Shares of Quanta Computer Inc (廣達電腦) and Compal Electronics Inc (仁寶電腦), which make notebook computers for Dell Inc, fell after the company missed its first-quarter profit forecasts after price cuts.
Shares of Taoyuan-based Quanta, the world's biggest notebook-computer maker, fell 2.1 percent to NT$57 (US$1.62) at the 1:30pm close in Taipei. It was the stock's biggest drop in two weeks.
Taipei-based Compal, the second-largest notebook-computer maker, lost 4.2 percent to NT$34.50, its biggest decline since Sept. 16. The TAIEX index fell 1.1 percent.
"Pressure to keep the bottom line and to regain market share will push Dell to step up to cut costs in all possible ways," said Calvin Huang, an analyst at BNP Paribas Securities in Taipei. "Suppliers such as Quanta and Compal would be the first ones to suffer."
Dell chief executive officer Kevin Rollins has trimmed prices of its computers, sacrificing profit margins while aiming to boost sales. Texas-based Dell yesterday said price reductions caused the company to miss its net income forecast as sales growth eased to the lowest in four years.
Dell missed its forecast twice last year and the latest revenue report indicates sales growth slowed to 6.1 percent.
Dell will announce results for the quarter on Thursday next week.
Dell's profit margin narrowed to 8.2 percent in the fourth quarter from 8.8 percent a year earlier, after Rollins cut prices of products including notebook PCs to win orders.
Margins at Quanta, Compal, Hewlett-Packard Co and Acer Inc may be squeezed further, said Huang, who has a "hold" recommendation on Quanta shares.
Quanta's gross margin narrowed to 5.3 percent in the first quarter from 6.2 percent a year earlier and 5.7 percent in the fourth quarter. Compal's margin fell to 5.1 percent from 5.8 percent a year earlier and 6 percent in the fourth quarter.
Quanta won 60 percent, or 10 million units, of Dell's 2007 notebook orders, becoming the US company's biggest laptop supplier, Digitimes reported earlier yesterday, without saying where it obtained the information.