August 30, 04

Taiwan's notebook PC ASP ( Average Selling Price ) saw a slight downward trend in the first half of this year, owing to a larger share of lower-priced models, Yet the slide was light, allowing the jump in volume to realize a 30,5% year-on-year rise in shipment value to US$ 4,9 billion, according to an analysis by MIC.

The Centrino effect, which began growing in earnest in the second half of 2003, continued to drive the market. Pentium M models comprised nearly half of all Taiwan notebook PC shipments in the second quarter, a dramatic growth from close to 40% in the first quarter of 2004.

Emphasizing low power draw and mobility, the Centrino fueled the mounting trend for slimmer models with displays 15" and larger, the desktop replacemet segment repeated the poor performance seen in the first quarter. Contrary to orginial expectations the desktop replacement effect failed to play an important driving role so far this year.

First and second tier Taiwan notebook PC maker volume continued to grow due to orders from Dell, outsourcing of consumer models by Toshiba, and contracts from HP, which gained some relief from inventory issues.

Nevertheless, a nervous Merrill Lynch has downgraded the ratings for most Taiwan contract makers of notebooks, including Quanta, Compal and Wistron, citing a fourth quarter growth that may not be as strong as expected. The downgrade came after Compal's president Ray Chen stated in an investors conference that the company's gross margins would likely hit a fresh low of 5,9% in the third quarter, down from an already record low of 6,4% in the second quarter. He lowered his company's notebook shipment projection for 2004 to 7,5 million units from an original target of of eight million due to lower-tank-expected demand.

Although notebook shipments of the leading Taiwan contract makers are expected to grow by 10 - 15% sequentially in the fourth quarter, their margin levels may be pushed down due to a possible rise in inventories and a dwindling average selling price amid fierce competition, market analysts say.

Some makers, including Asustek, Acer and Elitegroup have suffered substantial losses due to their high levels of LCD panel inventories, local trade media reported. The loses were incurred following the recent sharp declines of LCD panel prices, which have dropped about 20% over the past two months, the sources noted.

In related news, a recent agreement between US retail giant Wal-Mart and Elitegroup Computer Systems is widely reported in the Taiwan business press as neither good for that company in particular nor for Taiwan's notebook industry as a whole, as the deal is deemed a cutthroat one. Although ECS is estimating that it will post a pre-tax loss in 2004 higher than the originally forecast pre-tax profit, the Chinese language Commercial Times reported the company has started selling a Wi-Fi-equipped notebook which Wal-Mart will sell for less than US$600 through online sales. According to the website of Wal-Mart, this notebook also features a 14" screen, an AMD Athlon XP 1600+ processor, up tp 128 MB of RAM, a 40GB hard drive, a DVD-ROM and Microsoft's Windows XP Home Edition, plus a one-year warranty. Loaded with such features, it will be difficult for a maker to drive any profit, if at all. The deal will probably neither help ECS nor other Taiwan notebook makers, which have been operating a low gross margins, market sources said.

Quanta, the world's largest notebook maker, posted 5,7% gross margins in the first quarter of this year, down from an average of 6% in 2003.