Asustek Computer Inc’s (華碩電腦) shares closed limit-down yesterday after the company’s first-quarter results missed market expectations.
The stock dropped by 6.94 percent to NT$308.50 on the Taiwan Stock Exchange, underperforming the benchmark TAIEX, which gained 0.42 percent.
On Wednesday, Asustek told an investors’ conference that net income fell 23 percent quarter-on-quarter and 28 percent year-on-year to NT$4.36 billion (US$145.12 million) last quarter due to shrinking sales, higher operating expenses and lower non-operating income.
Earnings per share of NT$5.87 during the January-to-March period fell short of market consensus by about 3 percent, and compare with NT$7.7 in the previous three months and NT$8.04 a year ago.
Investors were concerned about the company’s earnings outlook, particularly its weaker product mix and its strategy of selling lower-cost smartphones, analysts said.
Asustek said on Wednesday it was raising its smartphone shipment target for this year to between 5 million and 10 million units, from an earlier estimate of 5 million units, and expects the volume to double next year and in 2016.
However, the management said Asustek probably would not be able to make a profit from its handset business until the fourth quarter of the year or next year.
Taipei-based JPMorgan Securities analyst Gokul Hariharan said chances for Asustek’s smartphone business to turn profitable are “elusive” even if the company achieves its smartphone shipment target.
“[Asustek’s] smartphone strategy appears risky to us, similar to the Android tablet strategy adopted in 2012 (low margin, big dependence on Nexus 7),” Hariharan said in a report.
As a result, profitability in selling smartphones is likely to take years for the company, because of a limited economic scale, intensifying pricing competition in the market and the lack of a big home market for non-Chinese brands, he said.
Hariharan downgraded his rating for Asustek’s stock to “underweight” from “neutral” and cut his target price to NT$265 from NT$270.
Yuanta Securities Co (元大證券) analyst Vincent Chen (陳豊丰) said Asustek appears overly optimistic about its new ZenFone series, which are priced between NT$3,990 and NT$6,990, much lower than the average selling price of between US$300 and US$400 for a regular high-end smartphone.
As such, even if Asustek manages to sell 10 million smartphones this year, the earnings contribution from ZenFones will likely be only 10 percent at best, he said.
Yuanta maintained its “hold” rating on the stock, with a target price of NT$310. Citigroup retained its “sell” rating, with a target price of NT$280. Deutsche Bank also kept its “sell” rating, with a target price of NT$260.
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