Slow recovery poses risk to handset makers: report

By Kevin Chen  /  Staff Reporter

Tue, Jul 05, 2011 - Page 11

The slowing pace of the global economic recovery poses a downside risk to the nation’s handset supply chains in terms of valuation, with Compal Communications Inc (華寶通訊) and Largan Precision Co (大立光) poised to better weather a possible downturn, analysts said.

Compal Communications, a handset subsidiary of Compal Electronics Inc (仁寶電腦), the world’s second-biggest notebook computer maker, is likely to benefit from Nokia Corp’s subsequent orders and a lower base effect, Goldman Sachs analysts Robert Yen and Iris Wu said in a report yesterday.

Largan Precision, the nation’s leading maker of handset lenses, should continue to gain support from an optical industry upturn as 8 megapixel lenses have gradually become the mainstream camera specification for most smartphones, they added.

In the report, Goldman Sachs devised a framework to analyze the handset market in the face of uncertainty in global economic conditions as it hoped to better quantify the potential downside risk to its research team’s handset coverage.

“Global handset shipment growth since 2005 has a 90 percent correlation with global GDP growth, and this is the basis of our scenario analysis and related impact to the stocks we cover,” Yen and Wu said in the report.

Goldman Sachs forecast global handset shipment to increase by 9 percent to 1.73 billion units next year as the US investment bank forecast that the world economy would expand by 4.7 percent next year.

Last month, the World Bank said in its biannual Global Economic Prospects report that global growth both next year and in 2013 would likely edge up just 3.6 percent after the Washington-based institution predicted growth of 3.2 percent for this year, down from 3.8 percent last year.

While the weakening macroeconomic conditions would have an impact on global handset shipments, Goldman Sachs said in the report that it did not expect smartphone penetration to drop significantly nor more delays in product launches, saying that the ability to access the Internet on the go has become increasingly necessary.

“However, the macroeconomic slowdown could impact the replacement cycle for smartphones getting pushed out and smartphone [product] mix shifting faster toward the low-end [models],” the report said.

The Taiwanese companies falling under Goldman’s analysis also included smartphone maker HTC Corp (宏達電) and Silitech Technology Corp (閎暉), a supplier of cellphone keypads. Goldman gave HTC a “buy” rating on the expected replacement demand, but a “sell” recommendation to Silitech because of the company’s relative small scale and declining keypad demand.