When notebook maker Twinhead International Corp (
"If you're not one of the top five notebook makers, I doubt if there's any future," said Elise Tung, an analyst at Taiwan International Securities Corp.
Twinhead's forecast revenue was reduced to NT$10.43 billion, from the NT$15.06 billion forecast made in April.
Expected pre-tax profit was reduced from NT$175 million to a loss of NT$998.6 million.
An official at Twinhead confirmed the figures, though they have yet to be released officially. The readjusted figures have also yet to be approved by the company's accountants.
The readjustment and the losses would make it two years in a row for Twinhead, after the company suffered a net loss of NT$548 million last year. Again, the company had originally predicted a profit for the year.
The half-year results approved by Twinhead's board of directors the previous day were also less than promising. The company posted a net loss of NT$470 million, or a negative earnings per share of NT$0.99.
According to local reports, Alex Wen, president of Twinhead, attributed the results and the subsequently readjusted profit forecast to the slim profit margins on notebooks.
Analysts said the company also suffered from component shortages, intense market competition and most importantly, its size.
Profit margins are being squeezed even for the bigger notebook manufacturers, said James Huang, an equities analyst at National Securities Corporation. "It's even tougher for the second tier notebook makers," he said.
Taiwan's five largest notebook makers, Quanta Computer Inc, Compal Electronics Inc, Inventec Corp, Acer Inc and Arima Computer Corp have been competing fiercely for orders from major international companies such as IBM Corp, Dell Computer Corp, Toshiba Corp and Fujitsu Ltd.
Either you have your own brand, such as IBM or Dell, or you're an OEM manufacturer who makes notebooks for the international players, said TISC's Tung.
Twinhead sits on the fence between the two; it makes its own brand and is a small OEM manufacturer.
"If you're one of the top five OEM makers, you're pretty safe," said Tung. The profit margins for the OEM makers are very thin, Tung said, but the orders are large.
Large orders also means OEM makers can lower their purchasing costs of key parts and components. But for smaller manufacturers such as Twinhead, smaller size and lower economies of scale means purchasing costs are higher than for competitors, NSC's Huang said.
Twinhead had originally planned to ship 500,000 notebooks this year. However, local reports say that target has now been reduced to 270,000 units.
A strategic agreement with Uniwill Computer Corp at the beginning of August will help increase output, but analysts said the change will be insignificant. Quanta Computer Inc, for example, plans to ship about 3 million notebooks this year.
While size hasn't helped Twinhead's competitiveness has also suffered from the higher cost it has had to pay for liquid crystal displays and dynamic random access memory, said Spencer Wu, vice president of the OBM Division at Twinhead.
"In the second half of last year, there was an LCD and DRAM shortage," Wu said. "Twinhead stocked up for the shortage, but this year LCD and DRAM prices have fallen," he said.
So while other notebook makers benefited from the lower prices, Twinhead has had to use up the more expensive stock from last year, Wu said.
But while some key parts have become more readily available, Twinhead has also suffered this year from CPU and flash shortages, said NSC's Huang. "So they cannot deliver when their clients want them to," he said.
Even if the analysts weren't taken aback by Twinhead's relatively gloomy forecast, the company's share price tumbled almost seven percent yesterday. The stock closed at NT$10.70 yesterday, a 52-week low.
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