Sampo's profit doubles in first half on China savings

Sampo Corp, Taiwan's biggest maker of consumer electronics, doubled profit in the first half on lower costs of production in China and surging sales of flat-panel television screens, Chief Executive Officer Ho Heng-chung (何恆春) said.

The company earned about US$55 million in the half, which may help full-year net income more than double to about NT$2.2 billion (US$66 million) from NT$846 million last year, Ho said in an interview. As it shifts production to China, Sampo will this year cut up to 640 jobs, or 40 percent of its Taiwan staff.

Ho says he needs to expand abroad because Sampo's competitive edge at home is slipping after Taiwan entered the WTO on Jan. 1, requiring the nation's markets be opened to overseas electronic goods.

"We won't be No. 1 in Taiwan after the nation implements WTO rules," Ho said. "By the end of this year, more than 70 percent of our assembly operations should have been moved to China."

The hitch: Sampo isn't the only home-electronics company tapping cheaper costs in China. Nor is it alone in focusing on the market for 42-inch plasma TV screens. Rivals such as Samsung Electronics Co are expanding TV production, and Japanese competitors NEC Corp and Sony Corp are well established in China.

"Everybody's going there," said Roger Chiao, who helps manage NT$6 billion in equities for Capital Securities Investment Trust Co (群益投信) and holds no Sampo shares. "Plasma TVs are good, but Sampo's just doing assembly. For consumer products like TVs, everybody likes to buy big names like Sony."

Other investors are betting the strategy will work. The company's shares are up 60 percent this year, compared with a 13 percent drop in the benchmark TAIEX. The company is 7 percent owned by Japan's Sharp Corp.

Sampo's sales of plasma displays this year will almost quadruple to US$13 million, Ho said, helped by a contract to sell the units in Costco Wholesale Corp outlets, the largest warehouse retailer in the US. The 42-inch TVs sell for about US$3,500 in Costco stores, he said, about a third less than the price of Sony and other Japanese models, Ho said.

"It's likely that Sampo will double profit this year," Capital Securities' Chiao said. "In the first half, the company more than doubled profit from a year ago. Still, a lot of that came from non-operating gains."

Ho said Sampo sold off stocks in US telecommunications companies earlier this year, fearing that the companies might be in trouble.