CLSA Ltd yesterday downgraded its rating for Asustek Computer Inc (
"Major changes are needed [for Asustek]," analyst Vincent Chen (
Reflecting those concerns, the foreign securities brokerage downgraded Asustek to "sell" from "outperform," cutting target prices by 16 percent to NT$72.7 (US$2.28) from its earlier price of NT$115.7.
Asustek's shares continued their worrying slide yesterday, plunging by 6.21 percent to close at NT$80 on the Taiwan Stock Exchange.
"The company is being hindered by weaker desktop PC demand and severe original equipment manufacturing [OEM] competition in the notebook segment," Chen said.
Currently, 42 percent of Asus-tek's revenue is derived from desktop PCs, which include 17 percent from barebones systems -- referring to partially built PCs which generally contain a case, power supply and motherboard -- and 25 percent from motherboards, according to CLSA.
"Asustek is extending its vertical supply chains from motherboard down to barebones-system assembly. We find this strategy is still dragging on margin performance rather than lifting it, because of the lack of strong in-house component synergies," Chen said in the report.
The brokerage also raised concern over Asustek's plan to separate its brand and OEM businesses within two years.
"The progress seems too slow as its PC-centric business model is gradually losing its advantage. On the other hand, rivals Acer and Hon Hai Precision Industry (
Asustek has been constrained by its concurrent brand and OEM business model, which caused the company to lose a major notebook account -- Sony Corp last year.
To ease the concerns of its OEM clients, Asustek announced in September last year that it intended to follow in the footsteps of Acer Inc and Wistron Corp (
Meanwhile, the company is fighting hard to win notebook orders for next year from US giant Dell Inc, despite severe price competition in the industry, according to Chen.
Notebook business accounts for nearly 40 percent of Asustek's revenue.
Amid these problems, Sony and Asustek will both manufacture the first batch of PlayStation 3s (PS3) -- Sony's next-generation game console scheduled to hit the stores in time for Christmas.
However, Chen said that although both notebooks and the PS3 can help rejuvenate revenue momentum, Asustek's margins remain slim.
Asustek announced on May 3 it would pay a cash dividend of NT$1 per share for last year, which translated to a cash payout ratio of 20 percent.
The figure was less than NT$1.5 per share than a year before, when the cash payout ratio was 30 percent.
"Asustek is comparably less aggressive in paying excessive cash back to investors, which has become an important issue. It also disqualifies the stock as a `value play' when earnings growth slows," Chen said in the report.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
ARTIFICIAL INTELLIGENCE: The chipmaker last month raised its capital spending by 28 percent for this year to NT$32 billion from a previous estimate of NT$25 billion Contract chipmaker Powerchip Semiconductor Manufacturing Corp (力積電子) yesterday launched a new 12-inch fab, tapping into advanced chip-on-wafer-on-substrate (CoWoS) packaging technology to support rising demand for artificial intelligence (AI) devices. Powerchip is to offer interposers, one of three parts in CoWoS packaging technology, with shipments scheduled for the second half of this year, Powerchip chairman Frank Huang (黃崇仁) told reporters on the sidelines of a fab inauguration ceremony in the Tongluo Science Park (銅鑼科學園區) in Miaoli County yesterday. “We are working with customers to supply CoWoS-related business, utilizing part of this new fab’s capacity,” Huang said, adding that Powerchip intended to bridge
Microsoft Corp yesterday said that it would create Thailand’s first data center region to boost cloud and artificial intelligence (AI) infrastructure, promising AI training to more than 100,000 people to develop tech. Bangkok is a key economic player in Southeast Asia, but it has lagged behind Indonesia and Singapore when it comes to the tech industry. Thailand has an “incredible opportunity to build a digital-first, AI-powered future,” Microsoft chairman and chief executive officer Satya Nadella said at an event in Bangkok. Data center regions are physical locations that store computing infrastructure, allowing secure and reliable access to cloud platforms. The global embrace of AI
Qualcomm Inc, the world’s biggest seller of smartphone processors, gave an upbeat forecast for sales and profit in the current period, suggesting demand for handsets is increasing after a two-year slump. Revenue in the three months ended in June will be US$8.8 billion to US$9.6 billion, the company said in a statement Wednesday. Excluding certain items, earnings will be US$2.15 to US$2.35 a share. Analysts had projected sales of US$9.08 billion and earnings of US$2.16 a share. The outlook signals that the smartphone market has begun to bounce back, tracking with Qualcomm’s forecast that demand would gradually recover this year. The San