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Chunghwa Picture inks big deal

"I'm not excited about the news. As panel prices drop rapidly to close to flat-screen makers' cost level, it's a question whether Chunghwa Picture could still make profits from the deal."

Frank Su, analyst with BNP Paribas Peregrine in Taipei

Chunghwa Picture Tubes Ltd (中華映管) has signed an agreement with China's top computer vendor, Lenovo Group Ltd (聯想), to double sales to the Beijing-based company next year.

"The increase is mostly due to rising demand for liquid-crystal-display (LCD) and cathode-ray tube (CRT) panels for computer monitors," the Chunghwa Picture's spokesman Liu Chih-chun (劉治軍) said in a phone interview yesterday.

Chunghwa Picture, the nation's third-biggest maker of flat-panel screens for computers and televisions, last week inked a letter of intent with Lenovo when the Chinese computer giant's deputy director Lu Yen (呂岩) visited the Taiwanese flat-panel maker, based in Taoyuan.

Liu declined to reveal the exact value of Lenovo's purchase, but said that the deal would double sales to Lenovo in comparison with this year.

Overall, the deal would add around NT$10 billion to Chunghwa Picture's sales next year after the company starts to provide panels directly to Lenovo and its monitor contract partners, including Compal Electronics Inc (仁寶) and Lite-On Technology Corp (光寶科技), Liu said.

In addition to displays for computer monitors, Chunghwa Picture will also start shipping a small amount of flat panels used for TVs next year, Liu said. That will give the company a better position to win more such high-margin orders from Lenovo, as the Chinese computer maker is aggressively tapping the consumer electronics market following the example of its US rival Dell Inc, he added.

In reaction to the news, investors bought more Chunghwa Picture shares on the TAIEX yesterday, pushing the stock price 1.27 percent higher to NT$16.

Bigger competitors AU Optronics Corp (友達光電) and Chi Mei Optoelectronics Corp (奇美電子) merely advanced 0.67 percent and 0.22 percent, respectively.

But the news about the close partnership with Lenovo only garnered a lukewarm response from industry analysts amid lingering worries about an oversupply of panels.

"I doubt the purchase deal will give a significant boost to Chung-hwa Picture's sales, as Lenovo could scale down orders whenever demand dwindles," Alex Wu (吳興國), an analyst with KGI Securities (中信證券), said yesterday.

"The sales contribution from Lenovo could be capped at 10 percent of Chunghwa Picture's 2005 sales," Wu said.

Frank Su (蘇穀祥), an analyst with BNP Paribas Peregrine in Taipei, said, "I'm not excited about the news. As panel prices drop rapidly to close to flat-screen makers' cost level, it's a question whether Chunghwa Picture could still make profits from the deal."

Chunghwa Picture is scheduled to list 1 billion common shares of its Chinese affiliate CPTF Optronics Co (華映光電) by the end of the year on Shanghai's "Class A" stock market.

Shanghai has two stock markets. Class B shares are denominated in US dollars and are tradable only by overseas investors. Class A shares, dominated in yuan, are available only to domestic Chinese buyers.

In the first half of the year, Chunghwa Picture swung to profits of NT$12,36 billion, or NT$2.03 per share, from a loss of NT$1.83 billion a year earlier.
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