Analysts predict consolidation in hardware sector

The nation's downstream computer hardware manufacturing sector is expected to experience further consolidation amid strong competition this year, a Merrill Lynch analyst said yesterday.

"The hardware sector is in a transition year ... and should see more mergers and acquisitions this year," Tony Tseng (曾省吾), Merrill Lynch Taiwan's vice president of equity research, said at a wrap-up press conference after the investment bank's three-day Asia-Pacific technology conference in Taipei.

The big players are expected to become bigger through vertical integration as they strive to strengthen their market share, Tseng said.

There has been speculation that the heavyweight personal computer maker Asustek Computer Inc (華碩) is interested in acquiring its smaller rivals, including Wistron Corp (緯創) and Arima Computer Co (華宇), to bolster its laptop shipments, which could grow to 4 million units this year, up 30 percent from last year.

Stan Shih (施振榮), founder of ABW Family, which consists of Acer Inc, BenQ Corp (明基電通) and Wistron, denied the rumor earlier this week, saying that now is not the time for the laptop assembler to merge with or acquire other companies, because of its improving outlook and currently less-than-ideal share price.

In the long term, Acer is thinking about liquidating 33.5 percent of its shares in Wistron, which would bring is holdings down to around 5 percent, said Philip Peng (彭錦彬), Acer's former chief financial officer, who is now president of iD SoftCapital Inc (智融), an investment venture founded by Shih and entrusted with managing Acer's assets.

Instead of selling its stake to a single company, Acer would split the shares among several companies that are interested in a long-term investment and are compatible with Wistron's management team, Peng said.

In a report released yesterday, CLSA Ltd said that vertical integration is more important to Asustek than expanding its assembly capacity.

According to Tseng, Asustek is expected to acquire firms in the Wi-Fi or broadband sectors to round out its involvement in the digital home arena, which would have a positive effect on the share price, Tseng said.

He declined to name the firms that are likely to be taken over.

Asustek is seeking to establish partnerships with complementary firms and expects to make an announcement on this in two weeks, according to a report in the Chinese-language media citing Asustek's vice chairman Tung Tsu-hsien (童子賢).

Wistron shares closed down 0.3 percent at NT$16.55 yesterday after having traded at the 7 percent upper limit on gains for the previous two days, spurred by the acquisition reports. Asustek shares meanwhile dropped 0.33 percent to close at NT$90.10.