Zoran Tumbles on Warning

The company cites weakness in the Chinese DVD player market.
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Updated from Oct. 5

Shares of

Zoran

(ZRAN)

dived after the chipmaker sharply cut its third-quarter profit outlook, saying demand was hurt by an inventory correction in DVD players and a government-engineered credit squeeze in China

that has sideswiped other U.S. chipmakers.

Shares plummeted $2.15, or 13.2%, to $14.10.

On July 27, the Sunnyvale, Calif.-based semiconductor company, which makes DVD chips, forecasted earnings between 27 cents and 30 cents, excluding special charges. But on Tuesday it said its per-share profit should fall short of that estimate by between 11 cents and 14 cents.

The revision puts the new earnings range at 13 cents to 19 cents, far below the consensus estimate for 28 cents.

Sales for the third quarter should total $115 million to $119 million, below previous guidance for $128 million to $133 million.

Zoran said results will come up short partly because of an inventory correction in Chinese DVD players. Orders for its chips have slumped as the company's customers try to work down inventory.

Demand also took a hit because Chinese-based manufacturers are having trouble obtaining credit, because of Beijing's attempts to slow China's turbo-charged economic growth. As a result, Zoran said demand for its products was weaker than normal at the end of its third quarter.

In a statement, Chief Executive Officer Levy Gerzberg said Zoran is still growing at "substantial rates." Even after the downward revision, revenue is forecast to rise 11% to 15% over the prior quarter and 61% to 67% from year-ago levels.

Zoran, which also sells silicon for printers, digital cameras and mobile phones, is scheduled to report earnings on Oct. 26.