Swiss brokerage house UBS Securities cut its target price on computer vendor Acer Inc’s (宏碁) shares late on Tuesday after the company announced it would take a NT$3.5 billion (US$120 million) write-down on the value of its trademark rights.
UBS trimmed its target price for Acer from NT$19 to NT$18 and maintained its “sell” rating on the stock, while also lowering its estimate of Acer’s earnings per share for last year from NT$0.07 to a loss per share of NT$0.94.
“We are skeptical about the assumptions behind the impairment test, given the write-down does not include anything from goodwill,” UBS chief electronics hardware analyst Arthur Hsieh (謝宗文) said in a note to clients. “With Acer’s declining market position, the acquired entities, including Packard Bell, Gateway, eMachines and E-TEN (倚天), clearly did not generate the expected cash flow that Acer had originally projected when it made all those acquisitions.”
Hsieh added that there is limited room for Acer to cut operating expenses given that it is already one of the most tightly run companies in the industry.
As a result, he believes Acer’s thin profit margin could easily “turn red” should its competitors price their products more aggressively.
Acer shares closed down 0.61 percent at NT$24.55 in Taipei trading yesterday.
Acer said on Tuesday that the NT$3.5 billion (US$120.7 million) intangible asset impairment charge was for losses in the value of rights to four trademarks –– Gateway (NT$2.4 billion), Packard Bell (NT$398 million), eMachines (NT$432 million) and E-TEN (NT$298 million).
The loss, which will be reflected in last year’s annual report, accounted for 8 percent of Acer’s total intangible assets as of the fourth quarter of last year, the company said in a statement.
Japanese brokerage house Nomura Holdings Inc maintained its “reduce” rating and its target price of NT$19 on Acer, saying the NT$1.3 per share loss in book value represented by the one-time charge was much smaller than the NT$2 to NT$3 range it had expected.
“Longer term, we think Acer still needs to face the reality of how to rebuild the brand positioning/image for Packard Bell and Gateway amid intense competition and slowing PC industry growth,” Nomura analyst Eve Jung (戎宜蘋) said.
It is still too early to turn positive on Acer before the company delivers more concrete evidence of market-share gains and margin improvements, and a new strategy for cost reduction and restructuring, she said.
Bank of America Merrill Lynch maintained its “underperform” rating and its target price of NT$24 for Acer, adding that the company has already missed a window for winning back market share as the overall PC market would see an annual decline this year.
The bank believed that Acer is still searching for a viable business model in the “post-PC era” and has yet to show signs of a recovery in its fortunes.
Germany’s Deutsche Bank AG maintained a “hold” rating on Acer and its target price of NT$24.
It believes the company’s fourth-quarter earnings may miss market expectations due to the asset impairment losses and Acer’s weaker PC momentum.
The bank also forecast that Acer’s sales this quarter would decline 6 percent from the previous quarter to NT$99 billion, compared with a market consensus of NT$102 billion.
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