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Taiwanese Suppliers Ride on Apple's Success

2011/07/27
While some Taiwanese electronic manufacturers are struggling with slowdowns in sales and profit growth for a variety of reasons, others are riding on Apple's success in the global smartphone and PC markets and have seen their business improve this year.

The new iPhone model set to hit the market this September is drawing global attention, leading few to doubt that it will become a blockbuster product among smartphone users.

The Macquarie Securities Group believes that the upcoming iPhone 4GS, along with the iPhone 3GS and iPhone 4, is certain to boost Apple's global market share this year. Macquarie predicts that iPhone sales will total between 26 million and 27 million units in the third quarter, and shoot up to 40 million in the fourth quarter.

In addition to its global popularity, Macquarie noted, growing charges of patent infringement against Google's Android platform are also brightening the iPhone's prospects. With Apple and Microsoft continuously launching lawsuits and demanding royalty payments from Android, the prices of Android phones will inevitably rise and allow the iPhone to capture some of their potential market.

Apple's successful market segmentation and product positioning strategy have also helped it secure sustainable sales growth for its devices, with the iPhone 4GS targeting the high-end market and the iPhone 4 and iPhone 3GS the middle-end market. This strategy avoids the price competition that characterizes the low-end segment, where a number of smaller rivals have emerged with Android phones.

Benefiting From the iPhone
A number of Taiwanese electronics companies have scored brisk profit growth thanks to the hot-selling iPhone. Some of them are even expected to chalk up full-year profits equal to their share capitalization this year.

One such is the Largan Precision Industry Co., a supplier of camera lens modules for Apple's iPhones, which has seen its revenues rise significantly since April and is expected to score NT$20 in EPS (earnings per share) in the first half of 2011 and NT$42-45 for the year as a whole.

Another firm, the Genius Electronic Optical Co., one of Apple's two current suppliers of camera lens modules, has also enjoyed a bite of “the big Apple,” posting an EPS of NT$1.66 in the first quarter and, if expectations have been realized, a first-half EPS of NT$5.

The TPK Holdings Co., the world's largest touch panel manufacturer by output and a major supplier to Apple, reported record consolidated revenue of NT$32.525 billion for the second quarter, representing a growth of 28.4% compared to the first quarter. With the upcoming launch of new iPhones and iPads to keep sales growing, the company's full-year revenue is likely to double from 2010 to NT$130 billion this year.

TPK has also been enjoying fat profits this year, reporting an EPS of NT$10.66 for the first quarter and being expected to rack up NT$24 for the first half.

Thanks to contract orders from Apple, Catcher Technology Co., a large supplier of aluminum-magnesium housings for handsets and PCs, saw its single-month revenue break the NT$3 billion mark for the first time in June and finished the first half of this year with consolidated revenue of NT$15.995 billion, giving an EPS of NT$6.5. The company hopes to challenge NT$14 in EPS for the whole year.

Thriving With the iPad
In addition to the iPhone, another best-selling Apple product, the iPad, has also helped some Taiwanese companies to boom.

The Radiant Optoelectronics Corp., a supplier of backlight modules for the iPad, posted revenues of NT$17.395 billion in the second quarter of this year, up 14.44% from the previous quarter and an all-time high, and is likely to boost the figure to NT$20 billion in the third quarter thanks to robust iPad sales. Institutional investors project the company's EPS for the first half of 2011 at NT$5 and more than NT$10 for the whole year.

Supplying about 65% of the battery modules used in the iPad, the Simplo Technology Co. a globally leading PC battery pack maker, scored NT$4.217 billion in sales revenue in June, the fourth monthly record in a row, and finished the first half of the year with total revenues of NT$12.045 billion. The firm's chairman, Raymond Sung, confidently predicted that his company will achieve net profits for the year equal to its share capitalization. Institutional investors expect Simplo's EPS to hit NT$16.16 for all of 2011.

After reportedly winning an Apple order for 15 million iPhones, contract manufacturer Pegatron Corp. is likely to further tap Apple's supply chain by supplying the iPad.

Apple is said to have speeded up its search for a second iPad supplier after an explosion at an iPad factory owned by the Hon Hai Group, the world's largest EMS (electronic manufacturing service) provider by revenue, in May.

The Hon Hai Group is the biggest winner among global electronics manufacturers in the race for Apple's orders; Hon Hai handles the assembly of iPhone and iPads as well as the production of related parts, wielding unmatched influence in the Apple supply chain. However, the group may have to turn part of its iPad orders over to rival suppliers due to the explosion at its factory in Chengdu, China. Market observers believe that the explosion will cause delays in the shipment of an estimated 350,000 to 400,000 iPads this year.

To minimize the risk of over-dependence on a single supplier, Apple has indicated its intention to give part of its contract orders for iPad 3 production to a new supplier. Other Taiwan companies, including Pegatron and Quanta Computer, are scrambling for these potential orders.

Industry insiders believe that Pegatron has a good chance to win this business, because of its integrated production network specifically for the production of tablet PCs. Already, the company has produced three or four different models of tablet PCs and e-book readers for several globally prominent customers, including Asus and Toshiba. Further, the increasingly close partnership that Pegatron has built up with Apple after a year of cooperation in the production of the iPhone's CDMA edition will also encourage Apple to place orders with Pegatron for the iPad 3.

Stumblers
Some high-tech companies that have failed to ride the Apple wave have had disappointing results this year.

Affected to some extent by Apple's foray into the global PC market, Acer Inc., for example, has faltered and has been forced to reorganize its management team, including the ousting of CEO Gianfranco Lanci. The firm saw its sales revenue for June drop 10.63% month-on-month and 28.09% year-on-year, to only NT$31.939 billion. It finished the first half of 2011 with revenues of NT$198.2 billion, down sharply from NT$312.3 billion in the same period of last year.

Institutional investors are pessimistic about Acer's business outlook. They feel that it will not get back on track until the launch of Microsoft's newest PC operating system, Windows 8, which may help it regain growth momentum from the demand for new PCs in second half of 2012.

Locked out of orders from Apple, Young Fast Optoelectronics has suffered a blow to its profit performance this year. It reported an EPS of only NT$1.96 in the first quarter, down from NT$19.7 in 2010.

The growth of Taiwan's IC design industry has also slowed down this year, partly because of sluggish demand for generic handsets and TVs and partly because companies in the industry have not been able to penetrate the Apple supply chain, according to institutional investors. (SC, July 2011)

Profits Reported by Apple's Taiwanese Suppliers

Company

EPS for Q1 EPS for Q2
(estimated)
EPS for 2011
(estimated)

Largan Precision Industry Co.

NT$8.9 NT$20 NT$42-45

Genius Electronic Optical Co.

NT$1.66 NT$5 ----

Simplo Technology Co.

NT$2.58 NT$6.3 NT$16.16

Catcher Technology Co.

NT$2.86 NT$6.5 NT$14.56

TPK Holdings Co.

NT$10.66 NT$24 NT$52

Radiant Optoelectronics Corp.

NT$2.33 NT$5 NT$10.43
Source: Institutional investors and companies

(by Steve Chuang)
 
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