Hewlett-Packard Co's plan to buy Compaq Computer Corp is forcing Mitac International Corp (
"We've been doing lots of internal precaution studies for possible damage to profit," said Justine Liu (
Compaq and Hewlett-Packard were the biggest foreign buyers of Taiwanese electronics last year, ordering about US$9 billion and US$5.6 billion respectively. Analysts say that if the merger is approved, the new company -- displacing Dell Computer Corp as the world's largest PC maker -- is likely to jettison some suppliers and force others to accept lower prices. That may drive some companies out of business, analysts say.
"If you're one of the smaller suppliers, you're at risk of being left off the table," said Lena Tan, director of research for Fortis Investment Management. "The bigger suppliers may benefit from greater volume, but at lower prices." The US$20.1 billion merger, still subject to court challenges in the US and an inquiry from the US Securities and Exchange Commission about shareholder votes on the agreement, may affect some of Asia's biggest manufacturers of computers, parts and related equipment such as printers.
Many companies in the firing line are Taiwanese. While Mitac makes desktop PCs for Hewlett-Packard, Hon Hai Precision Industry Co (鴻海精密) does the same for Compaq, analysts say.
"There's no easy solution," said Hon Hai spokesman Edmund Ding (丁祈安). "At the end of the day they'll choose who's best." Similarly, Hewlett-Packard's notebook computers are made by Compal Electronics Inc (仁寶電腦) and Quanta Computer Inc (廣達電腦), while Compaq's are made by Inventec Co (英業達), Arima Computer Corp (華宇電腦), and South Korea's LG Electronics Inc, Morgan Stanley analyst Evelyn Ou said.
The combined company is likely to use only two or three of those suppliers -- though it isn't clear which, Ou said. "It's a wild card." Since the Hewlett-Packard acquisition was announced Sept. 3, Hon Hai shares have risen 28 percent and Inventec has climbed 55 percent. Arima shares are up 76 percent, while Mitac International shares have risen 53 percent.
Even before the merger was announced in September, Hewlett-Packard said it planned to cut the number of manufacturers it uses in Asia to about four from 20.
The impact on companies that lose orders may be severe.
"Some of the suppliers will cease to exist," said Mark Matthews, Asia-Pacific strategist for Standard & Poor's MMS.
Inventec and Arima, both based in Taiwan, get more than three-quarters of revenue from Compaq. Hewlett-Packard provides 22 percent of sales for Compal and about 15 percent for Quanta, according to Ou.
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