Compal, the world’s No.2 contract laptop PC maker, reported an 18% jump in quarterly profit and forecast strong growth this year as it pledged to hold margins steady in the face of strong competition.
Compal Electronics also said it was evaluating possible expansion into Vietnam in 2008 and 2009, to increase capacity outside of its current main manufacturing hub in China’s southeastern Kunshan.
“We see Vietnam as a good place to move our low-end products, and at the same time, we plan to expand R&D (research and development) in China and move major operating centres to the mainland,” Compal’s President Ray Chen told an investor conference.
Taiwan’s Compal earned a net profit of T$2.6 billion (US$78 million) for the first quarter, higher than T$2.20 billion a year ago, as the result beat the mean forecast of T$2.32 billion profit from analysts polled by Reuters Estimates.
The company earned a net profit of T$2.59 billion in the fourth quarter.
“Orders from main clients are growing,” said Chen. He added that the recent introduction of Microsoft’s new Vista operating system should spur some growth, but that the growth would be gradual.
Reflecting the industry’s rapid growth, Compal said it aims to boost its notebook shipments by 38% to 20 million units this year from 14.5 million in 2006.
It forecasts shipments of 5.1 million laptops in the second quarter, with second-quarter sales expected to grow 4-5% from the first quarter.
But it also said its gross margins slipped in the first quarter to 4.8% from 5.1% a year earlier, reflecting the highly competitive state of the industry.
“Margins should remain at this level,” Chen said. “They won’t slide.”
For more on the results click: http://www.compal.com/Finance/UploadFiles/QuarterlyNonC/1Q07%20f inancial%20results%20Website.pdf Notebook computer sellers are expected to ship about 94.5 million units worldwide this year, up 24% from 2006, Chen said, quoting data tracking firm IDC.
On the outlook for future notebook computers, Chen said that in the next two-years, the market will begin to see laptops using NAND type flash memory and light emitting diode (LED) backlight panels, since both components save power, space, and enhance display performance.
Compal, a supplier to Dell Inc. and Hewlett-Packard Co., competes with sector leader Quanta Computer Inc., whose results are due out on April 26.
With a market capitalisation of T$110.6 billion (US$3.34 billion), Compal has been trying to diversify into other non-notebook related products, to gain higher profit margins.
Its subsidiary, Compal Communications Inc., which makes mobile phones, has been making some contributions to the firm, analysts said.
However, analysts still expect Compal’s overall gross margins to stay flat this year since around 90% of the company’s sales is still taken up by notebook computers.
Goldman Sachs analyst Henry King maintains a “neutral” rating for Compal, with a 12-month target price of T$33.00, up 13% from its current level of T$29.30.
Compal’s stock rose 0.51% on Monday April 23, underperforming the benchmark TAIEX index’s 0.85% rise. The company released earnings after the market closed in Taipei. (US$1=T$33.1)