Asustek revises revenue forecast, but analysts have mixed outlook

By Kevin Chen  /  Staff reporter

Mon, Apr 22, 2013 - Page 13

Asustek Computer Inc (華碩) last week updated its sales forecast for the near term after a global research firm reported bleak PC sales worldwide in the first quarter, but analysts had mixed views on the prospects of the world’s fifth-largest PC brand.

The company said its revenue in the current quarter would be flat from the previous quarter, which grew 15 percent year-on-year to NT$114.28 billion (US$3.83 billion), and expected its notebook shipments to increase sequentially this quarter, according to foreign brokerages that were briefed by Asustek during a conference call on Wednesday.

Asustek held the call to ease market concerns about the global PC outlook, after International Data Corp (IDC) reported on April 11 that worldwide PC shipments declined by a record level of 13.9 percent year-on-year in the first quarter and notebook shipments dropped in the quarter to their second-lowest level in the past 12 years.

Based on separate reports issued by brokerages including UBS, Citigroup, HSBC, Goldman Sachs, Deutsche Bank and Credit Suisse, Asustek’s notebook shipments in the first quarter were in line with the company’s earlier projection of 4.7 million units, growing 15 percent year-on-year, while its tablet shipments expanded five times to 3 million units from a year earlier, also meeting its previous forecast.

The company indicated that the penetration rate of its touch-screen notebooks reached 20 percent of its overall notebook shipments in the first quarter.

Asustek also said it expected strong sales in the third quarter following the launches of new notebook and tablet products, and for the whole of this year it maintained earlier projections of between 20 million and 25 million units of notebook shipments, over 12 million units of tablet shipments, as well as a stable operating margin following last year’s 5.3 percent, according to brokerages’ reports.

Prior to the conference call, shares of Asustek had dropped by nearly 10 percent in three consecutive sessions following the IDC report.

Shares had gradually crawled back and recouped most of their earlier losses after the call, ending 1.39 percent higher at NT$328.5 in Friday trading. For the week, Asustek rose 1.08 percent.

Asustek chairman Johnny Shih (施崇棠) has pinned his hopes on more revenue from sales of touch-panel notebooks and tablet computers to help the company moderate the downturn in the current PC market.

The firm’s high-end notebook models such as the Taichi series and its Asus-branded tablets, which carry better margins, may be helping him achieve that goal, said Jenny Lai (賴惠娟), head of equity research at HSBC Holdings PLC.

Lai said the company’s first half outlook was in line with her projection and expected upside potential for the company’s share price.

“We expect first-quarter net profit strength to boost a recovery in the share price. A further re-rating is dependent on new model launches due in May and June,” she said in a note on Wednesday.

HSBC retained its “overweight” rating on Asustek.

Arthur Hsieh (謝宗文), chief electronics hardware analyst at UBS AG, welcomed Asustek’s better-than-expected first-quarter results and its efforts in product mix management and cost control to improve profit margin across its notebook and tablet lineup.

Hsieh upgraded Asustek shares to “buy” from “neutral,” raised his target price on the stock to NT$368 from NT$350, and adjusted upward the company’s earnings per share (EPS) forecast to NT$32.25 for this year and NT$35.37 for next year after factoring in higher margins assumptions, according to a note issued on Thursday.

Deutsche Bank AG, Goldman Sachs Group Inc and Credit Suisse AG all concluded Asustek’s near-term operations remained on track.

However, the real concern for investors is what happens in the PC industry as a whole, which would definitely impact Asustek in spite of the firm’s improved product portfolio, they said.

“We believe global PC forecasts need to be revised to a high single-digit [percentage] decline year-on-year and 10 percent or more decline for notebooks,” Credit Suisse analyst Thompson Wu (武光明) said in a note on Thursday, while maintaining his “neutral” rating on Asustek’s shares, with a target price of NT$380.

Deutsche Bank kept its “hold” rating and a target price of NT$315 for the company, and Goldman Sachs stayed tune with its “neutral” recommendation but lowered the 12-month target price to NT$350 from NT$380 to reflect the weaker near-term PC market outlook.

However, Citigroup was more bearish about the outlook of Asustek, offering a “sell” rating and a target price of NT$280.

Citigroup analyst Kevin Chang (張凱偉) said Asustek’s and other PC makers’ expectations of a decent industry recovery in the second half driven by the introduction of Intel’s new Haswell processor and low-priced touch notebooks stirred up feelings of deja vu, but last year’s experience of Intel’s Ivy Bridge processor, Windows 8 and lower-price Ultrabook launches proved they were wrong.

“We have been bearish on the PC sector since the start of 2011,” Chang said on Wednesday. “Tablets replacing notebooks as the primary computing device for consumers is a secular trend both in emerging and developed markets, and such secular trend is unlikely to be reversed by tweaks to software or hardware.”