Delta fails in bid for Lucent unit

Delta Electronics Inc's (台達電) failure in its bid to acquire a power supply unit from telecommunications equipment maker Lucent Technologies Inc is likely to reduce sales and profit growth next year, analysts said yesterday. However, the effect will be limited, they said. Delta, the world's leading switching power supply manufacturer for desktop and notebook PCs, had hoped to acquire the power unit from Lucent to expand its product line in communications products, and away from PC-related products, and to increase its consumer base.

Those hopes ended when Lucent announced Monday that it had agreed to sell its Power Systems business to Tyco International Ltd for US$2.5 billion. Tyco, a diversified electronic component manufacturer, had been short-listed in July along with Delta as one of five final contenders bidding for the power supply division.

Delta's failure to acquire the unit is disappointing, if already anticipated by the market, and is likely to slow down its move into communications-related products, analysts said.

"Its communications development won't be so smooth," said Alan Chen, assistant manager of research at China Securities Co. "Sales and profit growth will be a little worse than predicted next year," he said.

Delta was more upbeat. "It remains to be seen" if the failure to acquire the unit from Lucent will affect Delta's future growth, said Karen Huang, a company spokeswoman.

"I think we are quite optimistic so far," she said.

Delta has been expanding this year into the production of telecom-related and data communication components and is looking to increase the ratio of its non-PC power supply products.

"If it could acquire the Lucent power supply unit, it would consolidate its market position and create additional growth and efficiency, as well as increase orders," said an investment report by First Taiwan Securities Inc earlier this month. The acquisition of the power unit from Lucent would have also made Delta the world's largest power supply manufacturer, analysts said.

Delta reported last week that October revenue rose 31.15 percent year-on-year to NT$2.75 billion. Last month it reported a net profit for the first three quarters of NT$3.63 billion, or NT$3.80 per share. Analysts predict an earnings per share this year of NT$4.31, according to Barra Global Estimates. Huang Kuang-ming, president of Delta, was reported by local media reports as saying that sales of non-PC products grew 20 percent in the third quarter. Huang was also quoted as saying that the sale of the Lucent unit, which Delta had been confident of acquiring, could be delayed because of a possible reshuffle at Lucent.

Lucent fired Rich McGinn, chief executive officer and chairman of Lucent, at the end of last month after cutting its growth targets four times this year and posting a 22 percent drop in fourth quarter profits.

Nevertheless, the decision not to sell the unit to Delta was not entirely unexpected, and while growth in communications products will be slower than expected, it won't stop.

"The effect shouldn't be so big, but it's disappointing," said an analyst at Taiwan International Securities Corp. "There had been rumors earlier that Delta wouldn't be able to buy the Lucent unit, so the market has already factored it in," she said.

Yesterday, shares in Delta fell 1.37 percent to NT$108.