Currency variations, overly optimistic forecasts and inventory writeoffs resulted in Asustek reporting their first quarterly losses. Taiwan News reports:
Asustek Computer Inc., the world's largest supplier of boards that connect computer parts, posted its first quarterly loss after the global recession reduced demand and foreign-exchange declines eroded earnings.
The fourth-quarter net loss was NT$2.8 billion (US$82 million), compared with a revised profit of NT$6.6 billion a year earlier, Taipei-based Asustek said in a statement today. The company was expected to post a deficit of NT$2.9 billion, according to the median of five analyst estimates.
Asustek missed its low-cost Eee notebook computer and standard laptop shipment targets, while sales of motherboards fell more than forecast on the deepening global recession. The company's earnings were reduced by as much as NT$2 billion by the dropping euro, in which most of its revenue is paid.
"Their own forecasts were too high, they were too aggressive in the outlook," said Bamboo Lin, who rates the company "sell" at Sinopac Financial Holdings Co. in Taipei. Lin estimates larger rival Acer Inc. overtook Asustek's market share in the low-cost notebook market during the period.
Asustek was forced to write off excess inventories of computer monitors and laptops during the period, while a falling euro, which accounts for half its sales, also reduced earnings.
"The worst has probably passed," David Chang, chief financial officer, said at an investors' conference today. The company is "disappointed" with the results, he said.
Asustek said it plans to ship 1 million Eee PCs, 800,000 standard laptops and 4.5 million to 5 million motherboards in the first quarter. Last year, it shipped 4.9 million Eee PCs, 5.9 million laptops and as many as 23 million motherboards, according to the statement.
Fourth-quarter Eee PC shipments of 1.4 million to 1.5 million were lower than the company's Oct. 30 target of 1.6 million to 1.8 million. Asustek shipped about 15 percent fewer standard notebooks than forecast, it said in a statement Jan. 8.
Managing foreign currency risk is always an issue. We have seen Toyota in Japan has also been exposed to a strengthened Yen which has helped contribute their dismal earnings. For Asustek, a weakening Euro has had a large negative impact on their earnings since 50% of their business is there. They could use some financial instruments (e.g. forward contracts) to hedge against the risk. It would be interesting to see what their foreign exchange risk management policies are.
Also, from the article it was interesting to see that Acer passed Asustek in the low cost notebook market. Acer and Asus are traditional rivals and it isn't too surprising Acer has taken over. It is unfortunate for Asustek they lost their first mover advantage, but one would imagine they will still be strong in this sector.
Of course the largest cause of concern for Asus would be a drop in demand which reflects the broader economy and shows consumers are becoming more conservative in their spending habits and are probably considering electronic products to be luxuries. Sustaining demand in this economy might be impossible for Asustek (and other computer manufacturers) and all they will be able to do is ride out the recession.
Taiwan News: Asustek logs first quarterly loss as demand falls
2 comments:
Looking at Asus's problems is really enlightening.
In hindsight, looking back at the Acer-Gateway merger, it looks like an important secondary bet (I'm not saying it was intentional) was on the dollar, especially on the dollar relative to the euro. They wanted marketshare yes, but Acer previously was mainly big everywhere except the US, and they very likely would have been much more susceptible to currency fluctuation if they hadn't "diversified" to the US.
Yeah it's much more likely they were thinking about it as opening a new market, thus having a lot of growth potential, but it minimized some downside risk and let them get the Acer One in there as a serious brand. Best Buy and the like must have been much more open to carrying the Acer One when it's the people that own Gateway that they are dealing with.
I also don't think Acer was thinking about hedging foreign currency when they purchased Gateway.
Foreign currency risk must be managed primarily by the treasury department I suppose but visibility on foreign currency exposure management is not there.
Actually I saw some companies in Taiwan are now benefitting from a weaker NTD. Some semiconductor companies here are taking orders away from Japan due to the strength of the Yen.
Foreign currency exposure is a tricky thing to manage.
Thanks for your insights and comments. Always appreciated.
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