Component makers set to get boost from iPod sales

Taiwanese electronics component makers are set to take over from electronics assemblers as some of the most actively traded targets on local stock markets, riding on the craze for Apple Computer Inc's digital music player iPod products, a securities house based in Taipei said in its latest report.

Strong demand for iPod around the globe has boosted the shares of Taiwanese companies that make or supply components for the stylish MP3 players over the past three months.

On Taiwan's Emerging Stock Market (興櫃市場), shares of Inventec Appliances Corp (英華達), the biggest supplier of iPod products to Apple Computer, have spiked by about 30 percent to NT$88.18 since the beginning of the year.

Some question whether the momentum can be sustained.

"We don't think the share prices of iPod-related companies have fully factored in future growth prospects," KGI Securities said in a report (建華證券) released over the weekend, suggesting that shares may rise further.

Strong demand will accelerate outsourcing, leaving room for potential orders to new suppliers for components and assembly, according to the report. Sales of iPod products will more than double to 9.5 million units by the end of this year, from 4.5 million in the first quarter, KGI Securities projected.

"Electronics component suppliers, which lagged behind iPod assemblers in terms of stock price, will outpace other stocks in the rest of the year," the report said.

Component suppliers Cheng Uei Precision Industry Co (正崴), Ji-Haw Industrial Co (今皓實業) and Mustang Industrial Corp (同協電子), will benefit the most from the iPod craze, KGI Securities said.

The three companies should post strong sales, growing from 15 percent to 30 percent annually, the broker said.

To reduce risk, investors should target stocks with potential for growth that are still cheap, the report said.

"Jin-Haw, Taiwan's No.2 maker of cables for game consoles and MP3 players, and Acon Advanced Connectek Inc, (連展科技) a leading electronics connector maker, are still undervalued," the broker said.

KGI Securities also recommended investors buy other iPod-related stocks, naming Asustek Computer Inc (華碩), a possible candidate to make the iPod Shuffle for Apple Computer this year, as well as Catcher Technology Co (可成), a magnesium casing supplier for iPod mini, and Powertech Technology Inc (力特), a flash memory testing and packaging service provider, as shares matching that criteria.