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Compal 3Q17 net profits rise 7% on year
Source: DIGITIMES   Editor: Helan   Update Time :2017/11/10 17:23:47

Compal Electronics has reported its third-quarter consolidated revenues reached NT$231.61 billion (US$7.63 billion), up 8% sequentially and 10% on year, while net profits came to NT$2.32 billion, up 815% sequentially and 7% on year, with an EPS of NT$0.53.

With Lenovo's recent announcement to acquire Fujitsu's PC business, Compal, a major supplier to the China-based vendor, is expected to see increasing orders.

Compal president Ray Chen pointed out that the notebook market will see flat shipment performance in 2018, but the company will continue enjoying rising volumes.

The company's staggering sequential growth in third-quarter net profits was because the company had declared in second-quarter 2017 NT$2.9 billion in losses from bad debts from LeEco. Compal's net profits in the second quarter only arrived at NT$417 million with an EPS of NT$0.06.

Compal shipped 10.3 million PCs in the third quarter, up 9.7% sequentially, but the company's smart device shipments were weaker than expected as some clients rescheduled their shipment deliveries to the fourth quarter.

As for the fourth quarter, Compal expects its PC shipments to remain flat from a quarter ago, while smart device shipments will increase 20%, resulting in a change of its PC and non-PC product shipment ratio from 70:30 in the third quarter to 65:35 in the fourth.

For 2018, Chen expects Compal's PC shipments to grow by a single-digit percentage from 2017 and smart device shipments will have bigger growth. Meanwhile, its IoT device shipments will double on year and shipments for tablets will also pick up. However, the company's smartphone volumes in 2018 will remain at about the same level as in 2017.

Some market watchers pointed out that Compal's smart device orders are for the Apple Watch, but Chen declined to reveal its client or orders. However, Chen pointed out that Compal has undertaken the smart device orders since July and is already able to meet clients' demand in terms of product quality.

For tablets, Compal is a supplier for Apple's iPad and Amazon's Fire series and is currently the largest iPad supplier, the market watchers pointed out.

For the tablet business, Chen expects the market to enjoy growth in 2018. Since the company is already handling large proportions of its clients' shipments, Chen believes Compal is unlikely to be able to significantly raise the proportions, though the volumes of orders will increase.

Compal has also been aggressively expanding in the server sector and is optimistic about cloud computing's business opportunities. In 2017, Compal's server business is expected to lose NT$600-700 million, but the losses will be halved in 2018 as shipments rise. Chen expects Compal's server business to turn profitable in 2019.

Unlike Quanta Computer and Wiwynn, which are focusing on supplying products directly to Internet service providers, Compal's clients are mainly server brand vendors in the US and China.

Since a server project usually requires 1.5-2 years of preparation for shipments, Compal is mainly eyeing 2019 for the server business to take off, Chen noted.

Chen pointed out that Compal is a latecomer to the server industry and is currently still at the stage of development. However, datacenter servers are not the key target for Compal currently as it might create conflict of interest with clients. Therefore, the company is mainly focusing on the traditional server market. So far, Compal's shipments are mostly server motherboards and the company is also partnering with third-party players to supply switches. The company has not yet begun manufacturing storage devices.

Compal's third-quarter gross margin was 3.4%, down 0.4pp from a quarter ago. Chen noted that the drop was because of rising quotes for key components such as panels and memory. The panel pricing has already become more stable, but memory is still seeing shortages and is unlikely to ease until 2018, which means Compal's gross margin in 2018 will still be undermined by memory tight supply.

Some passive components have also seen rising quotes recently, but whether the price hike will continue in 2018 remains uncertain until early 2018.

As for the labor shortages in China, Chen noted that Compal has been strengthening its automated production line investments, hoping to minimize the impact.

 

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