Pegatron Q4 revenue may rise on iPhone 5C: report

Staff writer, with CNA

Wed, Oct 16, 2013 - Page 14

Electronics manufacturing contractor Pegatron Corp (和碩) will see its consumer electronics revenue continue to grow because of orders to assemble the cheaper model of Apple Inc’s newest iPhone, Morgan Stanley said in a research note on Monday.

Pegatron, which assembles iPads and iPhones at its China factories, reported record monthly consolidated sales of NT$116.9 billion (US$3.99 billion) last month, up 75 percent from August and 46 percent from a year earlier.

That suggests that the company’s third-quarter “design manufacturing services” (DMS) sales grew sequentially by between 22 and 25 percent, above the brokerage’s forecast of 18 percent, Morgan Stanley said.

“We forecast [Pegatron’s] fourth-quarter DMS sales will rise a further 13 percent quarter-on-quarter, driven by iPhone 5C and iPad mini [orders],” Morgan Stanley analyst Grace Chen (陳星嘉) said.

Pegatron’s iPhone capacity has reached 12 million units per quarter, or 20 to 30 percent of Apple’s total iPhone volume, Chen said.

Some analysts are concerned that because demand for the iPhone 5C may be weaker than originally projected, it will lead to idle capacity and hurt Pegatron’s operating margin, but Chen said Pegatron is well-positioned to withstand lower-than-expected sales of the model.

“We believe Pegatron is the first source for the iPhone 5C, so Apple will fill Pegatron’s capacity before allocating orders to other suppliers if demand is softer than expected,” she said.

The analyst estimated that shipments of the iPhones 4S and iPhone 5C will make up 30 to 40 percent of Pegatron’s DMS sales this year and next year.

However, that will account for only 20 to 25 percent of Pegatron’s annual profits, as the company derives substantial investment income from its subsidiaries, she said.

Chen maintained her “overweight” rating on the stock, but cut the price target to NT$53 from NT$58 to factor in Pegatron’s weakening notebook business.

Pegatron shares rose 1.65 percent to NT$40 yesterday, versus a 1.14 percent gain on the broader market.