Merrill Lynch upgrades Quanta, Acer

Brokerage Merrill Lynch raised its earnings forecast for Taiwanese computer companies including Quanta Computer Inc (廣達), the world's biggest contract laptop maker, due to strong signs indicating an improvement in inventory, demand and margins.

The signs have prompted Merrill Lynch to upgrade its ratings on Acer Inc, the world's No. 4 computer vendor, and Quanta to "buy" and "neutral," respectively.

"Recent comments from Intel, leading vendors, ODMs [original design manufacturers] and key component suppliers have indicated that the outlook for notebook computers is improving," said Merrill Lynch analyst Tony Tseng (曾省吾) in the latest report released last Friday.

With inventories reduced to healthier levels given stronger demand, Tseng expects notebook computer shipments from local firms to jump by as much as 15 percent quarter-on-quarter in the current quarter and another 20 percent in the fourth quarter of this year.

Compal Electronics Inc (仁寶電子), which makes laptops for Dell Inc, expects demand for notebook computers to rise to as many as 580 million units this year, said Compal President Ray Chen (陳瑞聰), citing faster-than-expected replacement of desktops with notebooks.

Softer-than-expected prices for certain components such as flat panels and stabilized pricing from OEM customers have largely alleviated near-term pressure on margins, Tseng said.

As a result, Tseng raised his earnings forecast for Quanta for this year and next to NT$4.66 and NT$5.84 per share, up by around 20 percent from previous estimates. But he stuck with a "neutral" rating on the stock.

Tseng also upgraded his rating on smaller rival Compal to "neutral" from "sell," helped by better industrial sentiment and halved losses from its flat-panel affiliate Toppoly Optronics Corp (統寶光電).