Gooch & Housego, the industrial laser specialist, slashed its full-year profit forecast by nearly a quarter after a slowdown in demand from China dragged on revenues.

The Aim-quoted company, that specialises in laser technology used to make smartphones and other electronic devices, said it had not been able to make up the shortfall in demand from Chinese manufacturers over the first four months of the 2012 financial year.

The company lowered its full-year pre-tax profits by 24 per cent to £7.9m, sending shares plunging 22 per cent to 360p on the news.

“[In 2011] we were shipping to our Chinese distributor at a rate that exceeded everything we shipped to the whole world in the previous year – the demand was so high and China was going crazy,” Gareth Jones, chief executive, said.

Mr Jones said demand for its Q-Switch laser technology, which turns lower power lasers into industrial tools that can drill through diamonds and cut steel, drove record revenues of £61m for the company in 2011, but that it had also resulted in product oversupply in manufacturers’ inventories.

“We don’t apologise for making hay while the sun shone,” Mr Jones said. But, he added: “When the market catches a cold, we feel it,” referring to a wider slowdown in the microelectronics sector late last year.

Investec, the company’s house broker, downgraded its full-year earnings per share forecast for 2012 and 2013 by 23 per cent and 21 per cent respectively.

Analyst Chris Dyett said that while there were “tentative signs of improvement” for revenues over the year, Investec’s new forecast “assume[s] little recovery in the Q-Switch market in the remainder of the current year”.

Over the past five years the company has been working to diversify away from its core industrial division which Mr Jones said was mainly driven by the fortunes of the microelectronics and semiconductor world.

Gooch & Housego has made a big push into the aerospace and defence sector, which contributed to 25 per cent of 2011 revenues. Another 9 per cent of revenues came from its life sciences division, which includes laser technology for retinal imaging and diagnostics, and 6 per cent from scientific research.

The company left its full-year dividend forecast unchanged at 5.5p.

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