Mon, Jul 16, 2012 - Page 13 News List

Analysts wary of Acer turnaround

SLOW RECOVERY:The PC vendor is struggling in its rebound, causing foreign brokerages to forecast tough times ahead for the Taiwan-based company

Staff writer, with CNA

Two foreign brokerages have cut their target prices for Acer Inc (宏碁) in recent reports as the PC vendor faces growing competition and macroeconomic uncertainties.

US-based Morgan Stanley maintained an “equal weight” rating for Acer and cut its target price to NT$29 from NT$35, while Japan’s Nomura Holdings Inc kept a “reduce” stock rating and lowered its target price to NT$27 from NT$31.

“We see Acer’s losses turning around, but the recovery is slower than we expected,” Morgan Stanley analyst Grace Chen (陳星嘉) said.

“Macro risks are putting pressure on Acer’s recovery, and its structural issues make it more vulnerable to the changes in industry dynamics initiated by Apple Inc,” she said.

Acer’s competitors, such as Lenovo Group (聯想) and Asustek Computer Inc (華碩電腦), are also not immune to macro risks or changes in the industry, Chen said.

Asustek has a stable and profitable motherboard business that acts as a “cash cow,” she said, while Lenovo enjoys high market share in corporate PCs and China’s low-tier cities, where the barriers to entry are high.

Morgan Stanley expects Acer’s second-quarter sales to be flat or down slightly from the first quarter, with Acer’s third-quarter sales forecast to rise zero to 5 percent sequentially.

Nomura analyst Eve Jung (戎宜蘋) believes there will still be more downside risks for Acer, given the company’s slower-than-expected margin recovery and sluggish earnings outlook for the second half.

“From a long-term perspective, we think that it will still take time for Acer to strengthen its R&D capability for product innovation and differentiation,” Jung said.

“Acer faces rising competition from the top three PC OEMs [original equipment manufacturers], and we think that Acer’s margin will remain under pressure in the second half,” she said. “A turnaround story still seems far off.”

Moreover, Nomura said that Acer’s target to improve its operating margin to 2 percent in the second half of this year seems challenging.

Given Acer’s slow progress in adjusting its product portfolio and its lack of operating leverage, the Japanese brokerage expected Acer’s operating margin in the second half to be between 0.5 to 1 percent.

Acer shares closed down 3.02 percent at NT$28.9 on Friday.

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