HONG KONG, Nov. 11 -- VTech Holdings Ltd. today announced higher revenues but lower profits for its fiscal 2005 first-half, ended Sept. 30. Revenue rose 13.1% to $457.1 million but profits fell 51.1% to $8.5 million, $3.3 million for a one-time settlement of indemnification claims.

VTech attributed the drop to underperformance in the North American telecommunication market.

VTech, which designs and builds consumer products and performs contract manufacturing, said business revenue from the North American market fell 10.7% to $251.4 million versus last year. Sales to businesses makes up 82.7% of VTech's telecom revenue. Overall telecom sales rose 1.7% to $304 million.

Sales of electronic learning products rebounded sharply, up 66.8% to $95.1 million. Sales in North America were up 129.4% to $31.2 million, while sales in Europe grew 40.3% to $56.1 million.

Revenues from EMS services were up 20.6% to $58 million. Profits were stable, despite pressure on margins from higher raw materials prices. Growth was especially strong in Europe and Japan, which accounted for 46.7% and 20%, respectively, of the firm's EMS services. North America's share declined slightly to 29.1%. Switching mode power supplies and professional audio equipment accounted for 32.2% and 26%, respectively, followed by home appliances at 18.3% and wireless products at 12.1%.

VTech guided for improved telecom sales in the second half, but lower year-on-year profits. "The second half of the financial year 2005 will remain challenging for VTech," said Allan Wong, chairman and group CEO.

VTech said sales growth is expected in Europe, where it has gained a major new ODM customer.

Contract manufacturing services are expected to see further revenue growth and stable profitability as the worldwide EMS market continues to rebound. VTech said it will seek reduced costs through more local sources of supply.

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