Zytronic, (LON: ZYT) shares have dropped 27% this morning on the release of an information update. As we might gather from that share price the update was not good information. The major problems seem to be twofold, compounding earlier problems. One is that one buyer seems to have done a stock check. On doing so they found that they had plenty of Zytronic's pieces in stock and so just didn't need to order any more this year. In fact, might well not order any more until next financial year. When this is done by the manufacturer pushing stock out into the distribution chain it's called channel stuffing. When the error is at the buyer end, well, it's just one of those things.
The second problem is that the touch sensors which are the corporate product get incorporated, through a number of different channels, into products for Aruze Gaming. Which is now in Chapter 11 in the US and therefore demand there is significantly reduced.
The point here is that there's nothing Zytronic has actually done wrong, nor really anything different to be done now. It's rather one of those things.
Zytronic share price from London Stock Exchange.
The announcement does go on to say that of course they're going to try to do some things. The most obvious of which is to try to get the corporate cost base back in line with potential sales. But the Aruze problems are not only in the lack of future or current orders There's still £300k due on past shipments and another £2000k on parts bought in to build future deliveries. How well that can be recovered depends upon the outcome of that Chapter 11 process of course.
Plus, of course, future orders from Aruze were pencilled in for the rest of this year and it seems very likely indeed that these now won't arrive.
All in all not a good set of announcements and thus the near 30% share price dive. Zytronic is - for the size of the business - cash rich so the losses on goods shipped are not traumatic, just not a happy time.
