Consumers may soon be able to buy an Olympus digital camera manufactured by Hon Hai Precision Industry Co's (鴻海精密) Chinese factories, after the Taiwanese company announced last week it would acquire the nation's top camera maker, Premier Image Technology Corp (普立爾).
The NT$30 billion (US$9.2 million) deal attracted widespread attention despite a wave of mergers and acquisitions in the local electronics sector.
The deal would help Hon Hai chairman Terry Gou (郭台銘) keep his promise of raising revenues by 30 percent per year for the next five years, but would make it harder for Premier's rivals to battle the electronics giant, analysts said.
"The Premier acquisition will be good for Hon Hai, as it is seeking new consumer electronic gadgets to replace computers as a new growth driver," said Lu Chia-lin (呂家霖), an analyst with Yuanta Core Pacific Securities (元大京華證券).
The acquisition would increase Hon Hai's earnings by about 5 percent this year, Lu said.
Hon Hai, which assembles iPods for Apple Computer and PlayStation game consoles for Sony Corp, last year earned NT$43.97 billion, or NT$10.21 a share, on NT$911.77 billion in revenues, according to the company's filing with the Taiwan Stock Exchange.
"I fear for Hon Hai's competitors. The deal will lead to a huge change in the nation's digital camera landscape," said Simon Yang (楊勝帆), who tracks the consumer electronics industry for the Taipei-based researcher Topology Research Institute (拓墣產業研究所).
Shares in Premier's rivals Ability Enterprise Co (佳能) and Altek Corp (華晶科技) fell 4.08 percent and 6 percent, respectively, on the Taiwan Stock Exchange last Tuesday after the Hon Hai-Permier deal was announced before the market opened.
To safeguard its profitability, Premier made it a policy not to produce cameras with a gross margin lower than 10 percent, but that strategy might be ended once the Hon Hai deal takes effect in December, Yang said.
With its strong cost-saving abilities, Hon Hai would be able to undercut competitors, Yang said. More than 50 percent of Ability's sales are made to Japan's Casio, while Altek has US-based Eastman Kodak Co as its largest client, he said.
Premier currently supplies cameras to major camera brands, including Olympus and Sony.
Hon Hai has gained fame for making money through economies of scale -- shipping huge volumes of lower-margin goods by sourcing cheap components, he said.
That strategy could improve Premier's outlook, since the camera industry is slumping due to growing competition from camera phones and the slowing pace of replacement for traditional film cameras, Yang said.
Ability and Altek would not be the only companies at risk, since the Premier-Hon Hai combo would also exert great influence on manufacturers of camera lenses for the mobile phone industry.
"We are downgrading Largan Precision Co (大立光) from `buy' to `under perform' and cutting the 2006 [earnings] forecast by 2 percent and 2007 by 12 percent, owing to potential competition from the Hon Hai and Premier merger," said Vincent Chen (陳豊丰), a hardware analyst at CLSA Ltd.
Premier now ships up to 1.5 million handset camera lenses per quarter, compared to the more than 10 million that Largan ships, he said.
He said the new Hon Hai could launch a price war to grab customers, backed by its phone camera lens manufacturing affiliate, Altus Technology In (
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