Strong NT dollar hurts Compal

Compal Electronics Inc (仁寶) yesterday reported a NT$479 million loss on foreign currency exchange in the first quarter, which analysts said was more than they expected.

Compal, the world's second largest notebook computer maker, reported NT$42.5 billion revenues in the first quarter, a slide of 29 percent from the previous quarter.

"The company's poor performance in the first quarter did not happen out of the blue," said Grace Chen (陳星嘉), an analyst at Insight Pacific Investment Research (月涵投顧). "However, the nearly NT$500 million foreign currency exchange loss was beyond our expectations."

The company's gross margin remained at 7.1 percent, said Gary Lu (呂清雄), Compal's chief finance officer. Lu said the foreign exchange loss had a minor impact on the company's margin but that impact was offset by increased orders for bare-bones notebooks in the same quarter, which conventionally enjoyed higher margins.

The foreign exchange loss, however, reduced the company's net income to NT$1.6 billion, a slide of 54 percent from the previous quarter and 30 percent down on the year, with earnings per share of NT$0.53.

The NT dollar has been appreciating against its US counterpart since late last year. The local currency traded at an average of NT$34.058 in December last year and at an average of NT$33.306 in March this year, an increase of 2.2 percent, according to statistics provided by the nation's central bank.

Looking ahead, Compal president Ray Chen (陳瑞聰) forecast the company's notebook shipments to grow by between 15 percent and 20 percent to around 1.8 million units in the second quarter. Compal is targeting an annual shipment of 8 million units, he added.

The company said looming price hikes in some components such as logic integrated circuits (IC), power IC and graphic chips -- a result of tight production in the semiconductor sector -- could be passed on to its clients.

"Our notebook gross margin may not be able to allow us to bear the rising cost," Chen said.

The company expected to ship 1.3 million to 1.4 million handsets in the first half of this year as well as 750,000 to 800,000 liquid-crystal-display (LCD) monitors.

Compal will start shipping 42-inch plasma display panel televisions in the second quarter, accounting for 15 percent of the 46,000 flat-panel TVs it expects to ship, Chen said. The company shipped 19,000 flat-panel TVs in the first quarter.

Compal may expand this year via mergers with or acquisitions of wireless LAN, home media or television companies in light of the trend toward digital home entertainment, Chen said.

While the move could help Compal pursue high growth in its core laptop business, another analyst said that it would have a limited effect, since the company did not have a clear product layout plan in place.

"If they were serious, they should have formulated concrete M&A plans by now," said Steven Tseng (曾續良), an analyst with Yuanta Core Pacific Securities (元大京華證券).

Compal shares fell 1.4 percent to NT$41.30 on the TAIEX yesterday before the announcement of first-quarter results.