While major domestic notebook computer makers saw sales grow in the third quarter, profits continued to shrink with declining gross margins, prompting market watchers to suggest a consolidation as a cure.
"The notebook computer sector needs to consolidate to reduce the increasingly slimmer gross margin," Daphne Cheng (
Gross margins started to fall after major players began cutting prices to compete for orders from global vendors such as Dell Inc and Hewlett-Packard Co.
Competition might heat up even more as second-tier players plan to slash their prices to vie for more orders with first-tier companies in the next two years, Cheng said.
Quanta Computer Inc (
Compal Electronics (
Inventec Co (
But instead of trying to consolidate, laptop manufacturers have resorted to price cuts and cost controls, as well as diversification.
"Diversifying into liquid crystal display monitors and TVs remains the first choice for the major players to improve their margins, although these efforts don't appear to have paid off," Cheng said.
Mergers may not to occur in the next year or two, she said, adding that mergers also depend on the attitudes of chief executives.
"Not many of them want to succumb to others," she said.
Overestimated price-earnings (PE) ratio of shares in the sector, which could be as high as 13-fold of the earnings per share (EPS) compared with a PE ratio of around 11 times in the semiconductor sector, would lead to high consolidation cost, Cheng said. So lower margins may continue to be a drag on the industry for the next few years.