Wistron reports sharp income drop

By Kevin Chen  /  Staff reporter

Thu, May 15, 2014 - Page 13

Contract notebook maker Wistron Corp (緯創) yesterday reported a 78.8 percent drop in net income in the first quarter of this year compared with the same period last year because of higher than expected operating expenses.

The falling profitability came as the company reported that its revenue had contracted by 20.5 percent over the same period to the lowest in five years because of falling notebook market share and slow product diversification.

Net income was NT$341.96 million (US$11.32 million) in the first three months of the year, or NT$0.15 earnings per share, the lowest since the first quarter of 2005 and far lagging behind the market consensus of NT$1.07 billion.

That compares with NT$1.61 billion in net income, or NT$0.7 per share, in the same period last year. Revenues were NT$125.82 million for the quarter, according to the company’s filing with the Taiwan Stock Exchange.

Operating expenses were NT$6.33 billion in the first quarter, or 5.03 percent of total revenue for the quarter, compared with the year-earlier level of NT$6.32 billion, or 3.99 percent of total sales.

Wistron is the world’s third-largest contract laptop maker after Quanta Computer Inc (廣達) and Compal Electronics Inc (仁寶).

In recent years, the company has gradually diversified into production of non-notebook products such as smartphones, LCD TVs, monitors and desktops, as well as data center gears to offset falling notebook business.

The company’s notebook shipments fell to 1.55 million units last month, down 14 percent month-on-month and 18 percent less year-on-year, following shipment declines of 21 percent quarter-on-quarter and 31 percent year-over-year to 4.5 million units in the first quarter.

The company has forecast notebook shipments will grow by between 5 percent and 10 percent this quarter from last quarter.

Gross margin improved to 5.21 percent last quarter from 5.09 percent a year earlier.

However, due to a falling economy of scale and higher operating costs, the company saw its operating margin plunge to 0.17 percent from 0.62 percent in the previous quarter and 1.1 percent a year earlier.

Analyst said the company’s operating margin outlook appears more skewed toward the downside in the coming quarters as it aims to increase its investment in new businesses, including smartphone.

"We believe the company has passed the initial stage of certification for its new smartphone business for a US customer," Yuanta Securities Corp (元大證券) analyst Vincent Chen (陳豐丰) said in a client note yesterday.

Chen said first quarter could be the bottom for Wistron’s quarterly earnings trend, but he has concerns about the growth potential for Wistron's new smartphone business.

"It seems that the model that Wistron is producing will not be a mainstream model going forward, and this is one of the key reasons for our lower forecasts," he said.

Yuanta has revised downward earnings forecasts for Wistron by 17.9 percent to NT$1.49 per share for this year and by 31.2 percent to NT$1.91 next year on weaker sales and operating margin assumptions.

On Tuesday, smaller contract laptop maker Inventec Corp (英業達) posted NT$1.89 billion in net profits in the first quarter, or NT$0.53 percent per share, up from NT$1.78 billion, or NT$0.50 per share, for the same period last year.

Revenue rose 15.8 percent annually to NT$116.68 billion for the quarter.

Inventec attributed the increase to higher contributions from its server, handheld device and solar energy product manufacturing units.

“Inventec is likely to benefit from PC replacement demand going forward, given its high exposure to commercial notebooks,” Yuanta analyst Calvin Wei (魏建發) said in a separate note yesterday.

In addition, the company’s handset shipments could reach 40 million to 45 million units this year, up from 30 million units last year, thanks to the contribution from Xiaomi Corp’s (小米) smartphone orders, Wei said.

Shares of Wistron rose 1.2 percent to NT$25.2 and those of Inventec advanced 3.04 percent to NT$27.10 in Taipei trading.