WPG expects lower sales, margins on weak demand

WEAK DRIVERS::The company has been cutting its PC workforce to reduce expenses, but low-margin phones and tablets could continue to weigh on its profitability

By Kevin Chen  /  Staff reporter

Sat, Nov 02, 2013 - Page 14

Semiconductor components distributor WPG Holdings Co (大聯大投資控股) has projected that sales and margins for this quarter would decline sequentially due to weak seasonal demand and product mix adjustments.

However, analysts said worries about the company’s margin pressure could continue until early next year amid softening market sentiment, despite the company’s efforts to reduce costs.

Concern over the company’s fate sent the stock 3.63 percent lower to close at NT$34.50 yesterday.

In a stock exchange filing released on Thursday, the company said its consolidated sales this quarter would probably drop by between 7.2 percent and 11.8 percent to a range of NT$95 billion to NT$100 billion (US3.2 billion-US$3.4 billion), from a record NT$107.76 billion last quarter, citing seasonal weakness in the supply chain and inventory adjustment in distribution channels.

The company said gross margin is likely to fall to between 4.5 percent and 4.7 percent this quarter, from 4.65 percent last quarter, and operating margin may slide to between 1.35 percent and 1.55 percent from 1.65 percent over the same period.

“The company does not see many demand drivers beyond low-cost smartphones and tablets and remains conservative on PC momentum,” Credit Suisse Securities analyst Randy Abrams said in a client note on WPG’s sales projection for the low season.

Citigroup Global Markets analyst Roland Shu (徐振志) said the company’s record-high revenue last quarter was driven mainly by an increase in demand from emerging markets, combined with growing shipments of smartphones and tablets.

However, it is nonconsumer electronics items that offer better profit growth, to which WPG has less exposure, he said.

Analysts said that despite the company’s efforts to streamline its workforce in the PC division and reduce operating expenses to restore some operating leverage, low-margin smartphones and tablet PCs would continue to weigh on its product mix and challenge its margin recovery going forward.

During the July-to-September period, WPG reported a net profit of NT$1.33 billion, or earnings per share (EPS) of NT$0.81, down from NT$1.38 billion, or NT$0.84 per share, in the previous quarter.

Credit Suisse trimmed its EPS forecasts for WPG to NT$2.90 this year and NT$3.20 next year, from NT$3.15 and NT$3.50 respectively.

Citigroup retained its “sell” rating on WPG and cut its target price to NT$27 from NT$30, as it believes the firm offers few value-added services.

WPG shares have declined 9.21 percent since the beginning of the year, compared with the broader market’s 8.94 percent rise over the same period, Taiwan Stock Exchange data showed.