BenQ predicts margin rebound

BenQ Corp (明基電通), one of Taiwan's leading handset makers, said it was expecting its gross margin would rebound in the current quarter and revenue would grow by 20 percent from the previous quarter boosted by brisk demand for all segments and the launch of new products, company officials said yesterday.

BenQ's third-quarter earning are largely in line with the predictions of most analysts, but the sharp 3 percent decline in gross margin quarter-on-quarter came into the spotlight during yesterday's quarterly investor conference.

"We're surprised about the big drop in gross margin, though we already detected that the high-margin handset business has gradually been replaced by liquid crystal display [LCD] monitors and storage drives as the main engines for driving BenQ's profitability," said Grace Chen (陳星嘉), an analyst with Insight Pacific Investment Research (月涵投顧) in Taipei.

BenQ's gross margin slipped to 11.7 percent in the three months ended Sept. 30 from the 14.7 percent recorded in the second quarter and the 16.2 percent a year ago. The decline in gross margin has resulted in a reduction of the company's operating income.

Alex Liou (劉維宇), a comptroller at BenQ, attributed the declining margin to lower mobile phone shipments and a price cut aimed at digesting overstocked inventory. However, he expected handset shipments during the October to December period to rise to the level marked in the first quarter this year.

"The gross margin will bounce back to a certain level during the fourth quarter helped by rising handset prices and the launch of new handset models," BenQ chairman Lee Kun-yao (李焜耀) said.

Sales from the company's communications segment accounted for 15 percent of total sales, down from 20 percent during the second quarter.

"I believe BenQ suffered a lot from the price reduction as the gross margin for making handsets is much higher than other products, such as LCD monitors," Chou Chi-shian (周奇賢), an industry analyst with SinoPac Securities Corp (建華證券).

"Increasing shipments of cellphones and the launch of new models will help boost BenQ's gross margin, but the strength will be moderate. Thirteen percent would be a reasonable level," he said.

The bulk of BenQ's third-quarter earnings of NT$2.23 billion came from non-operating income, despite strong demand in LCD monitors and storage drives. Flat panel maker AU Optronics Corp (友達光電) contributed NT$700 million to BenQ, which holds a 14.8 percent stake in AU, according to the company's financial executive.

BenQ expected to see revenue grow by 20 percent in the fourth quarter from the previous quarter due to demand from all segments including LCD monitors, LCD televisions and storage drives and launch of new products. That will represent a 45-percent gain from a year ago.

BenQ will have new handsets, flat-screen televisions and storage drives pitched in local market.

BenQ posted higher third-quarter revenue at NT$3.2 billion Wednesday. That represented a nearly 42 percent surge compared with NT$2.26 billion a year earlier.

"The growth will be even stronger if key component supply stabilizes," Liou said. "The shipment of LCD monitors will be capped by panel supply."

BenQ shares rose by NT$0.1, or 0.23 percent, to close at NT$43.3 on the TAIEX yesterday.