Fri, Aug 11, 2006 - Page 11 News List

Analysts question Asustek-Gigabyte deal


Analysts questioned the benefits of the proposed joint venture between Asustek Computer Inc (華碩電腦) and Gigabyte Technology Co (技嘉科技), speculating that the deal could pave the way for Asustek's acquisition of Gigabyte.

"[The joint venture] creates more confusion than answers," Citigroup analyst Kirk Yang (楊應超) said in a report released on Wednesday.

"While Asustek, Gigabyte and consensus believe this could reduce a price war in the industry and stabilize profitability, we believe a direct 100 percent acquisition by Asustek would make much more sense," he said.

Asustek, the world's largest motherboard maker, announced on Tuesday that it would set up an NT$8 billion (US$245 million) venture in January next year with Gigabyte to manage the latter's own-brand motherboard and graphics card businesses.

Shareholding in the proposed joint-venture company would be 49 percent for Asustek and 51 percent for Gigabyte.

Vincent Chen (陳豊丰), an analyst with CLSA Ltd, echoed Yang's view, saying he couldn't find any clear synergy in the proposed move.


The deal has complicated Asustek's original "mega plan" to separate its brandname and contract-making businesses, Chen wrote in a separate report.

"Now Asustek has to worry about Gigabyte's brand, [in addition to] its own two brands [Asus and ASRock]," Chen wrote, criticizing Asustek for its "unclear strategy."

Though analysts agreed that the venture could reduce cutthroat price competition, they said Gigabyte would "lose" out in the deal.

Gigabyte is set to lose 49 percent of its own-brand profits, but will not likely regain it in the form of better economies of scale and improved profitability from more stable selling prices, Yang said.

"We are not 100 percent sure why Gigabyte is willing to give up its core business, unless it is very bearish on the industry outlook as its other businesses are not as attractive," Yang said.

For Asustek, motherboards are the firm's cash cow, and it can't afford to see Hon Hai Precision Industry Co (鴻海精密) snap up Gigabyte, CLSA's Chen said.

"We believe Asustek's motive is to preempt Hon Hai from acquiring Gigabyte, which is even stronger than the Asus brand in certain markets such as China and Japan, on the back of its solid channel relationships and brand loyalty," Chen said.

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