Wed, Aug 15, 2007 - Page 12 News List

Compal sees profits double in Q2

INVESTMENTS The laptop contract maker said it was pouring US$30 million into a new plant in Vietnam and had invested NT$1.5 billion to control two casing makers

By Jason Tan  /  STAFF REPORTER

Compal Electronics Inc (仁寶電腦), the world's second-largest laptop computer contract maker, said yesterday that second-quarter profits nearly doubled from a year ago on strong notebook computer demand and reduced losses at its affiliates.

The company posted a net income of NT$3.25 billion (US$98.6 million), or NT$0.85 per share, in the last quarter ending in June, up 92 percent from NT$1.69 billion, or NT$0.46 a share, in the same period last year.

Sales during the same period increased 63 percent to NT$98.9 billion, while gross margins inched up 0.1 percentage points to 4.8 percent.

Its non-operating income -- including contributions from affiliates Vibo Telecom Inc (威寶電信) and TPO Displays Corp (統寶光電) -- reached NT$673 million in the second quarter, up from last year's NT$277 million.

Compal posted a non-operating loss of NT$175 million in the first quarter as its affiliates' losses widened.

"Compal's notebook shipment in the third quarter will rise 15 percent to 20 percent from the second [quarter]," company president and chief executive Ray Chen (陳瑞聰) told investors yesterday.

The company shipped 5.1 million portable computers during the second quarter, up from 4.9 million units in the first quarter.

Total shipments should exceed 22 million this year, a substantial increase over the 20 million units projected in April, Chen said.

While acknowledging that supply of components -- including flat panels, battery packs, hard disk drives and power control ICs -- was tight, Compal said the issue would not affect its shipment momentum in the second half of the year.

Gross margins should be maintained at current levels or even trend up slightly in the third quarter thanks to production standardization and cost control, he said.

The company also announced that it was investing US$30 million to build a manufacturing plant in Vietnam, following its investments in four production lines in Kunshan, China.

"More than 85 percent of the world's notebooks are now being churned out in the Greater Shanghai area, and setting up a branch outside China is a move to diversify risks," Chen said.

The new plant is scheduled to start mass production in 2009, with monthly production capacity projected to reach 300,000 to 500,000 in the fourth quarter.

With this economic scale, production costs in Vietnam will be 3 percent to 5 percent lower than the Kunshan plants, he said.

The company also said it had spent NT$1.5 billion to purchase a 71 percent stake in Wah Yuen Technology Holding to gain control over the latter's affiliates Hong Ya Technology (宏葉新技) and China-based JuRong Huaye New Technology (句容華葉).

The two firms, which produce magnesium alloy casings for consumer electronics such as digital cameras and notebooks, will boost Compal's vertical integration, the company said.

However, Daniel Chang (張博淇), an analyst with Macquarie Research Equities, has doubts about the investment.

"Hong Ya has not been doing well in the past four years," he said, adding that its molding process for casings suffers from a longer leadtime and lower yields.

Compal expects Hong Ya to record sales of more than a NT$1 billion and post a "small loss" this year.

Nonetheless, Compal is confident that it is betting on the right technology, Chen said.

Shares of Compal fell 1.6 percent to NT$34.15 on the Taipei stock exchange yesterday before the firm announced its earnings.

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