Compal Electronics Inc (仁寶電腦), the world's second-largest maker of notebook computers, yesterday posted a drop in its third-quarter profit as a result of losses from its reinvestments.
Net income for the third quarter shrank 2 percent to NT$2.3 billion (US$68.5 million), or NT$0.61 per share, from NT$2.3 billion, or NT$0.68 per share, during the same period a year ago.
"Losses at TPO Displays Corp were larger than we expected," Ray Chen (陳瑞聰), Compal's president and chief executive officer, said at an investor's conference yesterday.
TPO Displays, the world's second-largest maker of handset displays, was formed in June after Toppoly Optoelectronics Corp (統寶光電) bought Philips Mobile Display Systems, a unit of Royal Philips Electronics NV.
Compal owns 25.1 percent of TPO Displays and 17.5 percent of Philips Mobile Display Systems.
Gross margins in the third quarter were down below the 5 percent mark for the second consecutive quarter to 4.6 percent, compared to 6.1 percent in the corresponding period last year.
"It is inevitable to see declining margins [due to price competition in the notebook computer manufacturing industry]," Chen said.
As more than 90 percent of Compal's revenues come from notebook computers, its margins would continue to decline, but "at a slower pace" next year, he said.
The maker will continue to seek mergers and acquisitions to expand product portfolios to lift up its shrinking margins, he said.
Compal's sales for the third quarter gained 43 percent to NT$79.5 billion, from NT$55.7 billion a year earlier.
Looking forward, the company expects to see growth in shipments of notebook computers in the current quarter.
"Fourth-quarter demand is strong," Chen said.
It expects to ship 4.6 million portable computers this quarter, up from 3.9 million units in the previous three months.
However, because of component shortages, Chen said that whole-year shipments will hit only 14 million units, 1 million short of its earlier projection.
"These shortages affected us in fulfilling our clients' orders. We were unable to deliver over 100,000 units this month," he said.
Major notebook manufacturers such as Dell Inc, Apple Computer Inc, Toshiba Corp and Lenovo Group Ltd (聯想) have recently recalled malfunctioning batteries produced by Sony Corp, causing a shortage of notebook batteries, he said.
Compal is also trying to locate more supplies of dynamic random access memory (DRAM), liquid-crystal-display panels and central processing units, he said.
An analyst, who declined to be named, questioned the possibility of Compal beefing up its finances next year, as the company's reinvestments in Vibo Telecom Inc (威寶電信) and TPO Displays were still losing money.
"It seems a tough ask for Vibo to break even by the middle of 2008 as it intends," the analyst said.
Vibo -- the nation's only strictly third-generation telecom operator, in which Compal holds a 29 percent stake -- is expected to incur a loss of NT$6 billion this year.
Shares of Compal were up 1.6 percent to close at NT$29.35 yesterday on the Taiwan Stock Exchange.