Updated from 12:43 p.m. EDT

Shares of

SCM Microsystems


plunged Thursday after the digital security software company disclosed that its second-quarter earnings would be about half of Wall Street's expectations.

SCM attributed its earnings problems to disappointing sales of its digital media readers, which are bundled with MP3 Internet music players, and lower-than-expected shipments of the Las Gatos, Calif.-based company's readers for personal computer security.

SCM's stock fell a sharp 35 11/16, or 40%, to close at 53 5/8.

The company said its earnings would be $1.1 million to $1.7 million, or 7 cents to 11 cents a share -- far below a consensus estimate of analysts polled by

First Call/Thomson Financial

that predicted 22-cent-a-share earnings for SCM. The company's second-quarter earnings would include a one-time $100,000 net gain from the acquisition by




, a company in the U.K. in which SCM owned stock, according to Darby Dye, a spokeswoman for SCM.

Dye said disappointing sales of SCM's digital media readers that serve the MP3 music player market stemmed from effects of the earthquake in Taiwan last September. MultiMediaCards, which come with the MP3 players in order to store the music, have been in short supply in Taiwan since the disaster -- reducing demand for the players themselves. This has decreased demand for SCM's readers as well, since they are bundled with the players, Dye said.

In terms of personal computer security, Dye said demand for PC cards -- and hence SCM's readers of them -- is gradually being replaced with demand for smart cards, which have greater mobility and capacity for storage and security than PC cards. Although she would not specify, Dye said SCM lost a customer of its PC card readers -- a loss for which growth in smart card reader business did not compensate.

She said SCM expects demand for smart card readers to increase in fiscal 2001, when the development of applications that require them will have progressed more substantially. "The market itself is not yet providing enough volume opportunity to compensate."

SCM lost $3.3 million, or 23 cents a share, in the second quarter last year.

SCM expects to report $29 million to $31 million in net revenues in the second quarter, 10% to 17% greater than its net revenues of $26.4 million in the second quarter last year. Dye said Wall Street expected the company's net revenues to be $35.4 million.

SCM also announced Thursday that it completed the $20 million acquisition of

Microtech International

, a North Branford, Conn.-based company that manufactures digital photography products meant to improve digital appliances. Dye said the company expects the acquisition to help offset its problems in the MP3 market, "because they will help bring more strength to an already strong position that we have in what is a very strong market for digital photography."

Dye added that SCM expects its strengths in the digital television industry to offset its problems in the PC security business.

SCM plans to announce its final results for the quarter on July 20.

SCM's warning came on the same day that


(UIS) - Get Report

, an information technology company geared toward business customers, also

announced that its earnings would be about half of what Wall Street expected, sending shares of Unisys down 33% in Thursday morning trading.


(GT) - Get Report


warned about its earnings Thursday.