Mon, May 23, 2011 - Page 12 News List

HP, Dell finance results likely to benefit Compal

By Kevin Chen  /  Staff Reporter

US PC brands Hewlett-Packard Co and Dell Inc’s first-quarter financial results will have a mixed impact on Taiwanese contract PC makers, with Compal Electronics Inc (仁寶) benefiting the most, analysts said.

On Tuesday last week, HP and Dell released their first-quarter financial data and guidance for the second quarter, with both indicating that they expect strong corporate notebook demand ahead and continue to see weaker-than-expected purchases of consumer notebooks.

“We think Compal’s exposure to Dell’s and HP’s commercial notebooks can partly offset weakness from its high exposure to Acer’s (宏碁) consumer notebooks [which is losing market share],” Goldman Sachs analysts led by Henry King (金文衡) said in a client note on Friday.

Compal, the world’s second-largest contract notebook manufacturer after Quanta Computer Inc (廣達) in terms of shipments, counts Taiwan’s Acer Inc, China’s Lenovo Group Ltd (聯想) as well as HP and Dell of the US among its major customers.

The company said last month that its notebook shipments would grow by 10 percent in the second quarter from the first quarter, but added that revenue would grow faster than expected in the traditional high season in the third quarter.

Based on Goldman Sachs’ -supply-chain checks, Acer is likely to account for 40 percent to 45 percent of Compal’s notebook shipments this year, higher than Dell’s 15 percent to 20 percent and HP’s 5 percent to 10 percent share.

However, Goldman Sachs said that Compal currently has 90 percent of Dell’s higher-margin commercial notebook PC orders, which have been showing steady quarter-on-quarter order growth since the second half of last year, while shipments for HP’s commercial notebook orders were likely to increase steadily this year from last year.

“While Acer’s order weakness continues to be a drag on Compal’s share price performance, we see signs of margin improvement starting from the second quarter, thanks to higher utilization rates and better product mix” by increasing the contribution of commercial notebook and tablet PC shipments, the note said.

Apart from weaker consumer notebook demand ahead, HP’s lowered outlook for this year — full-year revenue outlook was decreased to between US$129 billion and US$130 billion from a previous outlook of between US$130 billion and US$131.5 billion — has worried Citigroup that Taiwan’s contract PC industry may not have factored in all potential downside risks.

“We highlight the risks of [Taiwanese] ODMs [original design manufacturers] missing second-quarter guidance and of a sub-seasonal third-quarter notebook shipment outlook,” Citigroup said in a report on Wednesday.

Goldman Sachs said it maintained a neutral rating on Compal, but raised its 12-month target price on the stock slightly to NT$32 from NT$30, while Citigroup said it retained its sell ratings on both Quanta and Pegatron Corp (和碩), a contract manufacturing arm under Asustek Computer Inc (華碩), with target prices of NT$48 and NT$30 set for the two stocks.

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