Tue, Sep 18, 2001 page18

• Surge in motherboard sales could be over

  SHAKY CLIMATE Hopes for an industry recovery may have been premature as last week's terrorist attacks in the US threaten to dent already fragile consumer confidence

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  Lily Lee, an accountant at Youn-hang Travel Service in Taiwan, is the kind of consumer the global computer industry is watching. She'd like to buy a new computer, though she's not sure the time is ripe.

  "I've already got one so I'm in no hurry to buy a new one," she said. "I don't have the money and the economy's bad."

  Computer makers were banking on chip price cuts by Intel Corp and a new Microsoft Corp version of Windows due out next month to convince the likes of Lee to buy now.

  Sales boomed at Taiwan motherboard makers such as Asustek Computer Inc (華碩電腦) and Gigabyte Technology Co (技嘉科技), often seen as a weather vane, as manufacturers ordered parts needed to meet higher demand.

  In terror's wake

  Hopes for a computer industry recovery may have been premature. Last week's terrorist attacks in New York and Washington threaten to dent consumer confidence that was already fragile as global economies slowed. Companies may be left with stocks of motherboards and finished computers they can't sell, delaying a recovery in the industry.

  "In this kind of climate, consumers will control costs and cut big expenses such as new computers," said Jeremy Chang, who manages NT$840 million (US$24 million) in stocks at Cathay Securities Investment Trust Co (國泰投信).

  Computer sales worldwide fell in the second quarter for the first time since 1986. Dell Computer Corp, the world's biggest seller, lost US$101 million in the quarter to Aug. 3 and cut its profit forecast for the current quarter. Dell said sales may not revive until the second quarter of next year.

  Twin Push

  Taiwanese motherboard makers, who supply 70 percent of the boards that hold chips running the world's computers, are hoping planned US retaliation won't escalate the conflict and that confidence will return.

  "In the short term, there might be an effect on consumer confidence" from the terrorist attacks, said Justine Liu (劉宜君), communications manager at Mitac Group (神通集團), which supplies motherboards to Dell and Hewlett-Packard. "The problem is you have to stimulate the demand. Windows XP and Intel are the stimulus. We count on our customers' judgment."

  The industry was betting on twin developments to turn the tide. Intel, which supplies about four-fifths of the processors that run computers, cut prices on its Pentium 4 chip by half last month and released a chipset supporting the use of cheaper memory chips. That's bringing prices down.

  Microsoft is due to release it new Windows XP system on Oct. 25. The industry is looking for a repeat of the record computer sales that followed the release of Windows 95 six years ago.

  Hewlett-Packard Co is optimistic about the response to the new software. "H-P expects an increase in consumer demand with the announcement of the new Microsoft operating system," said Gerhard Schiele, an Asia-Pacific marketing manager for Hewlett-Packard Far East Ltd. "Consumers are typically quick to adopt new technologies."

  Somber Mood

  Still, questions hang over the mood of consumers, especially in the wake of the terrorist attacks in the US last week that may have killed thousands of people.

  Sharp Corp, Japan's largest liquid-crystal display maker, said it's concerned the attacks will dampen consumer spending during the Christmas shopping season in the US. Worldwide personal-computer shipments will probably decline more than forecast as sales slump following the attacks, IDC analyst Roger Kay said after the attacks.

  Elitegroup Computers Systems Co (精英電腦), a Taiwan motherboard maker whose shipments have risen the past two months, expects the trend to continue this month. Sales should keep climbing as Intel's price cuts boost computer demand, said Elitegroup Financial Controller Kreps Lin.

  "There's repressed demand," said Kreps Lin, the company's financial controller. "Customers have postponed buying until the price cuts and new products arrived."

  `Looking Good'

  Asustek, Taiwan's biggest motherboard maker, reported rising shipments in July and August. Gigabyte, No. 2 in the industry, said shipments to customers that may have included Compaq Computer Corp, International Business Machines Corp, and Legend Holdings Ltd (聯想), rose more than 15 percent on month in July and August.

  "Our forecast for September is 1.4 million boards," said David Chang, deputy director of finance at Asustek, which shipped 1.1 million motherboards to customers such as Hewlett-Packard Co in August. "October orders are looking good."

  The motherboard orders, price cuts and Windows debut come as economies around the world are slowing. The US economy grew 0.2 percent in the second quarter, its slowest pace in more than eight years. Germany's economy didn't grow in the second quarter, while Japan's shrank 0.8 percent.

  "We believe there must be demand for the new products," said Sunny Han, marketing manager at Asustek, "though we can't guarantee what's on users' minds."

  `Why should I?'

  Wang Ya-ping, an assistant manager at semiconductor trading company G-Skill Ltd is of two minds. She's debating the merits of buying her first home computer.

  "Why should I pay for the most advanced processor or operating system when all I do is check e-mail?" she's asking."Even if Intel cuts its prices, that wouldn't attract me." Inventories If the motherboard sales boom is sending a false signal, companies may be left with stocks of motherboards and computers they can't sell, delaying a recovery in the industry.

  "Inventory pileup in manufacturing channels in anticipation of a spike in PC demand driven by new operating software and Intel price cuts may not be a genuine recovery," said Henry Wang (汪島雄), an Acer spokesman.

  Investors, too, are guarded. Between Aug. 17 and the terrorist attacks in the US on Tuesday, Asustek shares fell 14 percent, Gigabyte dropped 16 percent and Elitegroup is down 18 percent.

  That compares with an 11 percent fall in the main TWSE Index. Last month, Merrill Lynch & Co cut its recommendation for Asustek to "neutral" from "buy" on concern about PC growth.
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