Compal posts big increase in profits

Compal Electronics Inc (仁寶電腦), the world's second-biggest notebook-computer maker, yesterday posted a 35 percent gain in profits for the first quarter on rising sales.

Net income rose to NT$2.2 billion (US$69 million), or NT$0.62 a share, from NT$1.6 billion, or NT$0.50, a year earlier, according to the company's figures released yesterday.

Net sales were also up 19 percent year-on-year at NT$59.66 billion for the same period.

However, gross margins dropped to 5.1 percent from 5.8 percent a year earlier, a result of the spinning off of the Personal Mobile Communications and Computing (PMCC) division to the company's handset subsidiary Compal Communications Inc (華寶通訊). The deal took effect on Jan. 1.

"Spinning off the PMCC, which produces Pocket PCs and mobile phones, has dragged down our margins for the first quarter," Ray Chen (陳瑞聰), president and chief executive officer of Compal, told an investor conference yesterday.

Pocket PCs and handsets offer higher margins of 10 to 15 percent to contract makers, much better than the 4 percent made on notebooks, according to Compal's spokesman Gary Lu (呂清雄).

The company said it would not see any major improvement in margins during the second quarter, though notebook shipments were expected to expand by 15 percent thanks to stable orders.

Other product lines, including liquid-crystal-display televisions and monitors, will only post slight growth during this quarter because of seasonal factors, Chen said, expecting strong momentum for all products to come in the second half of the year.

Compal maintained its target for notebook shipments this year at 15 million units, representing more than 50 percent growth from 9.8 million units last year.

In the first three months, Compal shipped 2.66 million laptops, accounting for 90 percent of the company's quarterly sales.

In an attempt to diversify its product portfolio and increase margins, Compal was set to leverage mergers and acquisitions to move into new areas such as wireless communications, digital home, automotive electronics and portable media devices, Chen said.

"Our product diversification is still in its infancy, and without major mergers, this segment will probably contribute a single-digit percentage to our revenues this year," he added.

While Compal's quarterly results were not a big surprise to analysts, Roland Wee (李健仁), an analyst with HSBC Ltd, said that Compal's prospects for the year seem good.

"The company's diversification move will take some time but it has gotten off to a good start. Compal must find the right products to branch out from the low-margin laptop business," he said.

Compal's stock rose by 1 percent to close at NT$36.15 yesterday on the Taiwan Stock Exchange, before the earnings were announced.