Asustek plans to cut 1,000 jobs and send them to China

Asustek Computer Inc (華碩電腦), Taiwan's largest motherboard maker, plans to lay off 1,000 factory workers in Taiwan by the end of next year and send the production capacity to China, a Chinese-language newspaper reported Monday, citing company sources.

The personnel downsizing is a part of Asustek's manpower restructuring scheme, mainly because of production outsourcing, as well as the new labor pension fund system coming into practice starting this month, which adds costs for employers, the report said.

Production will be shifted to Asustek's yet-to-be finished factory in Shanghai, where the company has pumped in about US$1.5 billion and will be Asustek's largest production base for churning out notebook computers, handsets and liquid crystal display (LCD) TVs, according to the report.

While planning to dismiss 1,000 workers, Asustek is also recruiting another 1,000 salespeople to strengthen its marketing division, the report said.

Asustek has nearly 8,000 employees in Taiwan with 3,000 production-line operators.

The layoff has triggered a labor dispute in Asustek's factory in Taoyuan County, as the factory sacked 56 local workers and hired foreign laborers instead over the past two months, the report said. In addition, at the end of last month, 500 workers were told they must leave their posts on the production line, it said.

Responding to the issue, Asustek said outsourcing production is an inevitable trend in the electronics manufacturing industry, so it must adjust its manpower structure to enhance competitiveness, the report said, without identifying the source.

The company will follow regulations stipulated by the Labor Standards Law (勞基法) regarding severance to ensure laborer's rights, the report said.

Goldman Sachs raised its target share price for Asustek from NT$99 to NT$108, from "in accordance with market expectations" to "exceed market expectations" in its latest study, given the company's better-than-expected earnings in the second quarter.

Shares of Asustek climbed NT$0.9 to close at NT$95.9 on the Taiwan Stock Exchange last Friday.

Sales of Asustek declined merely 7.5 percent in the slack second quarter from the previous one with shipments of notebook computers growing by 4 percent. As a result, Goldman Sachs raised its forecast for Asustek's profit in the second quarter to NT$3.9 billion from NT$3.5 billion.

Asustek's comparatively low price-earning (P/E) ratio of 12.7 also brings advantages over its competitors in motherboard manufacturing, according to Goldman Sachs. Gigabyte Technology Co (技嘉科技) reported a P/E ratio of 16.7, Micro-Star International Co (微星科技) posted 14.1 and Elitegroup Computer Systems Co's (精英電腦) ratio is as high as 25.8.

While foreseeing a bright second half of the year, Goldman Sachs said Asustek still needs to solve the conflict between its brandname products and original equipment manufacturing orders, as well as counter the threat posed by competitors such as Hon Hai Precision Industry Co (鴻海精密).