Quanta feels price cut squeeze
Mar 07, 2007
A program to give cheap computers to kids worldwide is more of a boost for parts suppliers ENE and Simplo than for the Taiwanese lead contractor
Nicholas Negroponte's plan to give laptop computers to 100 million poor children is enriching parts makers more than the principal manufacturer.
Taipei-based Quanta Computer Inc (å»£éé»è
¦), the lead contractor on the One Laptop Per Child program, faces more pressure than suppliers ENE Technology Co (è¿
æ°ç§æ) and Simplo Technology Co (æ°æ®ç§æ) to keep prices down, said Bevan Yeh (èç»æ), who helps manage US$3 billion at Prudential Securities Investment Trust Co (ä¿å¾·ä¿¡æä¿¡).
The program envisions paying US$100 each for the computers.
"Parts suppliers will enjoy high growth as this initiative reaches a global scale," said Yeh, who is based in Taipei. "Quanta's mission is to make laptops at the lowest possible price, so its profit will not be as rosy."
Yeh recently bought shares of ENE, a maker of chips used in the computers, and he's considering adding Simplo, which builds batteries for the devices, and Shin Zu Shing Co (æ°æ¥è), which makes the hinges that attach the screen to the main body. He doesn't own Quanta, the world's largest notebook-computer producer.
The plan by Negroponte, a founder of the Massachusetts Institute of Technology's Media Laboratory, has attracted partnership from companies such as Google Inc, Advanced Micro Devices Inc, eBay Inc and News Corp.
The first shipments are expected in June, Quanta chief financial officer Tim Li (æææ¦®) said in an interview on Feb. 16.
Negroponte plans to begin the program with shipments of 5 million to 10 million laptops, Li added.
Since Quanta won the contract in December 2005, its shares have climbed 2.4 percent, while the benchmark TAIEX index has gained 19 percent.
Shares of ENE and Shin Zu Shing have almost doubled since then and are among the top 100 gainers of the stocks traded on the nation's two main exchanges. Simplo has climbed 79 percent and Sunrex Technology Corp (ç²¾å
¦), a keyboard maker for the computers, has added 33 percent in the period.
"The program will bring lucrative opportunities for Taiwanese laptop computer component makers and its large scale means high growth potential for these suppliers," said Angela Hsiang (ååæ
§), an analyst at KGI Securities Co (ä¸ä¿¡èå¸).
Quanta will oversee production and is free to choose its parts suppliers. It has selected Taiwanese firms with plants in China in a bid to help lower costs, Li said.
The company will book US$10 gross profit for each laptop computer it makes under the charity program, the Chinese-language Commercial Times newspaper reported on Feb. 7, without citing a source. Li said the company's per unit profit will be less than that, though he declined to give a specific number.
Hsiang predicts the program will account for more than 10 percent of profits for Shin Zu Shing and Sunrex. She estimates Sunrex's profit for this year will rise 44 percent and Shin Zu Shing's to increase 55 percent.
"Parts suppliers enjoy higher profit margins and their relatively smaller sizes will allow their shares to outperform Quanta," Hsiang said.
Of the 17 analysts who cover Quanta, just four recommend investors buy the shares, according to Bloomberg data.
"The program will mean a bigger deal for component suppliers," said Kirk Yang (æ¥æè¶
), a Hong Kong-based technology analyst at Citigroup Inc.
Simplo, Sunrex and Quanta are traded at about 14 times estimated earnings, according to Bloomberg data. Companies in the TAIEX on average fetch 21 times earnings.