High Tech beats forecasts

High Tech Computer Corp (宏達國際), Hewlett-Packard Co's largest supplier of pocket PCs, posted higher-than-expected gross profits yesterday, bolstered by increased revenue from its high-margin wireless products.

High Tech reported net income of NT$711 million in the first quarter, a 17.4 percent slide from the previous quarter, or a 47 percent jump from a year ago, with earnings per share hitting NT$3.27.

Revenue hit NT$6.88 billion in the first quarter, a 14.7 percent drop from NT$8.06 billion the previous quarter and a 46 percent rise year-on-year.

The company saw its gross margin in the first quarter rise to 22.10 percent, compared with 17.06 percent the previous quarter and 20.2 percent a year ago.

"The margin benefited from shipments of our wireless products [smart phones and personal digital assistant (PDA) phones], which made up about half of our revenue over this period," High Tech chief executive officer Cho Ho-tu (卓火土) said at an investors conference in Taipei yesterday.

Revenue from high-margin wireless products will increase to 55 percent of sales in the second half of the year, with more new models ready to be launched, Cho added. He did not elaborate on the number of new models to be launched.

Established in 1997, High Tech's successful launch of Compaq's iPaq series in 2000 made it the world's largest developer and manufacturer of Windows CE-based devices in the PDA sector. The company then marched into the smartphone sector using Microsoft's operating system in the fourth quarter of 2002.

"Generally speaking, the company's performance in the first quarter was beyond most investors' expectations, with its earnings per share exceeding the estimated NT$2.5," said Vincent Chen (陳豊丰), a senior research analyst with Nomura Securities Co in Taipei.

High Tech's wireless products enjoy high gross profit margin of 20 to 40 percent, whereas PDAs have an average gross margin of 10 to 15 percent, Chen said.

The company's PDA clients include the world's top vendors, Hewlett-Packard Co and Dell Inc, while wireless product customers are mainly European telecommunication operators like Starmap mobile alliance.

The company forecast annual net income this year will hit NT$27.89 billion, up from NT$21.82 billion last year, with earnings per share sliding to NT$7.44 from NT$9.05 last year.

The estimated annual gross margin dropped to 17.9 percent, which is lower than investors' forecasted margin of around 20 percent, due to potential changes in foreign exchange rates, component price hikes and a possible decrease in product prices in the second half of this year, Cho said.

High Tech has collaborated with China Unicom Ltd (中國聯通) to develop CDMA products to tap the Chinese market, High Tech president Peter Chou (周永明) said.

The company's plant in Soochow, China is expected to start mass production by the end of this year, with maximum output of 15 million to 20 million units in addition to 4 million units at the company's Taiwan plant.

"As the smart phone market is expected to boom next year with global shipments doubling to 100 million units, the company's prospects look rosy and it is a good investment," Chris Tan (譚志忠), an analyst at Yuanta Core Pacific Capital Management (元大京華投顧), said.

High Tech shares dropped 2.04 percent to NT$144 on the TAIEX yesterday.