hynix. In addition, sales of AZ's Klebosol colloidal silica materials have been lower than anticipated in non-electronic applications. Another factor at issue has been the tailing off of growth in the global flat panel industry.


Stockbroker Numis has slashed its price target from 360p to 270p and says investor confidence will be 'dented' by today's sudden change in revenue and margin expectations.

Issue Date: 09 Apr 2013