Compal will boost profit margins

Compal Electronics Inc (仁寶), the world's second-largest maker of notebook computers, forecast its profit margin will rise this quarter as it makes more mobile phones, which are more profitable than its laptops.

Gross margin, or sales minus production costs, will be "slightly better" than the fourth-quarter's 9.2 percent, last year's highest level, Compal chief executive Ray Chen (陳瑞聰) said at a briefing for investors, analysts and reporters.

Coupled with rising shipments, that implies Compal's first-quarter profit may beat the NT$2.5 billion (US$72 million) profit it posted last quarter and its NT$1.4 billion profit a year ago.

The company, which makes notebook computers for Hewlett-Packard Co and Dell Computer Corp and cellphones for Motorola Inc, is counting on handsets to buck weaker profit from computers.

"Notebook PC gross margins will continue to fall in 2003 under pressure from customers and market competition," Chen said.

"We will use handset gross margins to offset the decline," he said.

Chen didn't comment on first-quarter net income.

Compal and rival Quanta Computer Inc (廣達電腦), both of which specialize in making laptop computers thinner and lighter, started producing mobile phones several years ago after PC sales growth slowed.

Compal and its units will more than triple mobile-phone output this year to 10 million handsets, up from 3 million last year, it said at the briefing. Notebook PC production will rise by a quarter to 5 million computers.

Besides supplying Hewlett-Packard and Dell, Compal also makes notebooks for International Business Machines Corp, Toshiba Corp and Fujitsu Ltd, it said.

The company didn't provide a sales breakdown by products. It had total sales of NT$35.8 billion in the fourth-quarter, when profit rose 79 percent from a year earlier, it said last week.

That increase was also fueled by rising cellphone sales.

Compal is benefiting from growing demand for handsets in China, the world's largest cellphone market. The company's gross margin on phones sold in China exceeds 20 percent, it said.

As part of its margin-boosting strategy, Compal is making handsets with color screens and high-speed Internet connections.

Supplies of color screens and phone batteries are tight, because of strong demand, it said. It buys some of the parts from suppliers in Japan, South Korea and China.

Compal's flat-panel display unit, Toppoly Optoelectronics Corp (統寶光電), said in December it plans to raise NT$10 billion to double production of color screens for handsets. The new funds would help raise its output of the sheets from which screens are cut to 40,000 a month this quarter, it said.

Compal declined to comment at the briefing on Toppoly's fundraising plans. Toppoly had said that part of the funds would be provided as cash by Compal, which owns 35 percent of the display maker, and Uni-President Enterprises Co (統一企業), which owns 30 percent.

Toppoly is the first local flat-panel maker to compete with bigger rivals in Japan and South Korea in production of so-called low-temperature polysilicon screens, designed for small high-resolution displays such as those in phones.