Asustek shares plunge amid speculation

By Kevin Chen  /  Staff reporter

Mon, Jul 01, 2013 - Page 13

Despite its innovation-minded approach, Asustek Computer Inc (華碩) discovered it is no exception to an industry downturn after the world’s fifth-largest PC brand saw its shares plunge more than 14 percent last week amid concerns the company could miss its shipment target this year.

Analysts say Asustek is facing challenges on two fronts, with inventory digestion and product transition issues in the short term, and a structurally declining notebook computer market in the long run.

Even though the company has pinned its hopes on tablet computers driving sales, it may see overall revenue decline 15 percent sequentially in the second quarter of the year, and risks its operating margin staying above 5 percent this year, analysts said.

“Asustek has solid management and more innovative products” than its peers, Citigroup Global Markets Inc analyst Kevin Chang (張凱偉) said in a client note on Thursday. “However, the headwinds are so strong that capable management and better notebook products are simply not enough.”

Chang’s remarks came after Asustek last week reportedly lowered its notebook shipment target for the second time in two weeks.

Under the new guidance, the company’s notebook shipments would fail to hit 20 million units for this year, compared with its original guidance of between 20 million and 25 million, and versus last year’s 22 million units, the Chinese-language Commercial Times reported on Wednesday, without citing anyone.

The rumored cut in Asustek’s notebook shipment target caught investors, especially foreign institutional investors, off guard as the company had said on June 10 that it would keep its full-year notebook shipment target unchanged but expected second-quarter shipments to contract by 15 percent from the first quarter, opposed to an original estimate of a 10 percent decline.

Shares of Asustek ended at NT$258 on Friday, down 5.32 percent from Thursday’s session. For the week, the company’s stock price dropped 14.71 percent, underperforming the TAIEX’s increase of 3.45 percent over the same period, Taiwan Stock Exchange data showed.

Foreign institutional investors were the biggest sellers of Asustek shares, net selling 23.96 million shares last week, followed by domestic investment trust firms’ net selling of 3.79 million shares, while domestic proprietary traders bought a net of 360,000 shares, the exchange’s data showed.

Thus far, Asustek has neither confirmed nor denied the newspaper report, and in a filing to the Taiwan Stock Exchange on Thursday, the company said it would give detailed sales and earnings guidance at its quarterly investors’ conference, which is set to take place early next month.

However, speculation over whether the firm will miss its latest annual shipment target is further evidence that the PC industry is under serious pressure from the global economic slowdown and stiff competition from tablet PC sales.

On June 21, Taipei-based researcher TrendForce Corp (集邦科技) forecast this year’s global notebook sales would drop 8.6 percent to 169.1 million units from last year. In May, International Data Corp said global PC shipments are expected to fall by 7.8 percent to 321.9 million units this year, rather than a decline of 1.3 percent that it had previously forecast.

Several foreign brokerages last week revised downward their shipment and financial forecasts for Asustek. Many also slashed their target share prices on its stock, with Credit Suisse AG Taipei Securities setting a target as low as NT$210, compared with its previous price of NT$370.

“We don’t believe Asustek’s business is broken, but it needs a deeper-than-expected adjustment,” Credit Suisse analyst Thompson Wu (武光明) said in a client note on Friday.

Wu said he would be more positive about Asustek’s outlook if market demand for the company’s 2-in-1 detachable tablets proves strong and once prices of new PCs equipped with Intel’s Haswell processor reach levels that make them attractive to consumers.

Yet, its inventory issue shows that Asustek is facing weakened shipments to the US, where the company has placed a special focus on high-end notebooks, according to JPMorgan Securities Asia Pacific Ltd.

“Since high-end profits are very important for overall company margins, the US market weakness also increases the challenge in getting back to a 5 percent operating margin,” JPMorgan Securities analysts led by Gokul Hariharan said on Thursday.

In addition, competition on pricing from its peers such as Lenovo Group Ltd (聯想), Acer Inc (宏碁) and Samsung Electronics Co is heating up, raising more concerns about the outlook for Asustek’s margin, analysts said.

“The company will find it increasingly difficult to defend both its market share and profit margin at the same time,” Daiwa-Cathay Capital Markets Co analyst Steven Tseng (曾緒良) said in a separate note on Friday.

Many analysts now expect Asustek to ship between 18 million and 18.5 million notebooks and 10 million to 12 million tablets this year.

Earnings per share are forecast to fall in a range from NT$25.53 to NT$30.25 this year, compared with NT$29.79 last year, with revenue of between NT$395.26 billion (US$13.2 billion) and NT$419.64 billion, versus last year’s NT$413.15 billion, they said.