Shares in the Cambridge-based inkjet printhead manufacturer had fallen 174p to 568p at the time of writing, after it warned of a projected 3% year-on-year reduction in revenue and a 6% drop in operating profit margin in the year to 31 December 2014.
Revenue for 2014 is now projected to be in the region of £130m as a result of a slowdown in sales into the ceramics market plus expected sales growth in new applications, such as direct-to-shape, taking longer to materialise.
In addition, the average sales price into ceramics, which is the group's largest market, has been negatively impacted by an increase in competition, which is forecast to result in a lower gross profit margin.
Xaar chief executive Ian Dinwoodie said: "Our largest sector is the ceramic decoration space where we have five competitive vendors and 70%-75% market share. Obviously when new people enter the market they try to look attractive on price and we have had to respond to that.
"However, we continue to develop new products that give us a broader range and a technical advantage and that helps us to price the product at a premium – and we still are a premium product."
He added: "Nobody likes anything but positive news and in the current market if you give anything other than positive news it's going to have an effect. It's obviously a bit disappointing in the short term, but the longer term is still looking very positive."
The year-on-year comparison is exacerbated by the fact 2013 was an exceptional year in which revenue leapt 55% to £134.1m (2012: £86.3m) while, on the plus side, Xaar said that it was targeting revenues from its new Xaar 1002 GS40 and Xaar 001 printheads in the second half of 2014 and from its 1002 SBX printhead in the first half of 2015.
Two other product launches this year, the Xaar 501 printhead (targeted at graphics and packaging markets) and the Xaar XPM gigabit-Ethernet based electronics sub-system, are expected to commence commercial shipments over the next 12 months.
Dinwoodie said: "The GS40 increases the available colour space for digitally printed ceramics, which are presently limited particularly in the yellow and red space, the 001 is for the base glaze and topology of the tile and the SBX is for special effects and finishing decoration.
"Together these new products will enable the digitisation of the entire deposition process so that everything between the tile production at one end and the kiln at the other is done digitally."
Meanwhile, Xaar has finalised its production strategy for its P4 Thin Film piezo products, where it will outsource the silicon MEMS fabrication and keep the final assembly and product testing in-house.
Dinwoodie said that this would offer the best combination, financially and technically, to get the product to market. "We're not wedded to doing everything in-house; there are many experts in the world of silicon MEMS fabrication and it would be very expensive both in terms of the capital investment and the under-utilisation in the early stage to set up our own manufacturing facility," he said.
The drop in Xaar's share price is the second significant fall this year, following the March announcement of Ian Dinwoodie's upcoming retirement. Xaar's shares are now worth nearly half what they were at the start of the year (1,107p).
