Higher profit margins and cost-cutting measures have delivered a bumper first-quarter profit for the nation's second largest OEM maker of notebook computers, Compal Electronics Inc (
In the three-month period ending on March 31, Compal netted a profit of NT$2.4 billion, a 71-percent increase on the same period last year.
"The reason for the good result is that the company has kept its gross margin over 9 percent and reduced its operating expenses," said Martha Chen (陳紅), an analyst with Primasia Securities Co.
The gross margin is the difference between the cost of production and selling prices. Last year, Compal added mobile phone handsets and handheld personal digital assistants (PDAs) to its product offering. The popular devices command higher gross margins than notebook computers and now account for 19 percent of Compal's revenue compared to only 6 percent in the first quarter of last year.
Margins are expected to remain high into the second quarter.
Compal is predicting strong sales in April, but is more conservative about May due to the cancellation of China's week-long May holiday over severe acute respiratory syndrome (SARS) fears. China is Compal's largest market for handhelds.
Consumers in China were expected to snap up new phones and PDAs during the second most important Chinese holiday after the Lunar New Year.
"We now expect Compal's handset sales will remain flat, or decline 5 to 10 percent quarter-on-quarter," Chen said.
Compal's stellar performance may attract more investors.
"We retain our buy recommendation on Compal because of better-than-expected results," Jonathan Chen (陳進盛), an analyst at SinoPac Securities Corp (建華證券), said in a statement.
In addition to cost-cutting and better margins, Compal also received NT$600 million in income from two investments, Compal Communications Inc (華寶通訊) and International Semiconductor Technology Ltd (飛信半導體) in addition to NT$120 million in foreign exchange gains.
Chen is more upbeat about Compal's prospects for the second quarter, saying rising notebook sales to Apple Computer Inc and Hewlett-Packard Co should result in a 12-percent increase in revenue to top NT$34 billion compared to the first quarter.
Taiwan currently makes over 60 percent of the world's notebook computers, according to figures from the government-funded Market Intelligence Center.
Almost 31 million notebooks were sold worldwide last year, a figure that is expected to rise to 35 million this year, figures from US-based technology research firm International Data Corp show.
Compal is expected to get an added boost in the third quarter when Motorola Inc and Matsushita Electric Industrial Co -- makers of the Panasonic brand -- release their much anticipated new third generation or 3G phones that can send and receive photos and video, as well as connect to the Internet. Motorola and Matsushita are customers of Compal.
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