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Quanta's second quarter profits may rise

Quanta Computer Inc (廣達電腦) may say profit in the second quarter rose almost two-thirds as customers such as Dell Computer Corp placed more orders with Taiwan's biggest maker of notebook computers.

Net income in the three months to June probably rose 63 percent to NT$3.1 billion (US$90 million) from NT$1.9 billion in the year-ago period, according to the average estimate of six analysts surveyed.

Quanta said it held a board meeting yesterday to approve the results.

Taiwan companies are expected to benefit as declining sales for personal computers worldwide forces companies such Dell and Hewlett-Packard Co, two of the largest PC makers, to slash forecasts and outsource more of their production to cut costs.

"Quanta will gain more orders as US computer companies source more from Taiwan to cope with falling profit margins and faltering demand," said Cline Chiang, who manages Grand Cathay Securities Investment Trust Co's (大華投信) NT$1.5 billion High-Tech Fund.

Already, about half of Quanta's sales are to Dell, which gained market share by cutting prices to remain the largest PC seller for two straight quarters. That benefited Quanta whose sales in the second quarter rose more than a third to NT$29 billion.

Quanta's second-quarter profit was also boosted by the local currency's 5 percent fall against the US dollar in the period, inflating the value of the company's dollar-denominated deposits by NT$700 million.

The gain offset Quanta's losses of about NT$230 million on overseas debt.

"Quanta is likely to outperform market expectations because of an increase in high-margin, bare-bone notebook shipments to Dell and currency gains in the second quarter," said Ben Lee, a technology analyst at ABN Amro Asia Ltd.

Quanta, though, will have to contend with competitors which are building plants in China, where production costs are lower, to lure customers.

Rival Acer Inc (宏電) has offered to sell notebook PCs to Dell at prices lower than Quanta's, Tim Li(李杜榮), Quanta's chief financial officer said.

"Clients will push Quanta to move production to China to stay competitive," said Teresa Chen, an analyst at Deutsche Securities Asia Ltd.

Although Acer has made some products on trial for Dell, the largest PC company is reluctant to shift orders to Acer because of concerns about design and quality, some analysts said.

Quanta will probably continue to receive orders from Hewlett- Packard, a Quanta official who declined to be identified, said.

The Palo Alto, California-based company said earlier it plans to cut its number of suppliers to four from 20 to cut costs.

Hewlett-Packard's suppliers in Taiwan include Hon Hai Precision Industry Co (鴻海精密), Mitac International Corp (神達電腦), Compal Electronics Inc (仁寶電腦) and Asustek Computer Inc(華碩電腦), besides Quanta.

Shares in Quanta have risen 7 percent this year, compared with an 8 percent drop in the island's TWSE Index.
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