Tue, Jul 20, 2004 - Page 10 News List

Big inventories start to impede handset demand

PRODUCTION WOES Analysts are worried that the growing stockpile in China could put a damper on orders for Taiwanese manufacturers


Taiwanese handset manufactures are feeling a squeeze on orders from Chinese customers, including Ningbo Bird Co (波導) and Haier Group (海爾), as mounting inventory could reduce demand in the world's biggest phone market, industry watchers said yesterday.

"The outlook is dismal for Taiwan's contract handset makers this year as Chinese mobile-phone vendors are scaling down outsource productions to fully utilize their own capacity amid high inventory," Kevin Yang (楊仲偉), an analyst with Industrial Technology Research Institute, said yesterday at an industry forum in Taipei.

The inventory is expected to swell to around 35 million units this year, the biggest in the past four years, up 40 percent from 25 million last year, according to the institute's forecast.

The stockpile will make up half of the Chinese market demand, as Connecticut-based Gartner Inc predicted that China will consume about 70 million units this year.

"We cut back supplies to Chinese handset vendors on purpose after the SARS outbreak last year," said Dennis Ko (柯典明), a spokesman of Compal Communications Inc (華寶通訊), an affiliate of local notebook computer giant Compal Electronics Inc (仁寶).

"Now we supply handsets only to two or three Chinese brands, who have kept close ties with Compal," Ko said.

Less than 10 percent of the projected 7.5 million mobile phones will go Compal's Chinese partners this year, Ko said, a stark contrast to the situation back in the first quarter of last year, when Compal shipped around 90 percent of its cell phones to China.

According to Ko, Compal now primarily supplies its handsets to international big brands Motorola Inc, Matsushita Electric Industrial Co, maker of Panasonic-branded electronics, and Alcatel SA.

Arima Communication Corp (華冠通訊), the nation's No. 2 handset maker, also expects a drop in shipments to Chinese partners this year because of the overcapacity problem, spokesman Howard Huang (黃厚銘) said in May.

Compal shares fell nearly 7 percent to NT$58 on the TAIEX yesterday on growing concern over the supply glut. Arima dropped 5.3 percent to NT$25.

The oversupply problem has been around since last year's SARS epidemic, but Chinese handset makers have leveled off part of their inventories since Christmas and Lunar New Year, Gartner said.

"It's normal to see inventory to pile up in the soft season. We expect the inventory to smooth out in the third quarter," said Ann Liang (梁嘉鈴) of Gartner in Taipei.

Downplaying the supply issue, Steven Tseng (曾續良) of Yuanta Core Pacific Securities (元大京華證券) said the scaling down of orders would not pose a fatal threat to local mobile-phone contract makers as international handset brands still lead their customer lineup, not TCL or Haier.

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