Although it has received much international media attention since its introduction of low-priced netbook computers to the market a year ago, Asustek Computer Inc’s (華碩電腦) disappointing fourth-quarter guidance downgrade sent shock waves through the investor community.
On Jan. 8, the company issued an emergency statement, saying it would revise downward its fourth-quarter shipment forecasts across all product lines because of lower market demand. It also cut its gross and operating margin outlooks in the three months ending Dec. 31.
Asustek said at the time that excess components and finished goods inventories for liquid-crystal-display (LCD) monitors and notebooks, an inaccurate pricing strategy and unfavorable exchange rate fluctuations were behind the revisions, but failed to elaborate further.
While the market was difficult and volatile in the fourth quarter, Macquarie Group said it was still shocked by Asustek’s announcement of a lower profit forecast for the fourth quarter.
A Macquarie client note issued on Jan. 8 said the mishandling of foreign exchange and inventory, “Will raise concerns among long-term investors about management capability for long-term growth.”
Tony Tseng (曾省吾), a Merrill Lynch analyst based in Taipei, said Asustek faced crucial challenges other than the technical issues of foreign exchange and inventory controls.
“Asustek needs to solve issues in its organizational transitions and product/channel strategy,” Tseng said in his investment note on Jan. 9.
The company’s aggressive entry into the US market is another issue that deserves further review, he said.
In response, Asustek hosted a conference call on Wednesday to try to allay analysts’ concerns about its management capability. It offered its revision reasons in detail and its contingency plans to tackle its problems, but is leaving its guidance for first quarter and detailed fourth-quarter financial results until an investor’s conference on Feb. 12.
The effects of inventory value loss, which the company targets to resolve by the end of first quarter, led to a 3 to 4 percentage points decline in its fourth-quarter operating margin guidance, an Asustek statement issued on Thursday said.
The company said on Jan. 8 it expected the fourth-quarter operating margin for products sold under its brand name to fall to between negative 5 percent and negative 8 percent, from 6.9 percent in the previous quarter.
To ensure its inventory management capability, Asustek said on Wednesday it would implement aggressive inventory and procurement controls and aim to reach a more reasonable inventory level of between NT$30 billion to NT$35 billion (US$890 million to US$1.08 billion) by the end of March.
That is compared with its fourth-quarter inventory level of NT$40 billion to NT$45 billion and a third-quarter level of between NT$50 billion and NT$55 billion, company data showed.
In the fourth quarter, the inventory breakdown across product categories was comprised of 30 percent to 35 percent notebooks, 25 percent motherboards, 20 percent EeePCs and 10 percent to 15 percent each for LCD monitors and other products, data showed.
Asustek said that inventory on LCD monitors remained its biggest challenge in the fourth quarter, representing NT$6 billion in value alone.
With component prices on displays dropping precipitously since the second half of last year, the company expects a write down of 20 percent in this single product category and expects continued write-downs in the first quarter as well, Asustek said in the statement.
While the company tackles its inventory problem, consumers will not see new models of notebook computers, netbooks or EeePC-series products until the second quarter. Consumers should also expect a more streamlined Asus-brand product lineup going forward, the company said.
Apart from inventory concerns, foreign exchange loss caused a reduction of 2 to 2.5 percentage points in its fourth-quarter operating margins. To combat this problem, Asustek said it will lock-in exchange rate quotes to improve its foreign currency position.
Weak demand and price competition contributed a decline of 4 to 4.5 percentage points in its fourth-quarter operating margin, while marketing and R&D expenses dragged the company’s operating margin down by another 3 to 4 percentage points, Asustek’s operating margin breakdown revealed.
The computer maker hopes to bring down operating costs by 10 percent through zero-based budgeting and additional outsourcing to contract manufacturers, Asustek said in the statement.
Despite the proposed courses of action, pundits remained skeptical as the first quarter is traditionally a weak season and compounding the situation will be new product releases by competitors encroaching on already weak consumer demand.
As Asustek still has 2-3 months of Eee PC inventories on hand, Citigroup analyst Eve Jung (戎宜蘋) expects Asustek’s gross margin of Eee PC to be weak in the first quarter, given model transition to the 10-inch segment from 8.9-inch models.
“We are concerned about increasing pricing pressure in the 10-inch netbook segment starting in the second quarter as Acer (宏碁) and Hewlett-Packard will be aggressive in their pursuit of market share gains,” Jung wrote in a client note on Wednesday.
The company also faces other challenges in execution effectiveness, product differentiation and cost-saving management, she said.
additional reporting by Kevin Chen
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
ADVERSARIES: The new list includes 11 entities in China and one in Taiwan, which is a local branch of Chinese cloud computing firm Inspur Group The US added dozens of entities to a trade blacklist on Tuesday, the US Department of Commerce said, in part to disrupt Beijing’s artificial intelligence (AI) and advanced computing capabilities. The action affects 80 entities from countries including China, the United Arab Emirates and Iran, with the commerce department citing their “activities contrary to US national security and foreign policy.” Those added to the “entity list” are restricted from obtaining US items and technologies without government authorization. “We will not allow adversaries to exploit American technology to bolster their own militaries and threaten American lives,” US Secretary of Commerce Howard Lutnick said. The entities
Minister of Finance Chuang Tsui-yun (莊翠雲) yesterday told lawmakers that she “would not speculate,” but a “response plan” has been prepared in case Taiwan is targeted by US President Donald Trump’s reciprocal tariffs, which are to be announced on Wednesday next week. The Trump administration, including US Secretary of the Treasury Scott Bessent, has said that much of the proposed reciprocal tariffs would focus on the 15 countries that have the highest trade surpluses with the US. Bessent has referred to those countries as the “dirty 15,” but has not named them. Last year, Taiwan’s US$73.9 billion trade surplus with the US
Prices of gasoline and diesel products at domestic gas stations are to fall NT$0.2 and NT$0.1 per liter respectively this week, even though international crude oil prices rose last week, CPC Corp, Taiwan (台灣中油) and Formosa Petrochemical Corp (台塑石化) said yesterday. International crude oil prices continued rising last week, as the US Energy Information Administration reported a larger-than-expected drop in US commercial crude oil inventories, CPC said in a statement. Based on the company’s floating oil price formula, the cost of crude oil rose 2.38 percent last week from a week earlier, it said. News that US President Donald Trump plans a “secondary