Mon, Jan 26, 2009 - Page 6 News List

Asustek downgrade worries investors

WATCH AND WAIT: While Asustek tackles an inventory problem, consumers will have to wait until the second quarter to see new models from the Taiwanese firm

By Elizabeth Tchii  /  STAFF REPORTER

While the company tackles its inventory problem, consumers will not see new models of notebook computers, netbooks or EeePC-series products until the second quarter. Consumers should also expect a more streamlined Asus-brand product lineup going forward, the company said.

Apart from inventory concerns, foreign exchange loss caused a reduction of 2 to 2.5 percentage points in its fourth-quarter operating margins. To combat this problem, Asustek said it will lock-in exchange rate quotes to improve its foreign currency position.

Weak demand and price competition contributed a decline of 4 to 4.5 percentage points in its fourth-quarter operating margin, while marketing and R&D expenses dragged the company’s operating margin down by another 3 to 4 percentage points, Asustek’s operating margin breakdown revealed.

The computer maker hopes to bring down operating costs by 10 percent through zero-based budgeting and additional outsourcing to contract manufacturers, Asustek said in the statement.

Despite the proposed courses of action, pundits remained skeptical as the first quarter is traditionally a weak season and compounding the situation will be new product releases by competitors encroaching on already weak consumer demand.

As Asustek still has 2-3 months of Eee PC inventories on hand, Citigroup analyst Eve Jung (戎宜蘋) expects Asustek’s gross margin of Eee PC to be weak in the first quarter, given model transition to the 10-inch segment from 8.9-inch models.

“We are concerned about increasing pricing pressure in the 10-inch netbook segment starting in the second quarter as Acer (宏碁) and Hewlett-Packard will be aggressive in their pursuit of market share gains,” Jung wrote in a client note on Wednesday.

The company also faces other challenges in execution effectiveness, product differentiation and cost-saving management, she said.

additional reporting by Kevin Chen

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