Quanta Computer ranked as stable by Fitch Ratings

Fitch Ratings yesterday gave Quanta Computer Inc (廣達電腦) a stable outlook, given the world's largest contract notebook computer maker's solid business this year.

A Fitch report released yesterday assigned Quanta Computer a long-term foreign currency issuer default rating of "BB" and a national long-term rating of "BBB+(twn)."

"The ratings reflect Quanta's leading industry position in providing original design manufacturing [ODM] services for notebook computers and its solid customer relationships with the brandname notebook vendors," Fitch said.

The ratings also reflect the positive momentum of the electronics ODM sector, with more than 20 percent growth estimated for notebook computer shipments this year, it said.

The ratings are constrained by Quanta's concentrated business portfolio, low profit margin, negative free cash flow and above-average financial leverage, it said.

"Quanta is seeing greater pressure in its operating cash flow generation amid increasing competition in the ODM industry, while major branded notebook computer clients are also changing their outsourcing strategies to incorporate a larger number of ODM suppliers," Kevin Chang (張崇人), associate director at Fitch's Asia-Pacific Telecom, Media and Technology team, said in the report.

Despite diversification efforts, material improvement in profitability and cash flow generation at Quanta seems unlikely to materialize in the next two years as low-margin notebook manufacturing would continue to account for more than 70 percent of revenues, Chang said.

Quanta targeting raising non-notebook computer businesses -- especially high-end handsets and liquid-crystal-display televisions -- to account for 25 percent of total sales this year, up from last year's 19 percent, chairman Barry Lam (林百里) told reporters last Friday.

Quanta a 52 percent increase in sales last month to NT$50.27 billion (US$1.53 billion), from NT$33 billion a year earlier and NT$39.5 billion in December.

It shipped more than 2 million notebook computers last month. Shipments this year should hit 25 million units, up 30 percent from more than 19 million units last year, it said.

Quanta's revenues could exceed NT$500 billion this year, compared with NT$461.5 billion last year, Lam said.

Compal Electronics Inc (仁寶電腦), meanwhile, is aiming to unseat Quanta as the top laptop maker this year, with shipments to expand at least 37 percent to over 20 million units, president and CEO Ray Chen (陳瑞聰) said on Jan. 20.

Compal 14.6 million notebook computers last year, up nearly 50 percent from 2005. It reported an 82 percent increase in sales last month to NT$34.7 billion, from NT$19.1 billion a year ago.