Although no new details emerged about its strategic alliance with a US navigational device maker announced on Wednesday, Asustek Computer Inc (華碩電腦) saw its shares rise 0.32 percent yesterday as investors welcomed the company’s latest efforts to diversify production.
Shares rose NT$0.1 to end at NT$30.6 on the Taiwan Stock Exchange, after the Eee PC netbook computer maker said that it would form a partnership with Olathe, Kansas-based, Garmin Ltd on the production and marketing of a smartphone under the Garmin-Asus brand.
While the first co-brand model will be on display on Feb. 16 in Barcelona, Spain, there are still some uncertainties lying ahead for the partnership, local and foreign brokerages said.
“As Asustek’s smartphone business is expected to contribute a rather small revenue to the company in the future, plus there is no clear picture about the strategic alliance between the two, in the near term we tend to hold a neutral view about the news,” SinoPac Securities Corp (永豐金證券) said in a research note yesterday.
Based on a study by Merrill Lynch’s Taipei research team, Asustek shipped around 500,000 units of handsets last year on sales of NT$200 million, accounting for 2 percent of the company’s total revenue.
Asustek said on Wednesday that it hoped the tie-up with Garmin would bring to market several Garmin-Asus smartphone models in the second half of this year and create real contribution from 2010 on.
Analysts agreed that, given intensifying competition in the smartphone market — where both Nokia and Palm have been developing for years — and Asustek’s lack of economies of scale in this line of business, the partnership with Garmin could help the Taiwanese company’s small handset production by leveraging on the US firm’s navigation and marketing expertise to generate growth opportunities in the location-based services (LBS) device market.
The two companies have been in close cooperation for more than a year on the manufacturing of smartphones based on an original design manufacturing (ODM) contract mode. The only difference this time is that Asustek wants to expand into the branding market from its ODM business.
“However, how Garmin and Asustek share responsibility and cost/profit remains unclear to investors” in terms of their newly announced strategic alliance, Citigroup analyst Eve Jung (戎宜蘋) wrote in a client note yesterday.
Moreover, the company may face other challenges such as whether the demand for notebook computers and motherboards will improve this year as well as how strongly the company impresses investors with the execution of its cost-efficient production and inventory control, Jung said.
Early last month, the company surprised investors by saying that it would cut its fourth-quarter guidance because of excess inventory, fluctuating foreign exchange rates and an inaccurate pricing strategy.
Citigroup retained its “sell” rating on Asustek shares, citing the unclear outlook for this strategic alliance, the note said.
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