Quanta Computer Inc (廣達), which assembles Apple Inc’s latest products — the 12-inch MacBook and the Apple Watch — might have a soft first quarter due to higher-than-expected Apple Watch manufacturing costs, analysts said yesterday.
“Quanta might still need to recognize higher start-up expenses for new projects, while these projects might not ship until late this quarter,” UBS Securities Pte Ltd analyst Edward Yen (顏子傑) said in a note, after Quanta on Monday said net profit rose 1.4 percent year-on-year to NT$18.88 billion (US$601.3 million) last year, or NT$4.9 per share.
Quanta’s operating margin of 1.26 percent for the final quarter of last year was 0.4 percentage points lower than the market consensus of 1.66 percent, which analysts attributed to higher labor costs for the firm’s new products.
Quanta might continue to incur residual expenses for the Apple Watch project from last quarter, CIMB Securities Ltd analyst Wang Wanli (王萬里) said.
“Our channel checks show that the current Apple Watch assembly yield is below 50 percent,” Wang said in a separate note. “Moreover, it is challenging to carry out mass production of the watch and maintain good yields.”
Both Apple Watch and Apple’s ultra-thin 12-inch MacBook with Retina display are slated to launch this month.
Yuanta Securities Investment Consulting Co (元大投顧) analyst Vincent Chen (陳豊丰) agreed that Quanta’s operating margin would remain under pressure last quarter due to the Apple Watch project, which might only start shipments late this month.
Chen said that weak global demand for notebook computers would likely weigh on the company’s operating margin last quarter. Quanta is the world’s largest contract notebook computer maker, with notebook business accounting for 60 percent of the firm’s total revenue.
The company’s notebook computer shipments for last quarter were forecast to decline more than 20 percent from the previous quarter’s 12.8 million units, due to slow season effects and weak notebook demand, according to estimates made by Yuanta, UBS and CIMB.
Quanta said earlier this year that it expected its notebook shipments would slow in the first quarter due to earlier product shipments being made in December last year.
Chen said he expects Quanta to report a 17.65 percent quarterly decline in sales to NT$207.18 billion for the quarter ending yesterday, while operating margin would drop 0.1 percentage points to 1.2 percent from the previous quarter’s 1.3 percent.
The analyst further cut Quanta’s full-year earnings forecast by 12 percent to NT$20.45 billion for this year from his previous estimate of NT$23.24 billion, citing unclear Apple Watch demand and weak global notebook demand.
Yen said that Apple Watch’s unclear supply chain’s unit shipments and Hon Hai Precision Industry Co’s (鴻海精密) potential Apple Watch share gain remained a negative overhang for Quanta’s performance this year.
“We originally estimated the Apple Watch could contribute up to 10 percent of Quanta’s sales this year, but the uncertainties mean that actual contribution could be lower,” Yen said.
Quanta shares rose 1.48 percent to NT$75.6 in Taipei trading yesterday, outperforming the TAIEX, which gained 0.68 percent.
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