Citigroup again lowered its target price for Asustek Computer Inc (華碩電腦) after the Taiwanese company revised downward its fourth-quarter guidance on Thursday night. But what has caused grave concern among analysts is margin erosion across the board within Taiwan’s hardware sector.
The fair price for Asustek over the next 12 months is now set at NT$24 by Citigroup, down from its previous estimate of NT$28, Citigroup Global Markets analyst Eve Jung (戎宜蘋) said in a client note yesterday.
On Monday, the Taipei-based analyst cut her target price for Asustek to NT$28 from NT$50 and downgraded her rating on the stock to “sell” from “buy.”
This was because of concerns about the company’s likely disappointing earnings for the fourth quarter of last year and the first quarter of this year.
WAIT
Asustek is not the only hardware manufacturer in Taiwan that will have to wait until the second half of the year to see improvements in operating margin, Citigroup said in a separate report yesterday.
“Investors are fully prepared to see severe margin erosion or even operating loss for the semiconductor sector but seem to ignore the possibility of meaningful margin erosion for the hardware [sector],” Citigroup analyst Kevin Chang (張凱偉) wrote in the report.
“We expect more negative earnings surprises in the hardware sector than in the semiconductor sector in the first quarter of 2009,” he wrote.
Hon Hai Precision Industry Co (鴻海精密), the nation’s biggest maker of electronics components, and most handset component companies could face big margin impact in the first quarter because of the plunge in factory utilization, Chang wrote.
DOWNSIDE
“Within the hardware sector, we believe handset companies could see more margin downside than notebook companies given their sharper revenue decline,” Chang wrote in the report.
The report — which is co-authored by Jung and Andrew Lu (陸行之) — said HTC Corp (宏達電), the world’s biggest maker of cellphones running on Microsoft Inc’s system and Acer Inc (宏碁), the world’s third-largest personal computer vendor, are two companies that will see the least margin erosion.
Citigroup attributed HTC’s advantage to its low fixed costs and Acer’s to its lack of direct labor costs.
Indeed, Acer announced late yesterday evening that its operating margin would meet its fourth-quarter guidance despite lower revenue.
The PC vendor said in a statement that its fourth-quarter operating margin is expected to be “better or similar to” the third-quarter level.
However, the company’s consolidated revenue would see a negative growth of between 5 percent and 10 percent from the previous quarter, because of the weaker-than-expected overall market situation, Acer said.
HEALTHY
“In the current worldwide economic situation, even though most of the channels have been more cautious and less willing to carry inventory by year-end, Acer’s product demand has remained healthy and stable,” Acer said in the statement.
Compared with other contract notebook makers, Quanta Computer Inc (廣達電腦) and Compal Electronics Inc (仁寶電腦) will also see less severe margin erosion because of their lower fixed costs, the Citigroup report said.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)