Sat, Oct 13, 2001 page18

• Suppliers profit as clients seek to cut costs

  ON THE UPSWING Profit hungry customers are Taiwan's gain, as the nation's high-tech suppliers cut prices -- and attract new business. But the profits may not last

  • BLOOMBERG
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  Asustek Computer Inc (華碩電腦) and other chip-related companies are beating a global industry slump by lowering prices to attract orders from cost-conscious overseas buyers and grabbing market share from smaller rivals.

  Asustek, which supplies motherboards to Hewlett-Packard Co, said sales in September grew 14 percent from a month, while sales at Hon Hai Precision Industry Co (鴻海精密), the nation's biggest computer-parts maker, rose a tenth. Quanta Computer Inc (廣達電腦) said sales grew in the second quarter as Dell Computer Corp, its biggest customer, ordered more notebook computers.

  A drop in demand for everything from personal computers to electronic games, hastened by the Sept. 11 terrorists attacks, has forced companies such as Dell to cut in-house production and seek cheaper manufacturing sources. Taiwan's larger companies have been quick to seize the opportunity.

  "The big companies can more easily stand out in tough times and grab market share from the smaller companies," said Robert Cheng, an analyst at HSBC Securities (Asia) Ltd. "Competitive advantage becomes very important."

  According to market researcher International Data Corp, PC demand will fall this year for the first time since 1985, to 130 million units, slowed by saturated markets and ebbing economic growth. The US-led retaliation on military targets in Afghanistan will delay chances of a recovery, some analysts said.

  Compaq Computer Corp, the second-largest PC maker, said third-quarter sales fell short of forecasts after the attacks further eroded demand for its PCs and servers.

  Hon Hai, which already supplies computer parts to Compaq, will start making mobile phones for Nokia next year, according to a Chinese language newspaper. Sony Corp may give Hon Hai part of an order to assemble its PlayStation 2 video-game console production, Goldman Sachs Group Inc. said last week.

  Still, earnings may not match rising sales, analysts said.

  "Hon Hai's sales were above expectations, but we don't know at what price they're accepting orders," said Pedro Tai, who manages US$150 million in stocks, including Hon Hai, at HSBC Asset Management Taiwan. "Tell me the profit margin." Quanta said sales in September rose to NT$9.3 billion.

  Taiwan's biggest maker of notebook computers is benefiting as Dell attracts new customers by cutting prices. Last week, the biggest personal-computer maker said it expects to meet sales and profit forecasts this quarter.

  Sales at Asustek, the island's biggest computer circuit-board maker, rose to NT$6.6 billion in September, compared with a 9 percent gain by rival Gigabyte Technology Co (技嘉科技) and a 10 percent drop at Micro-star International Co (微星). Circuit boards carry the semiconductors that run computers.

  Short-Term Gain? The good times may not last for Taiwan's suppliers if global economies continue to slump, forcing customers to cancel orders, some investors said.

  "If consumer confidence keeps dropping in the US, Taiwan will be hit particularly hard in the fourth quarter in terms of exports," said Andrew Teng, assistant sales manager at Taiwan International Securities Corp (金鼎證券).

  Taiwan's exports fell 42.5 percent in September, their biggest drop on record, after the attacks disrupted shipments to the US. The Ministry of Finance said exports of semiconductors, PCs and other products may not grow until the third quarter of next year.
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