Amstrad shares dive on Dancall warning

Amstrad saw pounds 38m wiped off its stock market value yesterday after warning that its Dancall mobile telephone subsidiary would not make any contribution to group profits this year.

The announcement about Dancall, regarded as one of the best hopes for the ailing group, is the latest in a series of blows to hit Amstrad, which was rocked by the resignation of its chief executive, David Rogers, at the end of December. The shares plunged 32.5p to 173.5p yesterday, compared with a high of 293.5p hit in October just before Alan Sugar, the chairman, warned about difficult trading facing the company in December.

Clearly things have got even worse than he thought. Dancall made a "very respectable" profit in December, prompting Mr Sugar to announce in February that it was on course to make a healthy contribution in the second half to June. But an uncontrite Mr Sugar yesterday said recent weakness in its markets "means that Dancall's initial contribution to group profits is not likely to materialise until next financial year."

He blamed the latest setback on price pressures resulting from over-supply in the market for mobile telephones, a problem that has been highlighted by competitors. Both Nokia and Ericsson, Europe's two leading mobile telephone groups, have recently warned that margins were being hit by the flood of new supplies. Mr Sugar said they remained committed to the further development of Dancall, but it is clear the Danish subsidiary has not helped matters by ramping up production to more than 70,000 handsets a month.

Mike Styles, an analyst at brokers Credit Lyonnais, described yesterday's share price move as an over-reaction. However, he has cut his forecast for Amstrad from a pounds 5m profit for this year to just break-even and has shaved pounds 5m off next year's estimate to leave it at pounds 25m.