Sat, Jul 18, 2009 - Page 11 News List

Handset suppliers could see difficult year: analysts

PHONE TROUBLE Caution on projected shipments by Nokia and Sony Ericsson could mean pricing pressure and profitability erosion at local component suppliers

By Kevin Chen  /  STAFF REPORTER

The nation’s handset supply chain is likely to face continuing challenges in the second half of the year after Nokia Corp lowered its market share guidance for the year and Sony Ericsson Mobile Communications Ltd said the remainder of the year would be difficult.

Local handset component vendors have had higher exposure to Western mobile phone makers like Nokia, Sony Ericsson and Motorola Inc than South Korea’s Samsung Electronics Co or LG Electronics Co, analysts said yesterday.

“Nokia’s downward revision of market share and Sony Ericsson’s weaker second-quarter results are negative for Taiwan supply chain,” Citigroup Global Markets analyst Kevin Chang (張凱偉) said in a client note.

Nokia said in a press release on Thursday that its market share would be little changed this year from last year and expected its operating margin in the second half to be flat compared with the first-half level.

The Finnish company had expected market share to expand this year and forecast a second-half margin “in the teens.”

In the second quarter, Nokia secured a market share of 38 percent, down from 40 percent a year earlier but up from 37 percent in the first quarter.

“Competition remains intense,” Nokia chief executive officer Olli-Pekka Kallasvuo said in the release.

In another release on Thursday, Sony Ericsson president Dick Komiyama said that “the second quarter was challenging” and that the focus for the year would remain on “bringing the company back to profitability and growth as quickly as possible.”

The Japanese-Swedish venture posted a 43 percent drop in unit shipments in the second quarter from a year earlier and saw its market share drop to 5.1 percent for the quarter, from 8.1 percent a year earlier and 5.7 percent in the first quarter.

Both Nokia and Sony Ericsson said they would keep their previous forecasts that global handset shipments would contract by 10 percent this year from last year, the statements said.

Their revised guidance was unsurprising in the wake of weaker consumer demand amid the global downturn. But their conservative view on market share and profitability could also indicate that market reception for their new products are not as good as expected, Chang said in the note.

“Nokia’s new model launch and better scale do not appear to have helped its margin,” said Chang, adding that the company’s lowered operating margin guidance could also be a result of “aggressive price competition from Samsung and LG.”

As both Nokia and Sony Ericsson were cautious on projected shipments this year and noted the trend of lower average prices, that could translate into more price pressure and profitability erosion at local component suppliers.

“The tough pricing environment may imply more price pressure for supply chain stocks like Largan, Merry, Silitech and Compal Communications,” Chang said.

Largan Precision Co (大立光) is the nation’s leading maker of camera phone lenses; Merry Electronics Co (美律) is a maker of phone receivers and microphones; Silitech Technology Corp (閎暉) is the world’s fourth-largest maker of mobile-phone keypads; and Compal Communications Inc (華寶) is a leading Taiwanese handset supplier.

Given that Nokia, Samsung and LG are all trying to launch smartphones with competitive prices, the intensifying price competition will also put more pressure on HTC Corp (宏達電), the Citigroup analyst said.

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