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Hardware sales slump hits "smart card" company

SCM Microsystems says weak sales for digital media readers that bundle with MP3 players forces a warning that second-quarter sales will be lower than expected.

SCM Microsystems, a maker of so-called smart card products, plunged today after warning that second-quarter sales will be lower than expected.

The company blamed weak sales of digital media readers, which are bundled with MP3 Internet music players, for the shortfall. The news sent SCM's shares down $33.56, or 37 percent, to $57.94 in early trading. In the past year the company's shares have traded as high as $130.50.

Los Gatos, Calif.-based SCM said net revenues are expected to range from $29 million to $31 million in the quarter, an increase of 10 percent to 17 percent, compared with net revenues of $26.4 million in the second quarter of 1999.

Net income is expected to be $1.1 million to $1.7 million, or 7 cents to 11 cents per share, compared with a net loss of $3.3 million, or 23 cents per share in the second quarter of 1999.

Analysts polled by First Call/Thomson Financial expected the company to report second-quarter earnings of 22 cents per share.

SCM released the bleak financial outlook in a statement announcing its completed acquisition of Microtech International, a supplier of digital photography services, for $20 million in cash and stock.

"As a key enabler in early-stage markets, we are sometimes affected by the volatility of those markets," SCM chief executive Robert Schneider said in a statement. "We believe the strength of our digital TV and broadband access business, coupled with our acquisition of Microtech, will allow us to maintain our growth momentum."

SCM operates in four primary markets: digital TV, broadband access, PC security and digital-media transfer. The company's hardware and software allows for secure exchanges of information for e-commerce and broadband content delivery.

SCM expects to announce final earnings results for the quarter on July 20.